Can a law firm pay a paralegal a monthly bonus calculated as a percentage of the fees from the closings the paralegal worked on?

Plain-English summary

A firm employed an experienced certified legal assistant who worked exclusively in real estate, handling title searches, deeds, closing papers, and foreclosure documents under the firm's supervision. The assistant earned a salary plus periodic discretionary bonuses tied generally to the profitability of the real estate practice. The firm proposed a performance-based plan paying a monthly bonus equal to about five percent of the firm's net income from the real estate closings the assistant worked on, and asked whether that was permissible either as an express term of the employment contract or as a discretionary bonus calculated the same way for guidance only.

The opinion concluded that the firm could not pay the bonus under either alternative. While bonuses for productivity are not prohibited, Rule 3.2 bars attorneys from sharing legal fees with nonlawyers except in circumstances not relevant here. Because the proposed bonus would be calculated as a percentage of the income the firm derives from legal matters the paralegal worked on, the plan in effect pays the paralegal a percentage of the firm's legal fees and falls squarely within Rule 3.2's prohibition. The opinion held that the method of calculation violates Rule 3.2 regardless of whether the bonus is part of the employment contract or paid at irregular intervals at the partners' discretion, citing CPR 289.

An editor's note appended to the opinion directs readers to Rule 5.4(a)(4) for the exception that now applies to nonlawyer compensation and profit-sharing plans.

Currency note

This opinion was issued in 1993, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The opinion now carries an editor's note pointing to Rule 5.4(a)(4) for an exception to the fee-sharing prohibition. 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 Treat this page as historical context, not current guidance.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 pay a paralegal a bonus based on a percentage of fees from matters the paralegal worked on?

A: Under this opinion, no. The opinion held that a bonus calculated as a percentage of the firm's legal fees is in effect sharing legal fees with a nonlawyer, which Rule 3.2 prohibits.

Q: Are productivity bonuses for paralegals forbidden?

A: No. The opinion stated that bonuses for productivity are not themselves prohibited; the problem was tying the bonus amount to a percentage of the legal fees received.

Q: Does it matter whether the bonus is in the employment contract or just discretionary?

A: No. The opinion held the percentage-of-fees method violates Rule 3.2 whether it is an express contract term or paid at irregular intervals at the partners' discretion.

Background and rules framework

The opinion applied North Carolina Rule 3.2, which then prohibited a lawyer from sharing legal fees with a nonlawyer except in stated circumstances (corresponding to Model Rule 5.4(a)). The reproduced opinion carries an editor's note referring readers to Rule 5.4(a)(4) for the present exception.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence; sharing fees with nonlawyers)
• North Carolina Rule 3.2 (sharing legal fees with nonlawyers)

Other opinions cited:

• North Carolina CPR 289 (compensation of nonlawyer employees; fee sharing)

See also

• NC Ethics Op. RPC 148: division of fees among lawyers in different firms
• NC Ethics Op. RPC 205: referral fees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-147/

Original opinion text

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

Editor's note: See Rule 5.4(a)(4) for the exception.

Inquiry:

A law firm employed an experienced certified legal assistant who worked exclusively in the area of real estate for many years. The legal assistant, under the supervision of the attorneys in the firm, participates in all phases of real estate practice: searching titles, preparing deeds, closing papers, and foreclosure documents.

The firm pays the legal assistant a regular salary which is supplemented by periodic bonuses. The bonuses are discretionary with the firm's partners, but are generally related to the profitability of the firm's real estate practice.

The firm wishes to implement a system of performance-based incentives for its employees. It proposes to supplement the legal assistant's salary with monthly bonuses calculated on the firm's net income from the real estate closings which the legal assistant has worked on. Each bonus would be equal to a small percentage (approximately five percent) of the compensation which the firm received for real estate services in which the assistant has participated during that month.

May the firm pay such bonuses without violating Rule 3.2, or any other provision, of the Rules of Professional Conduct if:

a) The bonuses, and the means for calculating them, are made an express part of the legal assistant's employment contract; or

b) The bonuses remain discretionary and the same method of calculating them is used for purposes of guidance only?

Opinion:

While bonuses for productivity are not prohibited, the firm may not pay the bonuses to its paralegal under either alternative set out in the inquiry without violating Rule 3.2 of the Rules of Professional Conduct. That rule prohibits attorneys from sharing legal fees with nonlawyers, except in certain circumstances not relevant to this inquiry. It is apparent from the inquiry that the paralegal's bonuses would be calculated based upon a percentage of the income the firm derives from legal matters on which the paralegal has worked. This plan in effect pays the paralegal a percentage of the legal fees received by the firm and therefore falls squarely within the prohibition of Rule 3.2. The proposed method of calculation violates Rule 3.2 regardless of whether the bonuses are made part of the paralegal's employment contract or whether they are paid at irregular intervals at the discretion of the partners in the firm. See CPR 289.