Your law firm isn’t just a business; it is your most critically important work. These are your clients, and you have an ethical duty to protect their interests. This must mean you have to give away all of your work for free and never earn a profit, right? After all, wouldn’t free legal representation be in your clients’ best interest?
Absolutely not.
Every firm that hires associates earns a profit from their work. If a firm is charging $400 per hour for a traditional associate’s time, it does not mean that the associate earns $400 per hour. More realistically, the associate earns something closer to $60-150 per hour, sometimes averaging around $100 per hour. For example, if an associate is required to bill 2000 hours per year and makes $200,000 per year, that associate is only earning $100 per hour (or less when you consider non-billable time, office events, etc). The law firm is making a profit of $300 per hour, before expenses. This is not only ethically permissible, but also necessary for a law firm to function and grow.
The same is true when a law firm hires a freelance attorney. The firm is ethically permitted to charge the client for the freelance attorney’s time, and is also ethically permitted to earn a profit in most states.
If you have a solo practice and your billing rate is $500 per hour, then you can hire a freelance attorney and charge up to $500 per hour for their time in most cases, even if you are paying the freelance attorney less than that.
Some firms cling to the “⅓ – ⅓ – ⅓” idea that the firm must allocate ⅓ of the billing rate to the freelance attorney, with the remaining portion allocated ⅓ to profit and ⅓ to overhead. This model works well under the traditional associate/partner model in large law firms, but it is outdated when working with freelance attorneys. When hiring an associate, the firm carries significant overhead such as bar dues, continuing legal education, business development costs, training, equipment, and potentially physical office space. A firm will not incur any of these costs when working with a freelance lawyer. Lack of overhead costs gives firms significantly more flexibility with rate structure. Most firms seek to charge their clients double what they pay the freelance lawyer, although it may be less in certain circumstances. Firms that insist on tripling the freelance lawyer’s rate often find themselves unable to attract freelance talent.
Adding a surcharge to a freelance lawyer’s rate may implicate other disclosure rules, so make sure to disclose your firm’s ability to hire outside legal consultants and/or contract lawyers in your firm’s engagement letter in order to obtain client approval. Your engagement letter should also include your firm’s rate structure. Advance disclosure and client approval will reduce confusion and possible awkwardness later. Clients are generally happy for the extra attention, faster turnaround times, and service that engaging a freelance attorney can provide. Firms often charge a slightly lower rate for freelance attorney work, which is also attractive to firm clients.
One question we hear all the time is exactly how law firms should bill a freelance lawyer’s time to the client. The good news is that it’s usually pretty straightforward. Most firms simply use the freelance lawyer’s name or initials on the invoice and identify them as a “freelance lawyer” or “contract lawyer.” The firm bills the client for the freelance lawyer’s time worked at the set billable rate, without needing to mention what the firm is paying the freelance lawyer. The key is transparency. Don’t list someone as an associate at your firm (or anything else they’re not), because that can be misleading and violate rules. Firms also need to be especially careful when using out-of-state lawyers. For example, if a California firm is working with a New York attorney who is not licensed in California, avoid referring to them as a “lawyer” on California matters. Instead, use a more accurate description like “freelance legal consultant,” “research assistant,” or “law clerk” — basically, anything that accurately reflects the person’s role and licensing status.
The bottom line is that firms can ethically profit from freelance lawyer time, while clients benefit from lower rates and increased client service.
Discover more from Montage Legal Group
Subscribe to get the latest posts sent to your email.
You must be logged in to post a comment.