State Bar of Arizona Ethics Opinions

00-10: Division of Fees with Nonlawyers; Employment Agencies; Temporary Lawyers; Referral Fees
11/2000

When a law firm pays a fee to a staffing agency for services rendered in connection with the temporary employment of a lawyer, ER 5.4(a), Ariz. R.S.Ct. 42, is not violated if the fee is independent of any amounts actually received from the client. This remains true even when the agency compensates the temporary lawyer out of the sum received from the law firm. [ER 5.4]

FACTS[1]

 

The owner of a staffing agency that seeks temporary employment for legal support staff is considering placing lawyers on short-term assignments with law firms.  She wishes to know if this venture will violate ER 5.4(a), which prohibits lawyers from splitting legal fees with nonlawyers.  Under the proposed arrangement, the staffing agency will bill the law firm based on the number of hours the temporary lawyer works at a rate agreed upon with the law firm.  Once payment is received by the agency from the firm, the agency will pay the attorney a proportion of the amount received.

 

QUESTION PRESENTED

 

May an attorney or law firm enter into an arrangement with a staffing agency under which the agency will seek to place the attorney with law firms for work on short-term legal projects without violating ER 5.4(a)?

 

RELEVANT ETHICAL RULES

 

ER 5.4.            Professional Independence of a Lawyer

 

            (a)            A lawyer or law firm shall not share legal fees with a nonlawyer, except that:

 

(1)            an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons;

 

(2)            a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer; and

 

(3)            a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.

 

* * * *

 

OPINION

 

When the services of a staffing agency are employed, both the temporary lawyer and the law firm are responsible for ensuring compliance with Arizona's Rules of Professional Conduct.  Most often implicated by these arrangements are the rules pertaining to client confidentiality, conflicts of interest, imputed disqualification, and improper fee-splitting.  This Committee previously addressed many of these issues with respect to contract lawyers in Ariz. Op. 97-09.  This Opinion only addresses the prohibition on the splitting of legal fees with nonlawyers.[2]

 

When a law firm pays a staffing agency to find a temporary lawyer to provide services to the firm, three fee arrangements are ethically permissible.  First, a law firm may pay a temporary lawyer on a fixed-dollar or hourly basis and separately pay the staffing agency either a fixed-dollar amount or a percentage of the contract lawyer's compensation.  ABA Formal Op. 88-356 (1988), N.J. Op. 632 (1989), Cal. Formal Op. 1992-126 (1992), Colo. Formal Op. 105 (1999), and Oliver v. Kentucky Bar Ass'n, 779 S.W.2d 212 (Ky. 1989).

 

Second, a law firm may pay a total amount to an agency that is then split between the temporary lawyer and the staffing agency.  ABA Formal Op. 88-356 (1988), Colo. Formal Op. 105 (1999), Va. Op. 1712 (1998), and Tex. Op. 515 (1996).  To ensure that no "legal fees" are split, the payment must be made regardless of any amounts actually received from the law firm's client.  For the same reason, payments to staffing agencies may not be calculated as a percentage of what the firm receives from the client.

 

In its 1988 Opinion, the ABA's Ethics Committee concluded that these schemes do not violate the rules prohibiting fee-splitting with nonlawyers, because the payments made to staffing agencies are not "legal fees" as the term is commonly understood.

 

A legal fee is paid by a client to a lawyer.  Here the law firm

bills the client and is paid a legal fee for services to the client. 

The fee paid by the client to the firm ordinarily would include

the total paid the lawyer and the agency, and also may include

charges for overhead and profit.  There is no direct payment of

a "legal fee" by the client to the temporary lawyer or by the

client to the placement agency out of which either pays the other.

 

ABA Formal Op. 88-356 (1988).

 

Third, Va. Op. 1712 (1998) found permissible an arrangement where the staffing agency paid the lawyer in full before billing the law firm.  After all, a lawyer may be compensated by a nonlawyer who is not the lawyer's client provided that the lawyer's ability to exercise independent judgment on behalf of the client is not interfered with.

 

Finally, the ABA has suggested that to ensure a lawyer's independence of professional judgment, the agreement between the lawyer and the staffing agency should include terms explicitly stating that the agency will not exercise any influence or control over the lawyer's professional judgment.  Requiring the law firm to undertake complete supervision of the temporary lawyer will also accomplish this end.

 

Based on ABA Formal Op. 88-356 (1988) the fee arrangement contemplated here does not constitute "fee-splitting" with nonlawyers in violation of ER 5.4.



[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.  Ó State Bar of Arizona 2000

[2] While this Opinion does not address the other ethical implications in such contract arrangements, lawyers are cautioned to avoid disclosing confidential information to the temporary agency, unless client consent is obtained.  For a thorough analysis of disclosure of confidential information to third parties, lawyers should review Ariz. Op. 99-08, regarding disclosures to insurance company outside auditors.