Can a law firm bill its client for a contract or temporary attorney's work at a rate higher than what the firm pays the contract attorney?

Plain-English summary

As it became common for firms and sole practitioners to retain contract attorneys (independent contractors, including lawyers placed by temporary agencies) for research, projects, or general legal services, the Committee was asked whether a firm may bill the client for those services at a higher rate than it pays the contract attorney, that is, include a premium or surcharge for office overhead. The opinion concluded the firm may do so, treating overhead and profit as appropriate components of the rate charged, provided the total charge is reasonable.

The opinion distinguished contract attorney services from out-of-pocket disbursements it had addressed in Ethics Opinion 95-4. Because the firm supervises and is responsible for the contract attorney's work, the situation is more analogous to a firm's use of an associate than to a disbursement made on the client's behalf. Under Rule 1.5(a), the charge must be reasonable, and the Committee reasoned it is fair and reasonable to add an amount for profit and overhead when the firm incurs basic overhead (office, supplies, telephone, computer, secretarial support, errors-and-omissions liability) using a contract attorney; requiring the firm to bill only the contract attorney's cost would force it to absorb a loss. The charge, however, must not be unreasonably high in light of the service and the amount customarily charged in the community.

The opinion addressed two related limits. On disclosure under Rule 1.5(b), it noted the ABA position (ABA Formal Opinion 88-356) that a firm need not disclose a closely supervised contract attorney (the client is reasonably deemed to consent to work by persons under the firm's direct supervision), but must disclose and obtain advance consent where the contract attorney works independently without close supervision. On fee splitting under Rule 1.5(e), it cautioned the firm to be aware of the restrictions on dividing a fee between lawyers not in the same firm, which require proportional division or joint responsibility, client notice without objection, and a reasonable total fee.

Currency note

This opinion was issued in 1996, before Alaska's adoption of the 2009 revisions to the Alaska Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a firm mark up a contract lawyer's rate when billing the client?

A: The opinion concluded a firm may charge above its actual cost, adding overhead and profit, so long as the total charge to the client is reasonable under Rule 1.5(a).

Q: Why isn't a contract lawyer treated like a pass-through disbursement?

A: Per the opinion, because the firm supervises and is responsible for the contract attorney's work, the arrangement is more like using an associate than making a disbursement on the client's behalf.

Q: Does the firm have to tell the client it used a contract lawyer?

A: The opinion noted the ABA view that a closely supervised contract attorney need not be disclosed, but a contract attorney working independently without close supervision must be disclosed and the client's advance consent obtained.

Q: Do the fee-splitting rules apply?

A: The opinion cautioned that Rule 1.5(e) restricts dividing a fee between lawyers not in the same firm, requiring proportional division or joint responsibility, client notice without objection, and a reasonable total fee.

Background and rules framework

The opinion interpreted Alaska Rule of Professional Conduct 1.5 (fees; Model Rule 1.5), including Rule 1.5(a) (reasonableness), Rule 1.5(b) (disclosure), and Rule 1.5(e) (division of fees between lawyers not in the same firm). It built on the Committee's Ethics Opinion 95-4 (disbursements and in-house charges) and relied on ABA Formal Opinion 88-356 (temporary lawyers) and California Formal Opinion 1992-126.

Citations and references

Rules of Professional Conduct:

• Alaska RPC 1.5(a) (reasonableness of fees)
• Alaska RPC 1.5(b) (disclosure), 1.5(e) (division of fees)

Other opinions cited:

• ABA Formal Opinion 88-356 (temporary lawyers)
• California Formal Opinion 1992-126; Alaska Ethics Opinion 95-4

See also

• ABA Formal Op. 00-420: Surcharge for Contract Lawyers
• AK Bar Ethics Op. 96-4: Billing Two Clients for the Same Hours

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/96-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION NO. 96-1
Ethical Considerations When Billing Clients For
Contract Attorney Legal Services 1

The opinion of the committee is that a law firm may charge clients for
contract legal services at a rate higher than the law firm's actual cost for the
services so long as the total charge to the client is reasonable.
The practice is becoming common for law firms, including sole
practitioners, to contract for the services of an attorney on a temporary basis
for research, specific projects, or general legal services. Contract legal services
can provide certain advantages to both the firm and the contract attorney. The
law firm can obtain legal services on a short term without increasing overhead,
and the contract attorney maintains independence and control over workload.
The committee has been asked to consider whether the firm may bill the
expenses incurred for contract legal services at a higher rate than the rate paid
the contract attorney. In other words, can the firm include in the fee billed the
client a premium or surcharge for office overhead.
In this opinion the term "contract attorney" refers to an attorney
providing services for hire as an independent contractor and includes an
attorney referred by a temporary placement agency. The term "law firm" refers
to the attorney or attorneys hiring the service and includes law firms, sole
practitioners, and corporate legal departments.
The contract attorney is hired for a period of time. During that time the
law firm may incur overhead costs in connection with the contract attorney's
services, for example, by providing an office, office supplies, telephone,
computer, or secretarial support or by incurring errors and omissions liability.
1 The contract attorney arrangement raises a number of ethical questions in addition
to how such services may be billed. Beyond the scope of this opinion are such
questions as the level of supervision required, whether the contract attorney is liable
directly to the client, the risk of conflicts of interest with contract attorneys who
contract with a number of law firms, and how to protect client confidences. A
discussion of these issues appears in Calif. St. Bar Stdg. Comm. On Prof’l Resp. and
Conduct, Formal Op. No. 1992-126, 1992 WL 166234 (1992), and ABA Formal Op. no.
88-356 (Dec. 16, 1988). Also beyond the scope of this opinion is whether the contract
attorney is an employee under state and federal law with all of the attendant
obligations.

