What ethical duties does a Virginia lawyer have when outsourcing legal or support work to lawyers or nonlawyers outside the firm, including overseas providers?

Plain-English summary

The opinion addresses the ethics of outsourcing legal and non-legal support services to lawyers or nonlawyers outside the firm, a practice the committee describes as long-standing and often beneficial, particularly for solo and small-firm lawyers handling overflow or complex work. It distinguishes true outsourcing (work sent to a provider not associated with the firm and not under the direct supervision of a firm lawyer) from a contract lawyer who works under firm supervision with full access to client information, who is treated as associated with the firm for confidentiality and conflicts purposes. The committee organizes the lawyer's duties into four categories: supervision and unauthorized practice, client communication and consent, confidentiality, and billing and fees.

On supervision, Rule 5.3(b) requires due diligence in selecting providers, and Rule 1.1 requires the lawyer to ensure tasks go to people with the necessary skills and to review their work on an ongoing basis; the lawyer remains ultimately responsible for the provider's work product under Rule 5.3(c). The opinion states that overseas outsourcing in particular should include a written agreement covering confidentiality, information security, conflicts, and unauthorized practice. On communication, extending LEO 1712, the committee concludes that the lawyer must obtain the client's informed consent when outsourcing to a lawyer or nonlawyer not associated with or directly supervised by a firm lawyer, even if no confidential information is shared.

On confidentiality, if confidential information will go to someone outside the firm, the lawyer must secure the client's consent in advance, because the implied authorization of Rule 1.6(a) to share within a firm generally does not extend outside it; the exception is an "office management" task under Rule 1.6(b)(6), for which consent is not required. The lawyer must also act reasonably to safeguard the information. On billing, drawing on LEOs 1712 and 1735 and ABA Formal Opinion 93-379, the committee concludes that if the cost is billed as a disbursement, the lawyer must disclose the actual amount and may not add an undisclosed surcharge or retain a discount, while a provider who is "associated" with the firm may be billed at the firm's usual rate as overhead. Fees must be reasonable under Rule 1.5(a) and explained under Rule 1.5(b).

In practice

Under the Virginia rules as they stood when the opinion issued, the committee holds that a lawyer may outsource work to a lawyer or nonlawyer outside the firm only if four conditions are met: the lawyer rigorously monitors and reviews the work for competence and to avoid aiding unauthorized practice (Rules 1.1, 5.3), preserves client confidences (Rule 1.6), bills the work appropriately (Rule 1.5), and obtains the client's informed consent in advance (Rules 1.2(a), 1.4). The opinion treats a contract lawyer who works under firm supervision with access to client information as associated with the firm, so the consent and outside-confidentiality rules do not apply to that arrangement. It states that overseas outsourcing should be governed by a written agreement, that confidential information may go outside the firm only with client consent (except for Rule 1.6(b)(6) office-management tasks), and that disbursement billing must disclose the actual cost without an undisclosed markup.

Common questions

Q: Does a Virginia lawyer need the client's consent to outsource legal work?

A: Yes, when the work goes to a lawyer or nonlawyer not associated with or directly supervised by a firm lawyer. The opinion, extending LEO 1712, concludes the client is entitled to know who is involved and may refuse, so informed consent is required even if no confidential information is shared.

Q: Can confidential client information be sent to an outside provider?

A: Only with the client's advance consent. The opinion concludes that Rule 1.6(a)'s implied authorization to share within a firm generally does not reach outside providers, except for "office management" tasks under Rule 1.6(b)(6), where consent is not required.

Q: How should the lawyer bill the client for outsourced work?

A: If billed as a disbursement, the opinion concludes the lawyer must disclose the actual amount and may not add an undisclosed surcharge or pocket a discount; a provider associated with the firm may be billed at the firm's usual rate as overhead. Fees must be reasonable and explained under Rule 1.5.

Q: Is overseas outsourcing treated differently?

A: The opinion states that overseas outsourcing in particular should include a written agreement with the provider addressing confidentiality, information security, conflicts, and unauthorized practice, and that the lawyer must make reasonable inquiry and supervise the work.

