Does Hiring Freelance Lawyers Through a Platform Violate Any Ethical Rules Prohibiting Fee-Splitting?

Take Away: Fee-splitting rules are inapplicable when a freelance attorney platform connects law firms to freelance lawyers and the platform pays the freelance lawyers.  This is because ethics opinions are clear that the money the law firm pays to the platform is not considered a “client fee”. Rather, the work performed by the platform is viewed as a cost similar to the work performed by a paralegal company or graphic design company, and no actual “client fee” is involved.  If, however, the arrangement involves freelance lawyers working directly for clients – as opposed to other lawyers – fee-splitting rules should be reviewed carefully.  

The general rule on fee-splitting is that attorneys may not share legal fees with non-lawyers under California Rule 5.4 (Financial and Similar Arrangements with Nonlawyers), which states: “A lawyer or law firm* shall not share legal fees directly or indirectly with a nonlawyer or with an organization that is not authorized to practice law….” If a law firm hires a freelance attorney through a company, is that law firm violating Rule 5.4 by paying the company for the freelance attorney’s work?

Ethical opinions all come to the same conclusion that fee-splitting rules are inapplicable when a company contracts freelance lawyers to law firms because the fee paid to the company is not considered a “client fee.”  Specifically, LACBA Opinion 518 finds that the law firm’s payment to the company is simply the purchase of a service: “the work being performed by Company is indistinguishable from other types of services that an attorney might purchase, such as hourly paralegal assistance, research clerk assistance, computer research, graphics illustrations, or other services.”  Similarly, and even if the company is owned by non-lawyers, there is no “partnership” with the company pursuant to Rule 5.4 since the law firm has “merely purchased services at a specified rate,” and Rule 5.4 is similarly inapplicable because the law firm has “has contracted for services, at an hourly rate, from Company.” See LACBA Opinion 518.  The same reasoning applies when a company contracts with an in-house department or corporate legal department.

Following LACBA Opinion 518, it is therefore clear that when a company contracts with a law firm for services performed by an independent contractor freelance lawyer, is paid directly by the law firm, and then pays the freelance lawyer, there is no violation of any ethical rules regarding fee-splitting.   See also, ABA Opinion No. 88-356, which states that even if the “agency” is paid one amount that is shared with the contract attorney, the agency will not be guilty of fee-splitting because the money is not a “legal fee” paid by the client. See also, COPRAC Opinion 1992-126 (finding that an arrangement for a group of attorneys to form an employment agency which contracts out attorneys to law offices on a temporary basis and charges an hourly rate for attorney services to be paid directly to the agency with a service surcharge paid to the agency is ethically permissible, assuming the agency never deals with the law firm’s clients directly, and assuming the freelance attorney is an independent contractor, rather than an employee of the company.)

Assuming, however, that the financial arrangement is distinct from that addressed in the previously discussed opinions – and somehow the fee is in fact considered a “client fee“ that is subject to fee-splitting ethical rules– certain conditions must be met to make the arrangement permissible.

With respect to Rule 2-200 (now Rule 1.5.1), COPRAC Opinion 1994-138 articulated a three-part test for determining whether a particular arrangement constitutes a division of fees under Rule 2-200: (1) The amount paid to the outside lawyer is compensation for the work performed and is paid whether or not the law office is paid by the client; (2) the amount paid by the attorney to the outside lawyer is neither negotiated nor based on fees which have been paid to the attorney by the client; and (3) the outside lawyer has no expectation of receiving a percentage fee.  If the payment meets all three criteria, no regulated division of fees has occurred.  Thus, if the law firm does not make payment to the company contingent upon payment by the ultimate client, and if the law firm makes sure to avoid any type of percentage or contingency relationship, it is ethically permissible.  See Chambers v. Kay (2002) 29 Cal.4th 142 (holding that if the compensation arrangement between the law office and the outside lawyer involves a direct division of the actual fees the client pays to the law office, i.e. 30% of $1,500 that the client pays for a project, Rule 2-200 (now Rule 1.5.1) applies to preclude the fee arrangements).

If a law firm hires a freelance attorney directly, then Rule 1.5.1 (Fee Divisions Among Lawyers) may also apply if payment to a contract attorney is contingent upon the hiring firm collecting fees from the ultimate client. If the hiring firm’s payment to the freelance attorney is conditional, then the firm must comply with the steps set forth in Rule 1.5.1, including a written agreement between the attorneys to divide the fee, and written client consent to the arrangement.