Can a law firm lease its lawyers and staff from a nonlawyer-owned employee leasing company that also leases lawyers to other firms, to get cheaper benefits?

Plain-English summary

A law firm proposed to obtain its lawyers and staff through a nonlawyer-owned employee leasing company, to get better insurance benefits at lower cost. The leasing company would lease employees, including lawyers, to other firms as well, sometimes to firms representing interests adverse to the first firm's clients. The leasing company would hire, fire, and pay only as directed by the firm, would have no role in the practice, and would charge a fixed fee unrelated to the firm's billings. The Committee addressed three questions: fee-sharing, unauthorized practice, and conflicts.

On fee-sharing, the Committee concluded the arrangement does not violate Rule 1.04(f), because the leasing company's fee is agreed in advance and does not depend on the firm's billings, earnings, or any client's fee, so no division of a fee between lawyers is involved. On unauthorized practice, the Committee concluded the answer is "no," because the leasing company provides no legal services and exercises no control over the firm's work; leased lawyers are directed by the firm to which they are leased.

On conflicts, the Committee found the controlling problem. A potential conflict exists between lawyers leased to different firms whose clients are adverse, and the arrangement probably would lead to violations of Rule 1.06. The Committee treated leased lawyers as if a lawyer of one firm were employed by another firm: a lawyer could not take that work if any member of the first firm would be barred under Rule 1.06, and likewise a lawyer leased by the company could not work for a client adverse to a client of another lawyer leased by the same company. Because a firm must be able to check conflicts internally, firms leasing from the same company would have to exchange client information with each other, and even the fact that a person is a client may be confidential. Because of that potential for conflicts between clients of different leasing firms, the Committee concluded the arrangement is not permissible.

Currency note

This opinion was issued in 1994, under the Texas Disciplinary Rules of Professional Conduct that took effect January 1, 1990. Texas did not adopt the ABA's Ethics 2000 revisions; its rules have been amended only piecemeal since, including the comprehensive 2021 revisions adopted by Texas Supreme Court order. 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 lawyers from an employee leasing company fee-sharing with a nonlawyer?

A: The Committee concluded it is not, because the leasing company is paid a fixed, pre-agreed fee that does not depend on the firm's billings or any client's fee, so Rule 1.04(f) is not violated.

Q: Does leasing lawyers from a nonlawyer-owned company amount to the unauthorized practice of law?

A: The Committee concluded it does not, because the leasing company supplies no legal services and has no control over the firm's practice; leased lawyers are directed by the firm to which they are leased.

Q: Why is the leasing arrangement still impermissible?

A: The Committee concluded that lawyers leased to different firms are treated like a single firm for conflict purposes under Rule 1.06, so checking for conflicts would require firms leasing from the same company to exchange confidential client information, including the very fact of who their clients are.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.04(f) (division of fees between lawyers not in the same firm; related to ABA Model Rule 5.4 on professional independence and 1.5(e) on fee division), Rule 1.05 (confidentiality of information; Model Rule 1.6), and Rule 1.06 (conflict of interest: general rule; Model Rule 1.7), and it touches the unauthorized-practice concern associated with Model Rule 5.5. The conflicts analysis turns on treating leased lawyers across firms as if they were in one firm.

Citations and references

Rules of Professional Conduct:

• MR 1.6 (confidentiality), MR 1.7 (conflict of interest: current clients), MR 5.4 (professional independence), MR 5.5 (unauthorized practice of law)
• Texas Disciplinary Rules 1.04(f), 1.05, 1.06

See also

• TX Ethics Op. 515: Contracting With a Contract-Lawyer Placement Agency
• TX Ethics Op. 512: An In-House Lawyer Loaned to a Joint Venture
• TX Ethics Op. 556: Confidential Information and Borrowed Employees

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-508/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_508.pdf

Original opinion text

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

QUESTION PRESENTED

May a law firm lease its employees, including lawyers who are members of the firm, from an employee leasing company that also provides services to and leases employees, including lawyers, to other law firms?

