Can a law firm use a lawyer as an independent contractor or 'of counsel', bill the client more than it pays that lawyer, and when must the arrangement be disclosed?
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This page answers the general question as of 1999. Ezel answers yours: whether it's allowed on your facts, under the current Virginia Rules of Professional Conduct, with citations.
Plain-English summary
The committee addressed an arrangement in which a Virginia lawyer would render services for a firm's clients as an independent contractor rather than as an employee or partner, working from a home office, carrying her own malpractice and other insurance, and possibly being designated "of counsel." The firm would pay the lawyer a set hourly rate and might bill clients at a higher rate comparable to what it charges for associates. The committee answered nine questions in order, under the former Code of Professional Responsibility.
The committee concluded the basic arrangement was permissible: a firm may use a lawyer as a contract attorney or "of counsel," provided both are bound by the confidentiality and conflict-of-interest rules as if the lawyer were associated with the firm (DR 4-101, DR 5-105). On billing, drawing on LEO 1712, it identified two options. The firm may charge the lawyer's services as a disbursement or cost advance, in which case it cannot, absent disclosure and consent, charge the client more than it actually paid the lawyer; any markup on a disbursement must be disclosed. Alternatively, the firm may bill for the work as it would an associate's, at a reasonable fee (DR 2-105), which does not require disclosing the pay arrangement, so long as the contract lawyer works under the direct supervision of a firm lawyer or the firm adopts the work product as its own.
On the "of counsel" questions, the committee concluded a firm may designate a contract lawyer "of counsel" where there is a close, continuing relationship, and the lawyer may then have direct, disclosed contact with clients, but the firm must be scrupulous not to hold the lawyer out as a partner or associate. Whether contract or "of counsel," the relationship need not be disclosed to clients with whom the lawyer has only indirect contact when the work is supervised by or adopted by the firm. The firm could not compensate the lawyer, directly or indirectly, merely for referring a prospective client where she assumed no other responsibility (DR 2-105(D)), though the committee noted in a footnote that a forwarding or referral fee would be permissible under Rule 1.5(e) of the Rules of Professional Conduct effective January 1, 2000. The question of whether the firm must maintain malpractice insurance for the lawyer was a legal question beyond the committee's purview.
Currency note
This opinion was issued in 1999, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The opinion itself notes that the new Rule 1.5(e) would permit a forwarding or referral fee. 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 or requirement mentioned here.
Common questions
Q: Can a Virginia firm hire a lawyer as a contract attorney or 'of counsel' instead of an associate?
A: Under this 1999 opinion, yes. The committee concluded the arrangement is permissible if the contract or "of counsel" lawyer is bound by the same confidentiality and conflict-of-interest rules as an associate.
Q: Can the firm bill the client more for the contract lawyer's time than it pays her?
A: Yes, with a condition. The committee said the firm may bill the work as it would an associate's at a reasonable fee without disclosing the pay arrangement, but if it instead passes the cost through as a disbursement, any markup over what it paid must be disclosed.
Q: When must the firm tell the client a contract lawyer is involved?
A: When the contract lawyer works independently without close firm supervision, the client must be informed and consent. If the contract lawyer works under direct supervision, or the firm adopts the work product as its own, or the lawyer is "of counsel," disclosure of that involvement is not ordinarily required.
Q: Can the firm pay the contract lawyer just for referring clients?
A: Not under the former Code. The committee said the firm could not compensate her, directly or indirectly, merely for a referral where she assumed no other responsibility, while noting that Rule 1.5(e), effective January 1, 2000, would permit a forwarding fee.
Background and rules framework
The opinion was decided under Virginia's former Code of Professional Responsibility: DR 4-101 (confidentiality), DR 5-105 (conflicts), DR 2-105 and DR 2-105(D) (reasonable fees; division of fees with lawyers outside the firm), DR 2-106, and DR 2-101/2-102 with EC 2-15 ("of counsel" designation and communications about professional status). It draws heavily on LEO 1712 (contract and temporary lawyers) and notes the forthcoming Rule 1.5(e).