Background and rules framework

The opinion interprets several Virginia Rules of Professional Conduct: Rule 1.1 (competence), Rule 1.2(a) (scope of representation), Rule 1.4 (communication), Rule 1.5 (fees), Rule 1.6 (confidentiality, including the Rule 1.6(b)(6) office-management exception), Rule 5.3 (responsibilities regarding nonlawyer assistants), and Rule 5.5 (unauthorized and multijurisdictional practice). It applies prior opinions LEOs 1712 and 1735 on temporary and contract lawyers, and ABA Formal Opinion 93-379 on disbursement billing.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.1 / Va. Rule 1.1 (competence)
• Model Rule 1.4 / Va. Rule 1.4 and Va. Rule 1.2(a) (communication; scope and client consent)
• Model Rule 1.5 / Va. Rule 1.5(a), (b) (reasonable fees; explanation)
• Model Rule 1.6 / Va. Rule 1.6(a), (b)(6) (confidentiality; office-management exception)
• Model Rule 5.3 / Va. Rule 5.3(b), (c) (supervision of nonlawyer assistants)
• Model Rule 5.5 / Va. Rule 5.5 (unauthorized and multijurisdictional practice)

Other opinions cited:

• Va. LEO 1712: consent required for a temporary lawyer doing independent work
• Va. LEO 1735: payment arrangements with a lawyer independent contractor
• ABA Formal Op. 93-379 (1993): billing disbursements at actual cost

See also

• VSB Ethics Op. 1852: Employment Limitations for Suspended/Revoked Lawyers
• VSB Ethics Op. 1872: Virtual Law Office and Executive Office Suites
• VSB Ethics Op. 1856: Scope of Practice for a Foreign Lawyer in Virginia

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1850.pdf

Original opinion text

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

SCV Approved/Amended
January 12, 2021
Committee Opinion
December 28, 2010
LEGAL ETHICS OPINION 1850.

OUTSOURCING OF LEGAL SERVICES

This opinion deals with the ethical issues involved when a lawyer considers outsourcing legal or non-legal support services to lawyers or paralegals. Many lawyers already engage in some form of outsourcing to provide more efficient and effective service to their clients. Outsourcing takes many forms: reproduction of materials, database creation, conducting legal research, case and litigation management, drafting legal memoranda or briefs, reviewing discovery materials, conducting patent searches, and drafting contracts, for example. Law firms have always and will always engage other lawyers and nonlawyers in the provision of various legal and non-legal support services. Legal outsourcing can be highly beneficial to the lawyer and the client, since it gives the lawyer the opportunity to seek the services of outside lawyers and staff in complex matters. Legal outsourcing also gives sole practitioners and small law firms more flexibility in not having to hire staff or employees when they experience temporary work overflows for which a contract lawyer or non-lawyer may be appropriate. A few examples of outsourcing arrangements are:

1. A Virginia law firm retains an outsourced law firm in India to conduct patent searches
   and to prepare patent applications for some of its clients. Lawyers and nonlawyers at the outsourced firm may work on the matters. The outsourced firm will not have access to any client confidences except confidential information that is necessary to perform the patent searches and prepare the patent applications. The outsourced law firm regularly does patent searches and applications for U.S. law firms. In some situations, the outsourced law firm might be hired through an intermediary company that verifies the credentials of the firm and checks conflicts; in other situations, the Virginia law firm might directly retain the outsourced law firm.
2. A Virginia law firm occasionally hires Lawyer Z, who works for several firms on an
   as-needed contract basis, to perform specific legal tasks such as legal research and drafting legal memoranda and briefs. Lawyer Z is a Virginia-licensed lawyer who works out of her home and works on an hourly basis for the law firm, but does not meet with firm clients. She has access to firm files and matters only as needed for the discrete tasks she is hired to perform.

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3. A Virginia law firm sends legal work involving legal research and brief writing to a
   legal research “think tank” to produce work product that is then incorporated into the work product of the law firm. On the other hand, a situation that may be colloquially called “outsourcing” but that does not raise any of the concerns identified in this opinion is: a Virginia law firm regularly hires Lawyer Y to perform specific legal tasks for them, which may or may not involve contact with firm clients, working directly with and under the supervision of lawyers in the law firm. In that scenario, Lawyer Y is working under the direct supervision of lawyers in the firm and has full access to information about the firm’s clients, and therefore is associated with the firm for purposes of the Rules of Professional Conduct, including confidentiality and conflicts.

