Can a law firm lease its own associate attorneys through a nonlawyer employee-leasing company that handles their payroll and benefits?

Plain-English summary

Law Firm X proposed to lease its associate attorneys through a nonlawyer-owned employee-leasing company. The company would pay the associates' salaries, handle employment and withholding taxes, and provide fringe benefits; Firm X would pay the company a fee covering wages, taxes, and benefits plus a profit. The company would have no control over the associates' performance or duties and no access to client files, all conflict-of-interest provisions would apply, and the partners of Firm X would supervise the associates as before. The inquiry asked whether the arrangement was ethical.

The opinion concluded that it was. It characterized the arrangement as a "lease back" of the firm's own employees that transferred only payroll administration and fringe-benefit responsibilities to the leasing company, an accounting procedure that relieved the firm of bookkeeping duties. The opinion concluded the arrangement did not constitute sharing legal fees with nonlawyers under Rule 3.2, because the fee paid to the leasing company was not tied to specific legal fees or to the firm's gross legal fees, with no direct relationship between the payment and the firm's legal fees. It also concluded the arrangement was not misleading to the public under Rule 2.1, did not affect the quality of representation, and would not adversely impact the leased associates' independent professional judgment as required by Canon V, since the leasing company had no control over the lawyers' judgment and supervisory responsibility rested exclusively with Firm X. The opinion recommended, as a precaution, a written lease agreement specifying the employment relationship and applying the Rules of Professional Conduct, and stated that it overruled CPR 365.

Currency note

This opinion was issued in 1991, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The provisions it applies (Rules 3.2 and 2.1, and Canon V) have since been renumbered and revised. 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 Treat this page as historical context, not current guidance.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: Is leasing a firm's own associates through a nonlawyer payroll company fee-sharing with nonlawyers?

A: No. The opinion concluded that, because the fee to the leasing company was for bookkeeping and was not tied to the firm's legal fees, the arrangement did not constitute sharing legal fees with nonlawyers under Rule 3.2.

Q: Does the leasing company gain any control over the associates' legal work?

A: No. The opinion concluded that the leasing company had no control over the lawyers' independent professional judgment and that supervisory responsibility rested exclusively with the firm, consistent with Canon V.

Q: Did the committee suggest any safeguard?

A: Yes. The opinion recommended a written lease agreement setting out the scope of the employment relationship and specifically applying the Rules of Professional Conduct to the firm's relationship with the leased associates.

Background and rules framework

The opinion applied North Carolina Rule 3.2 (sharing legal fees with nonlawyers, corresponding to Model Rule 5.4), Rule 2.1 (false or misleading communications, corresponding to Model Rule 7.1), and Canon V (a lawyer's independent professional judgment, also reflected in Model Rule 5.4). The analysis turned on the leasing fee being unrelated to legal fees and on the firm retaining control of the associates' professional judgment.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 3.2 (sharing legal fees with nonlawyers)
• North Carolina Rule 2.1 (false or misleading communications)
• North Carolina Canon V (independent professional judgment)
• MR 5.4 (professional independence; fee-sharing with nonlawyers); MR 7.1 (communications concerning a lawyer's services)

Other opinions cited:

• North Carolina CPR 365 (overruled by this opinion)

See also

• NC Ethics Op. RPC 147: percentage bonuses for paralegals
• NC Ethics Op. RPC 148: division of fees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-104/

Original opinion text

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

Editor's Note: This opinion was originally published as RPC 104 (Revised).

Inquiry:

Law Firm X desires to enter into an agreement with an employee leasing company for the lease of its associate attorneys. The employee leasing company, which is owned and managed by nonlawyers, would pay the leased attorneys' salaries from its payroll and would pay all employment and withholding taxes. In addition, fringe benefits, such as insurance and retirement benefits would be provided to the associates by the leasing company. Law Firm X would pay to the leasing company a fee calculated to cover the associates' wages, taxes and benefit costs and to provide a profit to the employee leasing company. The employee leasing company would have no control over the performance or duties of the leased associates. The leasing company would not have access to client files. All provisions pertaining to conflicts of interest would apply. The associate attorneys would be supervised and managed by partners of Law Firm X in the same manner as if the associates were not leased. Is such an arrangement ethical?

Opinion:

Yes, the subject arrangement is a "lease back" of the law firm's own employees having the practical effect of transferring only payroll administration and fringe benefit responsibilities to the leasing company. It is an accounting procedure provided by the employee leasing company to relieve the law firm and its partners from the bookkeeping duties arising out of the compensation of the law firm's own associates. For a fee the leasing company would handle payroll, withholding taxes, social security, health benefits and other financial personnel matters. In some instances the arrangement would provide the law firm's associates increased benefits not available to them without the leasing company. As stated in the inquiry, the employee leasing company would have no control over the leased associates. The attorney employees would remain associates of the law firm. Control over the associates would remain within Law Firm X.

The arrangement proposed by Law Firm X for leasing its associates does not constitute sharing legal fees with nonlawyers as prohibited by Rule 3.2. The fee paid to the employee leasing company for its bookkeeping services is not tied to specific legal fees paid to Law Firm X by a client or to the firm's gross legal fees. There is no direct relationship between the payment to the leasing company and legal fees paid to the firm.

The arrangement is not misleading to the public in violation of Rule 2.1, and does not affect the quality of representation afforded to clients by the firm. The committee does not perceive that the ability of leased associates to exercise independent professional judgment on behalf of Law Firm X's clients as required by Canon V would be adversely impacted by the arrangement. Under the arrangement as proposed, the leasing company has no control over the lawyers' independent judgment, and supervisory responsibility for the associates rests exclusively with Law Firm X. Confidences of Law Firm X's clients are to be maintained and all provisions of the Rules of Professional Conduct are to be followed. Essentially, the associates' position with the firm and with its clients remains the same as if the associates were paid directly by the firm.

As a precaution, however, this committee recommends a written lease agreement between the leasing company and the law firm clearly setting forth the scope of the employment relationship and specifically applying the Rules of Professional Conduct to the relationship between the law firm and the leased associates.

This opinion overrules CPR 365.