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Law Practice Management

ABA Ethics Group OKs Outsourcing, But Nixes At Least Some Fee Markups

Posted Aug 25, 2008, 06:12 pm CST

By Martha Neil

Although the lawyer in charge remains ultimately responsible and can be held accountable if anything goes awry, those working under his or her direction don't have to be in the same building in order to comply with professional standards. In fact, they don't even have to be in the same country.

"U.S. lawyers are free to outsource legal work, including to lawyers or nonlawyers outside the country, if they adhere to ethics rules requiring competence, supervision, protection of confidential information, reasonable fees and not assisting unauthorized practice of law," reports an ABA press release summarizing the conclusion of the ABA Standing Committee on Ethics and Professional Responsibility.

It issued an advisory written opinion (PDF) earlier this month concerning "legal and nonlegal support services" provided by independent contractors that explains this conclusion in detail. The opinion can be found on the ABA Center for Professional Responsibility's website where ABA members can view it for free and nonmembers can purchase it.

The committee says, however, that clients should be informed about outsourcing arrangements before confidential information is released to third parties. And, depending on how outsourced staff are paid, it may not be appropriate for law firms to mark up legal fees billed to clients for work done by outsourced lawyers, except for a reasonable allocation of associated overhead.

Here, the committee apparently distinguishes between legal fees that the firm charges to clients, and those simply passed through to clients as disbursements paid by the firm to third parties. Legal fee markups, the opinion suggests, might be appropriate in the former case, because they are akin to the firm charging clients more for associates' legal work than the associates are paid. The overarching requirement is that the legal fees charged to clients must be reasonable.

"The committee also acknowledges it lacks authority to express an opinion about whether any particular service provider is engaging in unauthorized practice of law, but cautions that if the service provider is found to be not authorized to practice law, and the outsourcing lawyer facilitated that violation, the outsourcing lawyer will have violated ethical rules," the press release notes.

The opinion says that determining the competency of far-distant staff and properly supervising them will be key concerns. At a minimum, reference checks and background investigations should be considered, it recommends. Plus, depending on the sensitivity of the information that must be provided to the third party, "the lawyer should consider investigating the security of the provider's premises, computer network, and perhaps even its recycling and refuse disposal procedures."

Before outsourcing work to attorneys in another country, it is also important to determine whether so-called lawyers there have comparable training, "core ethical principles" and disciplinary enforcement as lawyers here, the opinion recommends. When lawyers do not have a comparable backgrounds, they may still be used, but their work should be more closely supervised.

Earlier coverage:

ABAJournal.com: "1st Legal Outsourcing Summit: Good Contracts Needed in Growing Industry"

ABAJournal.com: "Rules Unclear re Supervising Indian ‘Lawyers’"

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