Citations and references
Rules of Professional Conduct:
- Former Virginia DR 4-101, DR 5-105, DR 2-105 and DR 2-105(D), DR 2-106, DR 2-101(A), DR 2-102(A), (C); EC 2-15 (Code of Professional Responsibility)
- Virginia Rule 1.5(e) (division of fees; noted as effective January 1, 2000)
Other opinions cited:
- Virginia LEO 1712: billing and disclosure for contract and temporary lawyers (dispositive of several questions here).
- Virginia LEOs 442, 1293, 1554: "of counsel" relationships; ABA Formal Op. 90-357.
See also
Source
- Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
- Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1735.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
Committee Opinion
October 20, 1999
LEGAL ETHICS OPINION 1735
ATTORNEY RENDERING PROFESSIONAL
SERVICES FOR CLIENTS OF A LAW FIRM
WHEN ATTORNEY IS AN INDEPENDENT
CONTRACTOR RATHER THAN AN
EMPLOYEE OR PARTNER OF THE LAW FIRM.
You have presented a hypothetical situation focusing on whether an attorney (the “ Attorney” )
may render professional services to or for the benefit of the clients of a law firm (the “ Firm” ) as
an independent contractor rather than as an employee or partner of the firm. You have given the
following operative facts:
The Firm and the Attorney desire to enter into an exclusive agreement 1 for the
Attorney to render professional services to or for the benefit of the clients of the
Firm. For professional services rendered, the Firm shall pay to the Attorney a
specified hourly rate. The Firm may bill the clients on behalf of whom the
Attorney provides professional services at a reasonable rate based upon the rate
charged by other law firms for professional services rendered by employee
associates with experience and background comparable to that of the Attorney.
The rate may be higher than the hourly rate paid to the Attorney by the Firm;
however, this need not be disclosed to the clients, and the Attorney shall have no
claim against the Firm for the differences in these two rates.
Professional services to be rendered by the Attorney to the Firm shall include
review of client files, drafting and review of client legal documents and
correspondence, meetings with attorneys or staff employed by the Firm to discuss
client files, research requested by attorneys or staff employed by the Firm, strategy
and marketing meetings with attorneys or staff employed by the Firm, seminars
given by the Attorney on behalf of the Firm and all other matters performed by the
Attorney at the request of attorneys or staff employed by the Firm. The
professional services rendered by the Attorney to the Firm shall be performed
under the direct supervision of an attorney employed by the Firm, and as such
shall be considered the work product of the Firm. Only those professional
services rendered directly to or for the benefit of clients may be billed to the
clients by the Firm; all other professional services rendered shall be considered
charges to overhead for the firm.
The Attorney shall have a close and continuing relationship with the Firm, and as
such may be considered to be “ of counsel” to the Firm. If so, the Attorney shall
be entitled to carry business cards designating her as “ of counsel” and shall be
allowed to sign the Firm’ s letterhead as “ of counsel.” If the Attorney is
designated as “ of counsel,” then she may also have both direct and indirect contact
with the Firm’ s clients.
1 Attorney would not provide services to any other law firm but the Firm would be free to employ other contract
lawyers in addition to Attorney.
Committee Opinion
October 20, 1999
If the Attorney is not designated as “ of counsel,” she shall neither carry business
cards of the Firm with her name on them nor be entitled to sign the Firm’ s
letterhead. Also, if the Attorney is not designated as “ of counsel,” she shall not
have direct contact with the Firm’ s clients. Indirect contact refers to professional
services performed by the Attorney on the client’ s file on behalf of the Firm.
When referring a prospective client to the Firm, the Attorney shall provide the
prospective client with a business card with the name of an attorney employed by
the Firm to call for an appointment. The prospective client shall be interviewed
by an attorney or staff person employed by the Firm. If retained, the client shall
be a client of the Firm, not the Attorney. The Attorney shall not be entitled to any
portion of the fees generated by such referred clients to the Firm. The Attorney
shall only be entitled to the specified hourly rate based upon professional services
rendered by her to or for the benefit of the client on behalf of the Firm.