APPLICABLE RULES AND OPINIONS
The applicable Rules of Professional Conduct are: Rule 1.1, Competence, Rule 1.2(a), Scope of Representation, Rule 1.4, Communication, Rule 1.5, Fees, Rule 1.6, Confidentiality of Information, Rule 5.3, Responsibilities Regarding Nonlawyer Assistants, and Rule 5.5, Unauthorized Practice of Law; Multijurisdictional Practice of Law. Applicable legal ethics opinions are LEOs 1712 and 1735, regarding the use of temporary lawyers and contract lawyers.

ANALYSIS
A lawyer’s ethical duties when outsourcing tasks fall into four categories: supervision of nonlawyers, including unauthorized practice of law issues, client communication and the need for consent to outsourcing arrangements, confidentiality, and billing and fees. This opinion will address each of these categories in order. Supervision and Unauthorized Practice of Law The lawyer’s initial duty when considering outsourcing, as established by Rule 5.3(b), is to exercise due diligence in the selection of lawyers or nonlawyers. Lawyers have a duty to be competent in the representation of their clients and to ensure that those who are working under 2

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their supervision perform competently. See Rule 1.1. To satisfy the duty of competence, a lawyer who outsources legal work must ensure that the tasks in question are delegated to individuals who possess the skills required to perform them and that the individuals are appropriately supervised to ensure competent representation of the client. The lawyer must also consider whether the lawyer or nonlawyer understands and will comply with the ethical rules that govern the initiating lawyer’s conduct and will act in a manner that is compatible with that lawyer’s professional obligations, just as in any other supervisory situation. In order to comply with Rule 5.3(b), the lawyer must be able to adequately supervise the nonlawyer if the work is outsourced. Specifically, the lawyer needs to review the nonlawyer’s work on an ongoing basis to ensure its quality, the lawyer must maintain ongoing communication to ensure that the nonlawyer is discharging the assignment in accordance with the lawyer’s directions and expectations, and the lawyer needs to review thoroughly all work product to ensure its accuracy and reliability and that it is in the client’s interest. The lawyer remains ultimately responsible for the conduct and work product of the nonlawyer. Rule 5.3(c). The Committee recommends that overseas outsourcing, in particular, should include a written outsourcing agreement to protect the law firm and its clients. The agreement should include assurances that the outsourced firm or vendor will meet all professional obligations of the hiring lawyer, specifically including confidentiality, information security, conflicts, and the unauthorized practice of law. The hiring lawyer should make reasonable inquiry and act competently in choosing a provider that will honor these obligations and use reasonable measures to supervise the vendor’s work. Client Communication and Consent In LEO 1712, the Committee concluded that when a lawyer hires a temporary lawyer to work on a client’s matter, the lawyer must advise the client of that fact and must obtain the client’s consent to the arrangement if the temporary lawyer will perform independent work for the client and will not work under the direct supervision of a lawyer in the firm. Applying Rules 1.2(a) and 1.4, the Committee concluded that the client is entitled to know who is involved in the representation and can refuse to allow the use of an outsourced lawyer or nonlawyer. Extending 3

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that analysis to other outsourcing situations, a lawyer must obtain informed consent from the client if the lawyer is outsourcing legal work to a lawyer or nonlawyer who is not associated with or working under the direct supervision of a lawyer in the firm that the client retained, even if no confidential information is being shared outside of the firm. Confidentiality If, when outsourcing, confidential client information will be shared with a lawyer or nonlawyer outside of the law firm (where “outside of the law firm” means neither associated with the firm nor directly supervised by a lawyer in the firm), the lawyer must secure the client’s consent in advance. The implied authorization of Rule 1.6(a) and its Comment [6] 1 to share confidential information within a firm generally does not extend to entities or individuals working outside the law firm. Thus, in a typical outsourcing relationship, no information protected by Rule 1.6 may be revealed without the client’s informed consent. The exception to this requirement is when the outsourced service is an “office management” task of the types identified in Rule 1.6(b)(6) 2, for which client consent is not required. In all cases, the lawyer needs to ensure that appropriate measures have been employed to educate the nonlawyer on the lawyer’s duties to protect client confidences. When sharing or storing confidential information, the lawyer must act reasonably to safeguard the information against unauthorized access by third parties and against inadvertent or unauthorized disclosure by anyone under the lawyer’s supervision. See Rule 1.6, Comment [19]. For example, the nonlawyer should assure the lawyer that policies and procedures are in place to protect and secure data while in transit and that he or she understands and will abide by the

