Commentary: Many ways to add new lawyer to firm

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A coaching client recently asked for help with a dilemma. He had the opportunity to enhance the profitability of his practice by adding the services of a lawyer who focused in a very specialized field of health law.

The problem was, how best to add these services: by direct hiring, or through a contract arrangement? My reply was that the simplest arrangement, a direct hire, is often the best. However, this is only a feasible option if the overall business health of the firm supports it. There will be expenses incurred over and beyond the salary and benefits of the new lawyer, from additional liability insurance costs to overhead for staff and equipment. There is also the practical issue of whether the firm’s office space can accommodate a new body.

A second option would be to add the additional lawyer full-time, but located offsite in a virtual office. Such an arrangement would involve minimal expenditures on physical space, as contact with clients or the supervising lawyer is largely by e-mail, Internet portal or telephone. There is no ethical prohibition of such an arrangement. The eLawyering Task Force of the ABA’s Law Practice Management Section has prepared draft guidelines for such a practice that primarily emphasize the need for a secure, encrypted website for maintaining client confidentiality in all aspects of any representation. If the arrangement is acceptable to both lawyers and to clients, it should work — provided, as always, that the firm’s finances support another member.

The third option, a contract arrangement, is trickiest to manage. At its heart is the issue of how to bill the client for the contracted services. Litigation concerning this issue has generally concluded that the contract attorney is not an out-of-pocket cost for billing purposes. Firms are not required to bill the client at the cost to them for the contract attorney’s time. They may bill at an “attorney’s rate,” a standard flat rate, or any rate that is established in the engagement agreement and is acceptable to the client. The rate can be high enough to cover “overhead” expenses of the firm’s own staff, such as secretarial help, paralegals, word processors and so on.

Such an arrangement can carry the perils and pitfalls of “fee-splitting,” and thus be covered under the Code of Professional Conduct. Model Rule 1.5 declares that fee-splitting is acceptable if both lawyers involved contribute something of value, if the client agrees in writing, and if the total fee is reasonable. This is distinctly different from outsourcing a service like photocopying. In the contract lawyer arrangement, the outsourcing attorney contributes (presumably) oversight of the outsourced legal work and interface with the client on how that legal work is applied.

A second, equally obvious concern can be surprisingly overlooked: the attorneys involved should have their own arrangement down in writing. Many courts have ruled that referral or split fees cannot be collected in full if there is not full documentation from either the client or the attorney side. Attorneys who don’t get written confirmation of an outsourcing agreement often have little recourse but to sue — and courts may take a dim view of such lack of self-protection.

Ed Poll J.D., M.B.A., CMC is the principal of LawBiz® Management, a national law firm practice management consultancy based in Venice, California. For more information, visit his Web site www.LawBiz.com or email him at [email protected].