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We believe that it is appropriate for the law firm to include such general
overhead expenses and profit in the rate charged for the contract attorney.
We recently outlined standards for charges to clients for disbursements
and other expenses in Ethics Opinion No. 95-4. We concluded that clients may
be charged for actual out-of-pocket expenses and a reasonable amount for inhouse services provided the charges and the basis for their computation were
disclosed. We distinguish services performed by contract attorneys from the
disbursements addressed in that opinion. The reason is that the law firm has
supervised and is responsible for the work of the contract attorney. The
situation is more analogous to the law firm's use of an associate than to
making a disbursement on the client's behalf.
ARPC 1.5(a) requires that the charges be reasonable.
It is fair and reasonable to add to the rate charged a client an amount for
profit and overhead when the law firm incurs basic overhead expenses when
using a contract or temporary attorney. The differences between the contract
attorney and the law firm’s associates are not great. Using contract attorneys
allows a law firm to handle work load variations without increasing its
overhead. The requirement that fees be reasonable does not require the law
firm to incur a loss, which would result if the law firm were reimbursed for the
amounts paid the contract attorney as a cost or disbursement when it provided
secretarial and other support. The charge, however, must not be unreasonably
high in light of the service and the amount customarily charged in the
community for the service. See ARPC 1.5(a), which provides:
A lawyer's fee shall be reasonable. The factors to be considered in
determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal service
properly;
(2) the likelihood that the acceptance of the particular employment
will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal
services;
(4) the amount involved and the results obtained;

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(5) the time limitations
circumstances;

imposed

by

the

client

or

by

the

(6) the nature and length of the professional relationship with the
client;
(7) the experience, reputation, and ability of the lawyer or lawyers
performing the services; and
(8) whether the fee is fixed or contingent.
ARPC 1.5(b) may require disclosure to the client.
The client generally is entitled to know who is representing its interests.
When the contract attorney's relationship to the law firm resembles that of a
temporary associate under the close supervision of the law firm, however, the
American Bar Association does not require the law firm to disclose the contract
attorney to the client under Model Rule 1.5(b). The reason is that, when the
client retains the law firm, the client can be reasonably assumed to consent to
services performed by various persons under the direct supervision of the firm.
On the other hand, the ABA would require a law firm to disclose to the
client and obtain the client's consent in advance for work by a contract
attorney who is not directly supervised. The reason is that, when the contract
attorney acts independently of the law firm, the client's consent cannot be
inferred from the client's relationship to the law firm. The American Bar
Association's Standing Committee on Ethics has stated:
The Committee is of the opinion that where the temporary lawyer is
performing independent work for a client without the close
supervision of a lawyer associated with the law firm, the client must
be advised of the fact that the temporary lawyer will work on the
client's matter and the consent of the client must be obtained. This
is so because the client by retaining the firm, cannot reasonably be
deemed to have consented to the involvement of an independent
lawyer. On the other hand, where the temporary lawyer is working
under the direct supervision of a lawyer associated with the firm, the
fact that a temporary lawyer will work on the client's matter will not
ordinarily have to be disclosed to the client. A client who retains a
firm expects that the legal services will rendered by lawyers and other
personnel supervised by the firm. Client consent to the involvement
of firm personnel and the disclosure to those personnel of

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confidential information necessary to the representation is inherent
in the act of retaining the firm.
ABA Formal Op. No. 88-356, at 10 (Dec. 16, 1988). In such cases the
arrangement must be disclosed and consent obtained in advance.
ARPC 1.5(e) restricts "fee splitting."
A law firm retaining the services of a contract attorney must be aware of
the restrictions on "fee splitting." ARPC 1.5(e) provides:
A division of a fee between lawyers who are not in the same firm
may be made only if:
(1) the division is in proportion to the services performed by
each lawyer or, by written agreement with the client, each lawyer
assumes joint responsibility for the representation;
(2)
the client is advised of and does not object to the
participation of all the lawyers involved; and
(3)

the total fee is reasonable.

The ABA has determined that the fees a law firm pays a contract attorney (the
ABA uses the term "temporary lawyer") do not implicate this rule if the attorney
is compensated for services performed and the services are not billed to the
client as a disbursement. In other words, the contract attorney who is supervised works much like an associate and may be billed similarly. A direct
division of the fee or a contingent fee arrangement, however, would require
disclosure and consent under this rule. ABA Formal Op. No. 88-356, at 10.
Approved by the Alaska Bar Association Ethics Committee on January 4, 1996.
Adopted by the Board of Governors on January 13, 1996.
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