Can a law firm pay a nonlawyer employee a share of profits without violating the ban on fee-sharing with nonlawyers?

Plain-English summary

An attorney with a substantial collection practice, derived mainly from a single collection-service client, used a salaried nonlawyer employee responsible exclusively for collection paperwork, mailings, scheduling, and bookkeeping. The attorney segregated the collection practice's income and expenses, computed its monthly net, and, as an incentive, paid the employee a set percentage of the net. The inquiry asked whether this profit-sharing arrangement violated the prohibition on sharing legal fees with a nonlawyer.

The committee applied former Disciplinary Rule 3-102(a)(3), which bars sharing legal fees with a nonlawyer but allows including nonlawyer employees in a retirement plan based in whole or part on profit-sharing. It noted the Illinois rule deviated from the ABA Model Rule 5.4 and Model Code DR 3-102, which speak of a "compensation or retirement plan," and that the commentary to Model Rule 5.4 frames the fee-sharing limits as protecting the lawyer's professional independence of judgment.

The committee found the proposed arrangement proper, but qualified it: the sharing must be based on a percentage of overall firm profit and not tied to the fees in a particular case, and there should be no implied incentive to overreach.

Currency note

This opinion was issued in July 1989, under the former Illinois Code of Professional Responsibility and before Illinois adopted the 1990 (and later 2010) Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in May 2010 as generally consistent with the 2010 Rule (Rule 5.4), while cautioning that the specific standards referenced may differ from the 2010 Rules. 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 Treat this page as historical context, not current guidance.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 or requirement mentioned here.

Common questions

Q: Can a law firm pay a nonlawyer employee a share of profits?

A: The opinion concluded yes; former Rule 3-102(a)(3) allows including nonlawyer employees in a profit-sharing plan as an exception to the fee-sharing ban.

Q: What is the limit on a nonlawyer profit-sharing arrangement?

A: Per the opinion, the share must be based on overall firm profit, not tied to fees in a particular case, and must not create an implied incentive to overreach.

Q: Why does tying the share to a particular case matter?

A: The opinion's qualification reflects the rule's purpose, which the Model Rule 5.4 commentary describes as protecting the lawyer's professional independence of judgment.

Background and rules framework

The opinion applied former Illinois Code Disciplinary Rule 3-102(a)(3), the fee-sharing prohibition with its profit-sharing exception for nonlawyer employees, and compared it to ABA Model Rule 5.4 and Model Code DR 3-102. The Board's 2010 affirmation maps the analysis to current Illinois Rule of Professional Conduct 5.4, corresponding to ABA Model Rule 5.4.

Citations and references

Rules of Professional Conduct:

• Illinois Code Rule 3-102(a)(3) (former Code, applied in the opinion)
• Illinois RPC 5.4 (2010 equivalent per the Board's affirmation)
• MR 5.4 (professional independence; sharing fees with nonlawyers)

Other authority cited:

• ABA Model Rule of Professional Conduct 5.4; ABA Model Code DR 3-102

See also

• ISBA Ethics Op. 90-06: Sharing Office Space With a Nonlawyer Business
• ISBA Ethics Op. 88-08: A Collection Client's Staff Fielding Calls in the Firm's Name

Source

• Landing page: https://www.isba.org/ethics/opinions/8905