Recently we have received a number of calls through our Loss Prevention Hotline from lawyers considering outsourcing as a way to develop a practice area or manage overhead expenses. If you are considering an outsourcing arrangement, here are some ethical obligations to keep in mind:

Communication, Confidentiality, and Conflicts

Lawyers must consult with clients about outsourcing and obtain informed consent before revealing information about the representation to third parties. This is required by three ethical obligations: (1) the obligation to communicate with a client about the means by which the client’s objectives are to be accomplished; (2) the obligation to abide by the client’s decisions, and (3) the obligation to obtain the client’s informed consent before revealing information about the representation to third parties. See, Ohio Board of Commissioners on Grievances and Discipline Opinion 2009-6.

The consultation should include:

• Identifying the specific work that will be outsourced and the lawyer or independent service provider who will be performing the outsourced work;
• Describing the information that will be shared with those performing the outsourced services;
• Discussing what the lawyer has done or will do to evaluate the competence of those performing the services and the security of any confidential information shared with those performing the services;
• Discussing how the costs of the outsourcing will be billed to the client and whether any surcharge will be added for the cost of supervising those providing the outsourced services;

As part of the lawyer’s due diligence with the third party performing the work, the lawyer should verify that the third party will maintain the confidentiality of the client’s information and promptly return or destroy the client’s information upon completion of the work. Requiring the return or destruction of client information will reduce the client’s exposure in case the third party experiences a security breach after the task is completed.

Before outsourcing any work the lawyer will also have to confirm that the third party has done a conflict check and that any conflicts that are discovered are properly addressed.

Competence and Supervision

Whether a lawyer outsources work or keeps the work in house, the lawyer maintains ultimate responsibility for providing competent representation. The lawyer is also obligated to make reasonable efforts to ensure that the conduct of any nonlawyer performing outsourced work is compatible with the professional obligations of the lawyer. Under Rule 5.3 of the Ohio Rules of Professional Conduct, the extent of supervision necessary to meet this ethical obligation is a matter of professional judgment but, at the least:

• [R]equires due diligence as to the qualifications and reputation of those to whom services are outsourced and as to whether the requested outsourced services will be provided with competence and diligence as required by Prof.Cond.Rules 1.1 and 1.3, confidences will be protected as required by Prof.Cond.R. 1.6, and conflicts of interest will be avoided as required by Prof.Cond.Rules 1.7, 1.9, and 1.10.

See, Ohio Board of Commissioners on Grievances and Discipline Opinion 2009-6 at 8.

Unauthorized Practice of Law

Be wary of companies pitching business arrangements where the lawyer undertakes representation of clients and “outsources” the bulk of the work to the company. The arrangement may, depending on the circumstances, constitute assisting in the unauthorized practice of law. See, Disciplinary Counsel v. Wheatley, 107 Ohio St.3d 224, 2005-Ohio-6266, 837 N.E.2d 1188; see also, Cincinnati Bar Ass’n v. Heisler, 113 Ohio St.3d 447, 2007-Ohio-2338, 866 N.E.2d 490; Cincinnati Bar Ass’n. v. Mid-South Estate Planning, LLC, et al., 121 Ohio St.3d 214, 2099-Ohio-747.

Under all circumstances lawyers should be cautious when outsourcing legal services (such as drafting of legal documents or legal research) to nonlawyers. Delegation of certain limited legal services to nonlawyers is permissible only under the close supervision of a lawyer. The lawyer should not allow the nonlawyer to deliver work product directly to the client. See, Cleveland Bar Assn. v. Para-Legals, Inc., 106 Ohio St.3d 455, 2005 Ohio 5519, 835 N.E.2d 1240; see also, Board on the Unauthorized Practice of Law of The Supreme Court of Ohio Advisory Opinion UPL 2008-03 Legal Document Preparation by Online Services. The lawyer must use her independent professional judgment in reviewing the work product to verify that the work was done correctly and fits the needs of the client.

Fees

Collecting fees for outsourced work can also be tricky. The amount charged for the outsourced work must be reasonable and clearly communicated to the client and the lawyer must be careful not to engage in fee splitting that violates Rule 1.5 or 5.4.  Generally, “outsourced services should be billed at cost, plus a reasonable allocation of the cost of supervising those services if not otherwise covered by the fees being charged for legal services.” See, Ohio Board of Commissioners on Grievances and Discipline Opinion 2009-6 at 9.

A lawyer with a contingency fee arrangement who outsources work to another lawyer may, upon the lawyer’s discretion, charge the services as part of the contingency fee or as an expense of the litigation as long as the arrangement does not result in a duplicative or excessive fee and is clearly disclosed to the client. Ohio Supreme Court Board of Commissioners on Grievances and Discipline Opinion 2009-9. The lawyer cannot create a billing arrangement that pays nonlawyers a proportion of the lawyer’s fee or makes payment to the nonlawyer contingent upon the lawyer’s recovery of a fee.

Outsourcing can be a wise business decision if the arrangement is set up correctly. If you are considering one of these arrangements, please give us a call. You may qualify for a free ethics consult with an outside attorney who can identify specific aspects of your arrangement that may fall short of your ethical obligations.

As always, if you have any questions, please contact us. We are here to help.