Can a law firm hire lawyers leased from an employee-leasing company, and what must it tell clients?

Plain-English summary

A Professional Employer Organization (also called an employee-leasing company, or ELC) proposed to "rent" lawyers for temporary work at a law firm, with the ELC handling payroll and benefits and retaining the right to reassign, discipline, and terminate the leased lawyers. The Committee addressed only the abstract ethics question, not the legality of the arrangement under unemployment, workers' compensation, or tax law, and concluded there was no per se reason a lawyer's services could not be leased.

The Committee laid out the controlling limits. The firm remains responsible under MRPC 5.1 for ensuring the leased lawyer follows the rules, the leased lawyer is bound by the rules regardless of supervision (MRPC 5.2), and the leasing entity may not control the lawyer's professional judgment or be treated as a partner of the firm (MRPC 5.4). The temporary nature of the work does not relax conflict obligations: the leased lawyer must comply with MRPC 1.7, 1.8, 1.9, and 1.10 and is "associated" with current and prior leasing firms for imputation purposes, so a reasonable conflict-checking procedure is required.

On client communication, the firm may not state or imply that the leased lawyer is a firm member (MRPC 7.1, 7.5(d)); no letterhead may designate the leased lawyer as an associate. The firm must affirmatively disclose the temporary relationship when it bears on the client's informed decision (MRPC 1.4(b)), for example where the leased lawyer interviews the client and agrees to the representation, or exercises significant ongoing discretion over a matter; close supervision and firm approval of the leased lawyer's work can make disclosure unnecessary. Finally, the firm may not pay the leasing company based on the outcome or a percentage of client fees, which would be improper fee-sharing with a nonlawyer entity; a flat or hourly leasing charge is permissible, and the firm's overall fee must still be reasonable under MRPC 1.5.

Currency note

This opinion was issued in 1998 and interprets the Michigan Rules of Professional Conduct as they then stood. The MRPC have since been amended, and 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 Treat this page as historical context, not current guidance.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: Is it ethical for a firm to use lawyers leased from a staffing company?

A: The opinion concluded it is not per se unethical, provided the firm and the leased lawyer follow the Rules of Professional Conduct, including supervision, conflicts, disclosure, and fee rules.

Q: Can the leasing company direct how the leased lawyer practices?

A: No. The opinion concluded the leasing entity may not control or direct the lawyer's professional judgment (MRPC 5.4) and cannot be treated as a partner of the firm; the firm must control the law-related work.

Q: When must the firm tell the client a lawyer is leased rather than a firm member?

A: The opinion concluded disclosure is required when the relationship bears on an informed decision, such as where the leased lawyer interviews the client or exercises significant ongoing discretion; closely supervised, firm-approved work may not require disclosure.

Q: Can the firm pay the leasing company a share of the client's fee?

A: No. The opinion concluded compensation tied to the outcome or a percentage of client fees would be improper fee-sharing with a nonlawyer; a flat or hourly leasing charge is permissible.

Background and rules framework

The opinion interpreted MRPC 5.1 and 5.2 / Model Rules 5.1 and 5.2 (responsibility for and accountability of supervised lawyers), MRPC 5.4 / Model Rule 5.4 (professional independence; no fee-sharing with nonlawyers), MRPC 1.7-1.10 / Model Rules 1.7-1.10 (conflicts and imputation), MRPC 7.1 and 7.5(d) / Model Rules 7.1 and 7.5 (communications and firm membership), MRPC 1.4(b) / Model Rule 1.4 (informed decisions), and MRPC 1.5 / Model Rule 1.5 (reasonable fees). It drew on ABA Formal Opinion 88-356 on temporary lawyers.

Citations and references

Rules of Professional Conduct:

• MRPC 5.1, 5.2 / Model Rules 5.1, 5.2 (supervision and accountability)
• MRPC 5.4(b), (d)(3) / Model Rule 5.4 (independence; no nonlawyer fee-sharing)
• MRPC 1.7, 1.8, 1.9, 1.10 / Model Rules 1.7-1.10 (conflicts and imputation)
• MRPC 7.1(a), 7.5(d) / Model Rules 7.1, 7.5 (communications; firm membership)
• MRPC 1.4(b) / Model Rule 1.4 (informed decisions); MRPC 1.5 / Model Rule 1.5 (reasonable fees)

Other opinions cited:

• ABA Formal Opinion 88-356 (1988): temporary lawyers; conflicts, confidentiality, disclosure, and reasonable fees
• Alabama Op. 87-151; New Jersey Op. 90-23; North Carolina Op. 365: out-of-state treatment of leased or temporary lawyers

See also

• Mich Ethics Op. RI-340: Listing on a Firm's Website as Local Referral Counsel
• Mich Ethics Op. RI-343: Fixed-Fee Insurance Defense and Fee Disclosure

