OSB Professional Liability Fund Gives Bad Advice About Working With Contract Lawyers

In an article in In Brief entitled Contract Lawyers: Independent Contractors or Employees?, authors Lisa C. Brown and Jim W. Vogele give some excellent advice about steps a firm can take to ensure that a lawyer it hires as a freelance attorney is, in fact, an independent contractor, rather than an employee. However, a firm following Brown and Vogele’s instruction that “[t]he firm must bill for the work of the contractor as a vendor, not as an employee” may find itself in ethical hot water.

No Oregon ethics opinion directly addresses the numerous ethical issues that arise when a firm hires a freelance lawyer. However, Oregon’s Rules of Professional Conduct are similar to the ABA’s Model Rules of Professional Conduct. As I’ve previously explained, in Formal Ops. 00-420 and 08-451, the ABA’s Standing Committee on Ethics and Professional Responsibility concluded that: (1) a law firm that engages a freelance lawyer may add a surcharge to the fee it pays to the freelance lawyer, provided the total charge represents a reasonable fee for the services provided to the client; and (2) the hiring firm is not obligated to inform the client how much the firm is paying the freelance lawyer. However, no markup is permitted if the firm decides to pass the cost of hiring a contract lawyer through to the client as a disbursement: a markup is permitted only if the freelance lawyer’s services are billed as a legal fee.

Returning to Brown and Vogele’s advice, in my experience, law firm bills generally classify billing entries as either fees or disbursements. Further, charges from vendors are reflected on the bill as disbursements, not as fees. Thus, a firm that bills for the work of a freelance lawyer as a vendor (as Brown and Vogele advise) is likely to bill for the freelance lawyer’s work in the “disbursements” portion of the bill. Under those circumstances, the firm may not mark up the freelance lawyer’s fee.

Furthermore, as Brown and Vogele note, the various state and federal agencies that audit working relationships to determine whether a worker is an independent contractor or an employee use different tests, most of which look to multiple factors. Brief analysis shows that none of the tests Brown and Vogele reference look to the manner in which a worker’s services are billed to clients. See Employer’s Supplemental Tax Guide (IRS); State Agency Criteria for Independent Contractors (chart).

Thus, because: (1) a firm that bills for a freelance lawyer’s work in the same manner it bills for work performed by other vendors (i.e., as a disbursement) may not mark up the freelance lawyer’s fee; and (2) the manner in which a worker’s services are billed to clients is irrelevant to whether a freelance lawyer is properly classified as an employer or independent contractor, Oregon lawyers should not follow Brown and Vogele’s advice to bill for a freelance lawyer’s work in the same manner it bills for work performed by other vendors.