The Attorney shall provide her own health, dental, life and disability insurance.
The Attorney shall also provide her own professional liability insurance. The
Attorney shall maintain and pay all annual fees associated with her license to
practice law in the Commonwealth of Virginia. The Attorney shall provide her
own computer and office supplies, and shall work primarily out of her home
office. The Attorney shall obtain no less than the minimum number of hours of
Continuing Legal Education each year.
The Attorney shall be subject to the same confidentiality and conflict of interest
rules as if she were an employee associate attorney for the Firm. If the Attorney is
designated as “ of counsel,” the nature of the relationship between the Attorney
and the Firm shall be properly and fully disclosed to clients with whom the
Attorney has direct contact. Whether the Attorney is designated as “ of counsel”
or not, the relationship between the Attorney and the Firm need not be disclosed
to those clients with whom the Attorney only has indirect contact. As noted
above, the rendering of professional services is considered to be indirect contact,
shall be provided under the direct supervision of an attorney employed by the
Firm, and shall be considered the work product of the Firm.
Under the facts you have presented, you have asked the committee to opine on the following
questions which shall be answered in the order they appear:
- May a firm authorized to practice law in the Commonwealth of Virginia (the “Firm”)
enter into an exclusive agreement with an attorney licensed to practice law in the
Commonwealth of Virginia (the “Attorney”) for the Attorney to render professional services
to or for the benefit of the Firm’s clients on behalf of the Firm?
Yes, it is permissible for Attorney and Firm to have an arrangement in which Attorney
provides part-time or full-time services for Firm’s clients as an independent contractor,
contract attorney or “of counsel.” LEOs 442, 1293, 1554 and 1712. However, Attorney and
Firm shall be bound by the requirements of confidentiality and the conflicts of interests rules
Committee Opinion
October 20, 1999
in the same manner as if Attorney were associated with the Firm. LEO 1712. DRs 4-101
and 5-105.
- May the Firm bill clients for work performed by the Attorney at a rate which is reasonable
based upon the experience and background of the Attorney, even though the rate paid by the
Firm to the Attorney per hour for professional services rendered to those clients is less?
In LEO 1712, the committee addressed a similar question in the context of a law firm using
the services of a contract or temporary lawyer. In that opinion, the committee reached the
conclusion that the Firm has essentially two options. The Firm can charge the Attorney’s
services as a disbursement or cost advance, in which case the amount charged to the client
for the Attorney’s services must be the amount actually paid by the Firm to the Attorney for
the work performed by the Attorney on that client’s case. The client may, of course, agree to
a markup on the disbursement, but this would require disclosure of the compensation paid by
the Firm to the Attorney. Under this first option the Firm cannot, absent full disclosure and
consent, charge the client more than the amount which the Firm actually paid the Attorney.
Alternatively, instead of billing the actual amount paid to Attorney as a disbursement, the
Firm may simply bill the client for services rendered in an amount reflecting its charge for
the Attorney’s services, based upon the Attorney’s experience and background, in the same
manner as it would bill the client for an associate’s work on the client’s case. The fee
charged to the client must be reasonable. DR 2-105. This second option obviates the need
to disclose to the client the payment arrangement between the firm and the Attorney. - Must the Firm disclose to the clients for whom or for whose benefit the Attorney renders
professional services the difference between the rate billed to the clients by the Firm for
professional services rendered and the rate actually paid to the Attorney by the Firm for
professional services rendered?
The committee refers you to its response to inquiry number two, supra. Disclosure of a
markup (the difference between the amount paid by the Firm for the Attorney’s services and
the amount charged to the client) is required if the firm bills the amount paid to Attorney as
an out-of-pocket expense or disbursement. Disclosure is not required if the firm bills for
Attorney’s work in the same manner as it would for any other associate in the Firm and so
long as either the attorney works under the direct supervision of the firm or, absent that
supervision, the firm adopts the work product as its own. - May the Firm designate the Attorney as “of counsel” because of the close and continuing
relationship between the Firm and the Attorney, even though the Attorney is not and never
has been either an employee associate or a partner of the Firm?