Source

• Landing page: https://www.michbar.org/opinions/ethics/numbered_opinions?OpinionID=1180&Type=6

Original opinion text

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

RI-310

May 12, 1998

SYLLABUS

It is not per se unethical for temporary "leased" lawyers to be employed by a law firm provided that rules of ethics are followed by all participants. The temporary nature of the employment does not change the duty of the lawyers involved with regard to advocacy, conflicts of interest, effective supervision of staff attorneys, proper disclosure, etc. The law firm must have complete control over all law related aspects of the leased employee's job, and is responsible to ensure that the rules of professional conduct are followed, regardless of the fact that wages, benefits or other non-representative matters are the responsibility of the leasing agency.

References: MRPC 1.4(b), 1.5, 1.7, 1.8, 1.9, 1.10, 5.1(a) and (b), 5.2(a), 5.4(b) and (d)(3), 7.1(a), 7.5(d); ABA Formal Opinion 88-356(1988); Alabama Op 87-151(1988); New Jersey Op 90-23(1991); North Carolina Op 365(1985).

TEXT

A "Professional Employer Organization" (PEO), also known as an Employee Leasing Company (ELC) seeks to "rent" out lawyers for temporary employment with a law firm. The ELC administers all payroll and benefit services for the law firm, pays the wages of the worker, and has the right to reassign, discipline, and terminate the leased employees. The ELC is in effect, a separate entity from the law firm, which seeks to utilize leased services of an attorney.

The inquirer notes various legal requirements imposed upon the leasing organization by the Michigan Unemployment Agency. Presumably these are rules promulgated as a result of statutory requirements relative to unemployment compensation. Other laws relative to workers compensation, taxation, etc. may come into play. This opinion does not address the legality of such an arrangement in these respects, as this is not within the jurisdiction of the committee. This opinion cannot address all of those situations in which the rules of ethics may come into play. Whether an arrangement that is found to be in compliance with the requirements of the Michigan Rules of Professional Conduct is also in compliance with other state or federal requirements is specifically excluded and no opinion is rendered in this regard. This opinion addresses only the abstract question as to whether a lawfully "leased" attorney can be utilized in an appropriate situation.

The arrangements between the leasing organization and the hiring firm, as well as a multitude of factual scenarios can affect whether any such arrangement is ethical in nature. Such issues are better addressed on an individual basis, as it is impossible to foresee all issues that may arise. There does not appear to be any per se reasoning that the services of an attorney cannot be "leased." This opinion cannot, nor does it intend to discuss all of the many ethical considerations that can be expected to arise in the practical application of such an arrangement.

The possibility of unethical activity has lead some states to determine that such arrangements are unethical. It has been said that the lack of economic independence of the leased attorney impairs the ability of the attorney to exercise independent judgment on behalf of clients. North Carolina Ethics Op 365 (1985). This has not been found to be a direct sharing of fees in another state. New Jersey Ethics Op 90-23 (1991).

Absent a more definitive rule on the subject, an opinion prohibiting the conduct in absolute terms would be inappropriate. The ability to enter into such an arrangement has been specifically approved, although there has always been stated caveats. ABA Op 88-356 (1988), sets forth the commonly referred to limitations stating:

"In order to satisfy the requirements of the Model Rules and predecessor Model Code when a lawyer is engaged temporarily to work for clients of a law firm (including a corporate legal department), the lawyer and the firm must exercise care, in accordance with the guidelines in this opinion, to avoid conflicts of interest, to maintain confidentiality of information relating to the representation of clients, to disclose to clients the arrangement between the lawyer and the firm in some circumstances, and to comply with other applicable provisions of the Rules and Code. The use of a lawyer placement agency to obtain temporary lawyer services where the agency's fee is a proportion of the lawyers compensation does not violate the Model Rules or predecessor Model Code as long as the professional independence of the lawyer is maintained without interference by the agency, the total fee paid by the client to the law firm is reasonable, and the arrangement is otherwise in accord with the guidelines in this opinion."

Compliance with the Michigan Rules of Professional Conduct (MRPC) provides equal limitations on the practical use of such an arrangement. A non-exhaustive sampling of some ethical considerations follows:

MRPC 5.1(a) and (b) states:

"(a) A partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.

"(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct."

Any arrangement, which impaired the ability of the firm to exercise such reasonable efforts, would be unethical. The arrangement cannot be considered to absolve the employing firm of the duty to see to it that the leased attorney, and the firm itself follows ethical practices.

The individual lawyer that is leased to the firm is likewise bound by the rules without regard to the nature of the lawyer's supervision. MRPC 5.2(a) states:

"(a) A lawyer is bound by the rules of professional conduct notwithstanding that the lawyer acted at the direction of another person."