STATEMENT OF FACTS

A law firm proposes to enter into an arrangement with an employee leasing company owned by non-lawyers to permit members of the law firm and its employees to obtain better health and other insurance benefits at a cost savings to the law firm.

The leasing company will enter into similar arrangements with other law firms and parties in an adverse position to clients of the law firm.

The leasing company will hire, fire, discipline and otherwise deal with employees leased to the law firm only as directed to do so by the law firm. The salaries to be paid to the employees leased to a law firm will be determined by that law firm. Each pay period, the law firm will pay the leasing company an amount sufficient to pay all salaries, taxes and benefits, plus an amount agreed upon as a fee for the services provided by the leasing company.

The leasing company will have no involvement in, relationship to, or control over the conduct or affairs of the law firm's practice. Clients of a law firm will not be made aware of the arrangement between the law firm and the leasing company. Fees to be charged by a law firm to its clients will be determined by that law firm.

A law firm will have no control over the activities of the leasing company, except as directly related to those persons employed by the leasing company and leased to a law firm.

QUESTIONS
Does such a leasing arrangement constitute an impermissible division or sharing of fees with non-lawyers?
Does such a leasing arrangement constitute the unauthorized practice of law through a non-lawyer owned entity?
Does such a leasing arrangement cause a potential conflict of interest prohibited by the Disciplinary Rules?

DISCUSSION

DR 1.04(f) prohibits a division or agreement for division of a fee between lawyers who are not in the same firm except under the circumstances provided therein. Under the facts stated, leasing company will be paid a previously agreed upon fee which is not dependent upon the billings or earnings of the law firm or the fee charged to or collected from any client. No division or agreement for division of a fee between lawyers is involved under the employee leasing arrangement described above so the arrangement does not violate DR 1.04.

Under the facts stated, the leasing company will provide no legal services and will not have any control over the services rendered by a law firm. The employee leasing company will employ attorneys and lease them to law firms but will be directed in the performance of their work by the law firms to whom they are leased. The answer to the second question is "No."

A potential conflict of interest may exist between lawyers employed by the leasing firm who are leased to different law firms. Under the facts stated, one law firm may represent clients whose interests are adverse to clients of another law firm leasing lawyers from the same employee leasing company. The arrangement probably would lead to violations of DR 1.06.

In analyzing the arrangement, the Ethic's Committee views the ethical responsibilities and consequences of the lawyers employed by the employee leasing company to be the same as if Lawyer A of Law Firm ABC is employed by Law Firm DEF to assist DEF in representing Client Jones, a client of DEF.

Lawyer A could not accept such employment by DEF if any member of ABC is prohibited by DR 1.06 from representing Client Jones. Likewise, it would be improper for a lawyer who is employed by a leasing company to perform work for a client whose interest is adverse to that of the client of another lawyer who is employed by the same leasing company, even though those lawyers are "leased" to separate law firms.

To avoid conflicts of interest, a law firm should be able to determine internally, from its own records and by consultation between members of that firm, whether a conflict of interest exists. Under the arrangement described above, a law firm leasing lawyers from the employee leasing company necessarily would have to consult and exchange information with each other law firm leasing lawyers from the same company to insure that no conflict exists.

The disclosure of confidential and privileged information about a client (even the fact that a person is a client of a law firm may be confidential and privileged) likely would be necessary to eliminate any conflict or potential conflict of interest.

Because of the potential for conflicts of interest between clients of different law firms to whom lawyer employees are leased by the employee leasing company, the employee leasing arrangement described above is not permissible.

CONCLUSION

Because of the potential for conflicts of interest between clients of different law firms to whom lawyer employees are leased by the employee leasing company, the employee leasing arrangement described above is not permissible.

Tex. Comm. On Professional Ethics, Op. 508 (1994)