Adopted | revisions to LEO 1850 regarding the outsourcing of legal
services.
Approved by the Supreme Court of Virginia January 12, 2021, effective
immediately.
January 12, 2021
On January 12, 2021, the Supreme Court of Virginia approved amendments to LEO,
effective immediately.
View the Court's order (PDF)
October 23, 2020
The proposed amendments were approved by Bar Council on October 23, 2020, and
are pending consideration by the Supreme Court of Virginia.
View the petition to the Court (pdf)
View appendix to the petition to the Court (pdf)
August 27, 2020
At its meeting on August 27, 2020, the Standing Committee on Legal Ethics
approved submitting the amendments to the Executive Committee and Bar Council
for approval at their upcoming October meetings.
December 13, 2019
Pursuant to Part 6, § IV, ¶ 10-2(C) of the Rules of the Supreme
Court of Virginia, the Virginia State Bar’s
Standing Committee on Legal Ethics is seeking public comment on proposed revisions to
Legal Ethics Opinion 1850,
Outsourcing of Legal Services.
This opinion generally addresses the ethical issues involved when a
lawyer considers outsourcing legal or non-legal support services.
In this proposed opinion, the committee concludes 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 advance consent to outsourcing the
work. The proposed revisions simplify and streamline the scenarios and
analysis in the opinion, and clarify what a lawyer must disclose to a client
when outsourcing services.
Inspection and Comment
The proposed revised advisory opinion may be inspected below or at the
office of the Virginia State Bar, 1111 East Main Street, Suite 700, Richmond,
Virginia 23219-0026, between the hours of 9:00 a.m. and 4:30 p.m., Monday
through Friday, excluding holidays. Copies of the proposed advisory
opinion can be obtained from the offices of the Virginia State Bar by
contacting the Office of Ethics Counsel at
804-775-0557.
Any individual, business, or other entity may file or submit written comments
in support of or in opposition to the proposed opinion with Karen A. Gould,
Executive Director of the Virginia State Bar, not later than
March 20, 2020. Comments may be submitted via email to
[email protected].
View a
redlined version of proposed revisions to LEO 1850 (pdf). A clean version of revised LEO 1850 as of December 13, 2019,
follows.
LEGAL ETHICS OPINION 1850 Revised 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, document retention 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.
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 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. 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 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 seek 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 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 confidential client information will be shared with a lawyer or nonlawyer
outside of the law firm (meaning either not associated with the firm or
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 [5a][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. Additionally, the lawyer
needs to ensure that all appropriate measures have been employed to educate
the nonlawyer on the lawyer’s duties as they apply to 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 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 legal 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].[2]
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 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. LEO 1712.
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 advance consent to
outsourcing the work.
[1] Rule 1.6, Comment [5a]: Lawyers frequently need to consult with
colleagues or other attorneys in order to competently represent their
clients’ interests. An overly strict reading of the duty to protect
client information would render it difficult for lawyers to consult with
each other, which is an important means of continuing professional
education and development. A lawyer should exercise great care in
discussing a client’s case with another attorney from whom advice is
sought. Among other things, the lawyer should consider whether the
communication risks a waiver of the attorney-client privilege or other
applicable protections.
[2] 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.