Can a law firm pay a nonlawyer business developer a percentage of grants its clients are awarded?

Plain-English summary

A law firm that helps municipal and not-for-profit clients apply for competitive grants asked whether it could hire a nonlawyer "business developer" to attract grant-writing clients and pay that person a percentage of the grants awarded. The committee says the answer depends on a threshold characterization it cannot make itself: whether grant writing is legal services, nonlegal services, or both. Defining the practice of law is a question of law outside the committee's jurisdiction, but it walks through the consequences of each path.

If grant writing is legal services, two limits apply. Rule 5.4(a) bars paying the nonlawyer a percentage of grant awards, whether the developer is an employee or an independent contractor, because that is sharing legal fees with a nonlawyer (following N.Y. State 565 (1984)). And the firm cannot use the developer to do what the lawyers themselves could not, such as in-person or telephone solicitation barred by Rule 7.3 (Rule 8.4(a)). The firm may, however, employ the developer to do marketing the lawyers themselves could ethically do, such as preparing materials or soliciting existing and former clients (Rule 7.2, comment [1]).

If grant writing is nonlegal services, Rule 5.7 controls. Where the firm provides both legal and nonlegal services to the same client and they are "not distinct," the Rules apply to both (Rule 5.7(a)(1)). Where they are "distinct," the Rules do not reach the nonlegal services unless the client could reasonably believe they are part of an attorney-client relationship; the firm can dispel that presumption by giving the Rule 5.7(a)(4) written disclaimer stating the services are not legal services and carry no attorney-client protection. If the firm gives that disclaimer (or provides only nonlegal services), the advertising, solicitation, and compensation Rules do not bar the percentage payment, but Rules that do not depend on an attorney-client relationship still apply, including Rule 8.4(c) (no dishonest or deceptive conduct) and Rule 5.3 (supervision of nonlawyers).

In practice

Under the New York rules as they stood at the time of the opinion, a firm that provides grant writing as legal services may not pay a nonlawyer developer a percentage of grants awarded and must keep the developer's marketing within what the lawyers themselves could do. If the grant writing is nonlegal service that is distinct from any legal work the firm provides, and the firm gives the Rule 5.7(a)(4) disclaimer, the opinion holds that the advertising, solicitation, and compensation Rules do not apply to that service, though the firm remains bound by the Rules that do not depend on an attorney-client relationship. The committee expressly does not decide whether grant writing is the practice of law, calling that a legal question.

Common questions

Q: Can a firm pay a nonlawyer a percentage of grants its clients receive?

A: Only if the grant writing is not legal services (and the Rule 5.7 disclaimer conditions are met). The opinion holds that if grant writing is legal services, percentage compensation violates Rule 5.4(a) whether the developer is an employee or a contractor.

Q: Does it matter whether the developer is an employee or an independent contractor?

A: No, for the fee-sharing question. The opinion concludes the Rule 5.4(a) bar on percentage-of-grants compensation applies the same way to an employee and to an outside contractor.

Q: How can the firm treat grant writing as outside the advertising and compensation Rules?

A: By establishing that the grant writing is distinct nonlegal service and giving the client the Rule 5.7(a)(4) written disclaimer that the services are not legal services and carry no attorney-client protection. The opinion notes Rules not tied to an attorney-client relationship still apply.

Background and rules framework

The opinion applies Rule 5.4(a) (no sharing legal fees with a nonlawyer), Rule 5.7 (responsibilities regarding nonlegal services, including the (a)(4) disclaimer presumption), Rule 7.2 (compensating others for marketing, with comment [1]), Rule 7.3 (solicitation), Rule 8.4(a) and (c), and Rule 5.3 (nonlawyer supervision). These correspond to Model Rules 5.4, 5.7, 7.2, 7.3, and 8.4. The threshold question of what counts as the practice of law is treated as a matter of law outside the committee's role.

Citations and references

Rules of Professional Conduct:

• New York Rule 5.4(a) (no fee sharing with a nonlawyer); Model Rule 5.4
• New York Rule 5.7(a) (nonlegal services and the disclaimer presumption); Model Rule 5.7
• New York Rule 7.2 (compensating marketing and client-development services); Model Rule 7.2
• New York Rule 7.3 (solicitation); Model Rule 7.3
• New York Rule 8.4(a), (c); Model Rule 8.4

Other opinions cited:

• N.Y. State 565 (1984): paying a marketing firm a percentage of fees is improper fee division
• N.Y. State 832 (2009): legal advice given with a nonlegal service makes it legal services; client-confusion risk

See also

• NY State Bar Op. 887: Nonlawyer marketers' bonus compensation
• NY State Bar Op. 917: Nonlawyer marketers
• NY State Bar Op. 902: Payment for marketing services based on contacts developed

Source

• Landing page: https://nysba.org/ethics-opinion-860/