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Rule 1.6, Comment [6]: Lawyers in a firm may, in the course of the firm’s practice, disclose to each other information relating to a client of the firm, unless the client has instructed that particular information be limited to specified lawyers. 2

Rule 1.6(b)(6): To the extent a lawyer reasonably believes necessary, the lawyer may reveal information to an outside agency necessary for statistical, bookkeeping, accounting, data processing, printing, or other similar office management purposes, provided the lawyer exercises due care in the selection of the agency, advises the agency that the information must be kept confidential and reasonably believes that the information will be kept confidential. 4

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policies and procedures. Written confidentiality agreements are strongly advisable in outsourcing relationships. The outsourcing lawyer should also ask the nonlawyer whether he or she is performing services for any parties adverse to the lawyer’s client, and remind him or her, preferably in writing, of the need to safeguard the confidences and secrets of the lawyer’s current and former clients. See Rule 1.6, Comment [5c]. 3 Billing and Fees In LEO 1712, the Committee discussed the issue of payment arrangements when legal services are outsourced or when temporary lawyers are used. The Committee reiterated its position in LEO 1735, which deals with a lawyer independent contractor. This Committee opines that if payment is billed to the client as a disbursement, then the lawyer must disclose the actual amount of the disbursement including any mark-up or surcharge on the amount actually disbursed to the nonlawyer. Any mark-up or surcharge on the disbursement billed to the client is tested by the principles articulated in ABA Formal Opinion 93-379 (1993): When that term [“disbursements”] is used, clients justifiably should expect that the lawyer will be passing on to the client those actual payments of funds made by the lawyer on the client’s behalf. Thus, if a lawyer hires a court stenographer to transcribe a deposition, the client can reasonably expect to be billed as a disbursement the amount the lawyer pays to the court reporting service. Similarly, if the lawyer flies to Los Angeles for the client, the client can reasonably expect to be billed as a disbursement the amount of the airfare, taxicabs, meals and hotel room.

It is the view of this Committee that in the absence of disclosure to the contrary it would be improper for the lawyer to assess the surcharge on these disbursements over and above the amount actually incurred unless the lawyer incurred additional expenses beyond the actual cost of the disbursement item. In the same regard, if a lawyer receives a discounted rate from a third-party provider, it would be improper for the lawyer to charge the client 3

Rule 1.6 Comment [5c]: Compliance with Rule 1.6(b)(5) might require a written confidentiality agreement with the outside agency to which the lawyer discloses information. 5

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December 28, 2010
the full rate and to retain the profit instead of giving the client the discount. Clients could view this practice as an attempt to create profit centers when they had been told they would be billed for disbursements.

On the other hand, if the lawyer or firm hires a contract lawyer or non-lawyer to work on site or under the direct supervision of the lawyer such that they are considered “associated” with the firm, the lawyer or firm may bill the client for the usual or customary charge the firm would bill for any other associate or employee even if that amount is more than what the firm pays the staffing agency or vendor. The amount paid to the staffing agency or vendor is an overhead expense that the firm is not required to disclose to a client.

This Committee believes that these same principles apply in the case of outsourced legal services. Fees must be reasonable, as required by Rule 1.5(a), and adequately explained to the client, as required by Rule 1.5(b). Further, in a contingent fee case it would be improper to charge separately for work that is usually done by the client’s own lawyer and that is incorporated into the standard fee paid to the lawyer, even if that cost is paid to a third-party provider.

CONCLUSION
A lawyer may ethically outsource services to a lawyer or nonlawyer who is not associated with the firm or working under the direct supervision of a lawyer in the firm if the lawyer (1) rigorously monitors and reviews the work to ensure that the outsourced work meets the lawyer’s requirements of competency and to avoid aiding a nonlawyer in the unauthorized practice of law, (2) preserves the client’s confidences, (3) bills for the services appropriately, and (4) obtains the client’s informed consent in advance of outsourcing the work.

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