A recent article, "Contract attorney complications" (Nov. 11, 2016), illustrated some of the potential risks for law firms to consider when working with contract attorneys. As detailed in the article, these issues include the duty to supervise, overtime pay and the failure to clearly define the relationship.
Using contract attorneys is becoming an attractive way for firms and clients to save money on appropriate projects. However, the potential risks bear further discussion because the use of contract attorneys raises many unique issues. Law firms should therefore carefully consider whether their policies and procedures are sufficient to allow the firm to reap the benefits of contract attorneys while limiting the associated risks.
For example, one issue that is perhaps less obvious than others is the insurance implication of contract attorneys. As discussed below, the failure to ensure that appropriate insurance is in place ahead of time can lead to severe consequences later.
In addition, this article expands on certain key issues relating to the use of contract attorneys. These include defining whether the contract attorney is an independent contractor or an employee and ensuring that appropriate documentation used.
Insurance for Contract Attorney Work
Although some legal malpractice insurers may specifically ask firms about their use of contract attorneys, others may not. For applications that do not ask about contract attorneys, the policy may be left ambiguous with respect to if and when coverage is provided for contract attorneys.
Unfortunately, many law firms (and contract attorneys themselves) do not realize the importance of clarifying the coverage terms for contract attorneys until a legal malpractice claim arises out of services performed by a contract attorney.
The use of contract attorneys can raise a host of insurance issues, which are preventable or solvable if properly addressed. For example, many policies require that, for coverage to exist, the services performed must arise out of an attorney-client relationship. For those law firms who retain contract attorneys as independent contractors (subject to IRS standards), it may be unclear whether this condition is satisfied. The law firm may find itself arguing on one hand that an independent contractor attorney does not actually represent the law firm's client for conflict purposes, but does represent the client in order to qualify for coverage under the legal malpractice insurance policy.
Accordingly, it is important to precisely define the nature of the relationship between the law firm and the contract attorney. It is also appropriate to confirm during the application process that the legal malpractice insurer will provide coverage to a contract employee should a claim arise.
This coverage can be added to the law firm's policy or obtained through separate coverage purchased by the contract attorney.
Whether Contract Attorneys are Truly Independent Contractors
Another issue relating to contract attorneys as independent contractors is whether the contract attorney would be considered an agent of the law firm. If the contract attorney is truly independent, she or he may be incapable of binding either the law firm or the client.
Assuring that an independent contractor meets the IRS definition for an independent contractor typically does little to address the unrelated ethics issues. Indeed, ethics issues can arise regardless of whether the contract attorney in fact qualifies as an independent contractor.
The most important step is to decide whether the contract attorneys will be independent, and if so, confirm they are independent for all purposes, including tax and employment as well as ethics purposes. For ethics issues, common interest agreements (to protect the privilege among counsel not in the same law firm) as well as enhanced conflicts checks might be considered.
The key is to ensure consistency. Where the contract attorney's status is unclear, both the law firm and the contract attorney are at risk.
Document the Relationship
Most firms trying to combat this uncertainty have addressed the issue by clearly documenting the nature of the relationship between the contract attorney and the law firm. Without documentation, the determination of the contract attorney's status may be left to the general recollections of the parties involved, as well as what reasonable third parties might have believed.
In assessing documentation for contract attorney relationships, it can be helpful to divide the issues into four categories. First, for purposes of tax and employment statutes, determine whether the agreement with the contract attorney meets the criteria for an independent contractor or employee relationship.
Second, for ethics purposes, determine whether the agreement includes provisions sufficient to satisfy the ethical obligations of the law firm. If the contract attorney is an employee, then the standard procedures for training and supervising employed attorneys should be sufficient. If the contract attorney is not an employee, then appropriate protocols can be considered to address conflicts of interest, confidences and secrets, compliance with ethics rules, and performance of ordinarily skillful services. If the control necessary to address these issues is inconsistent with the criteria for an independent contractor, the law firm should consider revisiting the nature of the relationship contemplated by the law firm.
Third, if the contract attorney is an independent contractor, the law firm can consider whether to document that the client on whose matter the contract attorney is working is aware of and consents to the arrangement. If the contract attorney will not have an attorney-client relationship with the client, consider either a common interest agreement or some other agreement providing protection to the client's confidences and secrets.
Fourth, as discussed above, many firms facing this issue will confirm that legal malpractice insurance is in place to protect both the law firm and the contract attorney in the event of a claim. The most important thing is to make sure no gaps exist in the coverage for professional services provided to the client.
Before hiring contract attorneys, law firms should consider whether these risks can be adequately managed and ensure that appropriate precautions are in place. By doing so, law firms can avoid unnecessary complications or liability arising out of the use of contract attorneys.