Yes, the firm may designate Attorney as “of counsel” provided the requirements for that
relationship are met. Prior opinions issued by the committee would permit a law firm to
designate as “of counsel” an attorney, working on a full-time or part-time basis, where the
Attorney has a close, continuing relationship with the Firm and direct contact with the firm
and its clients. LEOs 1554, 1293 and 442. See also ABA Formal Op. 90-357.
Committee Opinion
October 20, 1999
- If the Attorney is designated as “of counsel” by the Firm, may she have direct contact with
the Firm’s clients as long as the nature of the relationship between the Firm and the Attorney
is properly and fully disclosed to the clients prior to such contact with the clients?
Yes, but as the committee has stated in a previous opinion, with regard to public
communications regarding the Attorney who is “of counsel” the lawyers in the Firm must be
scrupulously careful in their representation of the Attorney’s professional status not to hold
the Attorney out as being a partner or associate with the Firm. DR 2-101 (A), DR 2-102 (A),
(C); EC 2-15; LEO 1293. - May the Attorney render professional services to or for the benefit of the clients of the
Firm, although she will have no direct contact with the clients, if she is not designated as “of
counsel” by the Firm?
Under this scenario, while no direct supervision by the firm of the attorney would occur, the
firm would adopt the attorney’s work product as its own. The Attorney need not be “of
counsel” to the Firm in order to provide legal services for or on behalf of clients of the Firm.
Such services could be provided with or without the Attorney having direct contact with the
Firm’s clients. The “of counsel” relationship is but one of several relationships by which the
Attorney may provide legal services to the Firm for or on behalf of its clients. - If the Attorney is not designated as “of counsel,” must the independent contractor
relationship between the Attorney and the Firm be disclosed to the clients to whom or for
whose benefit the Attorney renders professional services on behalf of the Firm, even if the
Attorney never directly interacts with or corresponds with those clients and if the Attorney
never represents the clients in court?
The committee believes that LEO 1712 is also dispositive of this inquiry. Normally, when a
law firm associates another attorney outside the firm to work on a client’s matter, the client
must be informed and consent to the arrangement. DR 2-105(D). However, to the extent
that a temporary or contract attorney works directly under the supervision of an attorney in
the Firm, the temporary or contract lawyer is not regarded as a lawyer outside the firm as
contemplated by DR 2-105 (D). The client hires the Firm and not simply the lawyer initially
consulted and the work is assigned to an attorney “associated with the firm.” If the contract
lawyer will work on the client’s matter under the direct supervision of an attorney associated
with the Firm, the Firm will ordinarily not have to disclose to the client the fact that a
contract attorney is working on that client’s matter. In addition, if Attorney and Firm intend
to form an “of counsel” relationship, DR 2-105 (D) does not apply. On the other hand, if the
contract attorney will work independently, without close supervision by an attorney
associated with the Firm, then the client must be informed of the contract attorney’s
participation in the client’s case and the client’s consent must be obtained. - May the Attorney, whether or not designated by the Firm as “of counsel,” refer clients to
the Firm by arranging for the prospective client to meet with an attorney or staff person
employed by the Firm rather than interviewing such prospective clients herself on behalf of
the Firm?
Committee Opinion
October 20, 1999
Yes, but the Firm may not compensate Attorney, directly or indirectly, for simply referring a
prospective client to the Firm, where Attorney assumes no other responsibility to the client.
DR 2-105 (D).2
- Must the Firm maintain professional liability insurance for the Attorney if she is
providing her own professional liability insurance in amounts deemed appropriate by the
Firm?
This is a legal question beyond the purview of the committee.
Committee Opinion
October 20, 1999
2 Payment of a Aforwarding@ or Areferral@ fee will be permissible under the Rules of Professional Conduct (RPC)
effective January 1, 2000. See RPC 1.5 (e).
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