Can a law firm lease its associates and staff from an employee leasing company without violating the ban on sharing fees with non-lawyers?

Plain-English summary

A sole practitioner with one associate and two secretaries asked whether he could lease those three employees from an employee leasing company. Under the proposal, the firm would terminate its employees, the leasing company would rehire them and lease them back, and the leasing company would pay all salaries, taxes, and benefits, while the firm paid the leasing company an amount equal to wages, taxes, and benefits plus an administrative fee based on payroll. The leasing company, run by non-lawyers, would have no contact, control, or involvement with the legal business of the firm, and employee compensation would continue to be set solely by the firm.

The Committee analyzed the arrangement under RPC 5.4, which bars sharing legal fees with non-lawyers. Drawing on ABA Formal Opinion 87-355, it identified the two purposes behind the rule: preventing non-lawyer interference with a lawyer's independent professional judgment, and ensuring the total fee is not unreasonably high. Because the leasing company would have no control or supervision over the leased attorney's professional judgment, and the leasing fee corresponded to payroll costs rather than to specific or gross legal fees, the Committee found any connection to legal fees too remote to pose an ethical problem.

The Committee concluded that, under RPC 5.4, the inquirer could enter the described leasing arrangement.

Currency note

This opinion was issued in 1989, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Does leasing a firm's own lawyers and staff from a leasing company share fees with non-lawyers?

A: Per the opinion, no. The Committee held the arrangement does not violate RPC 5.4 because the leasing fee is tied to payroll costs, not to the firm's legal fees, making any connection "too remote to pose ethical problems."

Q: Why didn't the leasing company's payment violate RPC 5.4?

A: Because the company had "no control or supervision over the leased attorney's exercise of independent professional judgment," and the firm, not the company, set employee compensation and remained responsible for the lawyer's performance.

Background and rules framework

The opinion applies NJ RPC 5.4 (Model Rule 5.4), "Professional Independence of a Lawyer," which prohibits sharing legal fees with non-lawyers. The Committee relied on the two-purpose rationale stated in ABA Formal Opinion 87-355: avoiding non-lawyer interference with independent judgment and preventing unreasonably high fees.

Citations and references

Rules of Professional Conduct:

• MR 5.4 / NJ RPC 5.4 (professional independence; fee sharing with non-lawyers)

Other opinions cited:

• ABA Formal Opinion 87-355 (purposes of the fee-sharing prohibition)
• Florida Bar Association Staff Opinion TEO88015 (remoteness of leasing fees from legal fees)

See also

• NJ ACPE Op. 632: Temporary Lawyers and Placement Agencies
• NJ ACPE Op. 740: Non-Legal Companies Furnishing Lawyers and UPL
• NJ ACPE Op. 639: Law Firm Using a Title Insurance Agency Owned by an Associate

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp631-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

124 N.J.L.J. 926, October 12, 1989

OPINION 631

Attorney Leasing - Law Firm Leasing Attorney Associates and Secretarial Staff From an Employee Leasing Firm

The inquirer, a sole practitioner with one associate and two secretaries, is contemplating leasing these three employees from an employee leasing firm. According to the inquirer, employee leasing by his firm would be accomplished in the following manner:

[The] law firm would terminate its own employees and the same employees would then be hired by the employee leasing company and leased back to the law firm. The employees continue to perform their normal duties on behalf of the law firm without interruption. The leasing company pays all salaries, employment taxes, withholding, etc. Because the employee leasing company can combine the employees of many clients, more favorable insurance, retirement and other benefits can be provided. The law firm pays the employee leasing company an amount equivalent to wages, taxes and benefit costs together with an administrative fee to the leasing company based on the amount of payroll.

The amount of compensation to the employees would continue to be determined solely by the law firm and the leasing company, which is operated by non-lawyers, would have no contact, control or involvement with the legal business of the law firm.

The inquirer asks whether such an arrangement would constitute the division of legal fees with a non-lawyer in contravention of RPC 5.4.

RPC 5.4, which is entitled "Professional Independence of a Lawyer," prohibits attorneys from sharing legal fees with non-lawyers. RPC 5.4 is based upon ABA Model Rule 5.4. As discussed in ABA Formal Opinion 87-355, there are two principal reasons for the fee sharing prohibition embodied in Model Rule 5.4:

First, to avoid the possibility of a non-lawyer being able to interfere with the exercise of a lawyer's independent professional judgment in representing a client; and second, to insure that the total fee paid by a client is not unreasonably high. [Excerpted from ABA Formal Opinion 87-355, copyright by the American Bar Association. All rights reserved. Reprinted with permission].

We are of the opinion that the leasing arrangement described by the inquirer does not violate RPC 5.4. The proposed leasing arrangement would not adversely affect the manner in which clients of the law firm are represented since the employee leasing company would have no control or supervision over the leased attorney's exercise of independent professional judgment or over how the law firm uses the attorney. Rather, the law firm would continue to be completely responsible for the performance of the leased attorney.

The fee to be paid by the law firm to the employee leasing company includes an amount corresponding to its employee's compensation and fringe benefits plus a certain percentage of payroll costs payable to the employee leasing company for services rendered. The compensation to be paid to leased employees would be determined by the law firm, not by the leasing company. The amount paid to the employee leasing company would not be tied to either specific legal fees or gross fees received by the law firm. In short, there would be no direct relationship between particular legal fees received by the law firm and the amount the law firm pays to the employee leasing company. As to the extent that fees paid to the employee leasing company can be traced back to legal fees received by the firm, such a connection is too remote to pose ethical problems. See Florida Bar Assoc. Staff Opinion TEO88015.

For the foregoing reasons, we are of the opinion that under RPC 5.4 it would be permissible for the inquirer to enter into an agreement with an employee leasing firm under the arrangement he has described.

As with all advisory opinions, we have dealt solely with the ethical considerations, and have not addressed any substantive or regulatory considerations which may exist.