The firm and the leasing entity must be separate. The firm cannot be considered to be in partnership with the leasing entity. The leasing entity cannot control or direct any aspects of the professional judgment of the lawyer leased to the firm. MRPC 5.4(b) and (d)(3). Therefore, the firm seeking the services of the leased attorney must control and direct the temporary employee's practice of law and leave no discretion in this area to the leasing entity.

The nature of temporary employment may increase the likelihood that a leased attorney will be confronted with conflicts of interest. However, the temporary or dual nature of the employment does not lessen the stringent requirements to avoid conflicts of interest. The temporarily employed lawyer must comply with MRPC 1.7, 1.8, 1.9 and 1.10. The leased attorney must be considered to be "associated" with the leasing firm, as well as any prior leasing firms, for purposes of MRPC 1.9 and 1.10. The supervising firm and the individual lawyer shall have a duty to see to it that a reasonable procedure is designed to determine if the leased attorney shall have a duty to see to it that a reasonable procedure is designed to determine if the leased attorney has been associated with firms that have represented client's with adverse interests. The requirements of rules pertaining to resolutions of any conflicts would then have to be met.

There must be care taken to ensure that there is no explicit or implied misrepresentation of the nature of the temporary lawyer's relationship to the firm. Firm names and letterheads as well as other information communicated to clients must accurately depict the relationship. MRPC 7.1(a) states that a public communication from a lawyer shall not:

"(a) . . . contain a material misrepresentation of fact or law, or omit a fact necessary to make the statement considered as a whole not materially misleading."

MRPC 7.5(d) states:

"(d) Lawyers may state or imply that they practice in a partnership or other organization only when that is the fact."

MRPC 1.4(b) states:

"(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation."

When the above rules may be violated is a case specific matter, which cannot be dealt with generally. The firm cannot make any statement, nor imply in any manner that the temporary lawyer is a member of the firm. MRPC 7.1 and 7.5. No letterhead could designate the leased employee as an associate or otherwise imply firm membership. Anytime an action would imply firm membership; disclosure of the true nature of the arrangement would be mandated.

The firm and the lawyer must affirmatively advise the client of the temporary nature of the relationship at the point that this information is necessary to make an informed decision as to the firm's representation. This is true even if there has been no expressed or implied suggestion that the leased attorney is a member of the employing firm. No exhaustive statement can be made as to what situation requires disclosure, but certain situations can illustrate the factors involved.

The lawyer that interviews the client, and actually agrees to the firm's representation is clearly of importance in the attorney-client relationship. A client would reasonably infer that the attorney that outwardly represents the firm is also a member of the firm. Disclosure of the leased nature of the employment would therefore be required.

In addition, when decisions of the leased employee involve the ongoing direction of a file or legal matter, then the nature of the relationship would be necessary to allow the client to make an informed decision. However, if the acts of the leased attorney are subject to approval by firm attorneys, and the independent actions are closely supervised, no disclosure would be required. For example, a brief submitted as drafted and signed by a leased attorney in a significant aspect of the case would require disclosure. However, a brief reviewed and approved by a firm attorney is subject to the firm's own independent judgment. The fact that the leased attorney had written a prior "draft," or engaged in research used by a firm attorney would likely not be sufficient to require disclosure.

A client has a right to know if any significant discretion or judgment resides in an attorney that is not a member of the firm that the client has chosen to retain. The client has legitimate expectations that the firm retained is making the decisions of importance to his or her legal matter. Failure to disclose would defeat these reasonable expectations.

Obviously, the fees paid to the leasing entity cannot be based upon the success or outcome of the matters engaged in by the leased attorney. This would amount to a prohibited partnership with a non-lawyer entity. If the cost of the leased attorney is billed as a flat rate, without reference to any resulting fees billed by the employing firm, then there is no need to disclose this business expense to the client as a matter of course. There can be no arrangement where the compensation to the leasing agency is based upon the amount charged the client, as any sharing of fees would be inappropriate with the non-lawyer entity.

That is not to say that the expense cannot be based upon an hourly charge, but the amount of compensation cannot be based upon a percentage of the fees that the firm ultimately charges. Of course the ultimate fee charged by the firm must be reasonable, in that it cannot be "clearly excessive" as that term is defined in MRPC 1.5.

The arrangement to lease an attorney must be consistent with the requirements set forth herein and any other ethical considerations that a specific factual scenario may present. However, if the arrangement complies with other legal requirements unrelated to ethical considerations, and is also consistent with the Michigan Rules of Professional Conduct, it is not per se unethical. The duty to see to it that the arrangement is in fact consistent with ethical considerations resides with the firm leasing the attorney, as well as any leased attorney.