Still the Boss
![handle is hein.journals/abaj92 and id is 436 raw text is: STILL THE BOSS
Firms Must Retain Supervision of Employees
Under Outsourcing Arrangement
KATHRYN A. THOMPSON
T HAS BECOME COMMON PRACTICE FOR LAW
firms to outsource many aspects of their busi-
ness operations, from secretarial services to
accounting to information management. But
some firms have gone a step further by con-
tracting out all of their human resources
functions.
Farming out such administrative tasks as
payroll, employee benefits and workers'
compensation to employee leasing compa-
nies-commonly known as professional employer organi-
zations-is a tantalizing option for law firms. The firm
relieves itself of the burden of administering human
resources matters while being able to offer employees a
wider variety of health insurance and other benefits at
reduced rates as part of a larger pool of employees repre-
sented by the outsource company.
But certain ethics considerations come into play when
a law firm's personnel, including lawyers, technically be-
come employees of another entity.
Virtually all the states that have issued ethics opinions
on this topic conclude that it is permissible for law firms to
outsource their human resources functions as long as ap-
propriate ethics safeguards are in place.
Professional independence for
lawyers is the primary ethics prin-
ciple that comes into play. Accord-
ingly, the nature of the relationship
between the professional em-
ployer organization and the
law firm is of paramount im-
portance.
An opinion issued by the
District of Columbia Bar states
that an outsourcing arrangement
violates ethics rules when the
PEO retains actual authority
rather than legal authority
over the law firm's employees. 2
Opinion 304 (2001).
Other state ethics authori- '
ties reached similar conclu-
sions in Texas Opinion 560 -/
Kathryn A. Thompson is research
counsel for the ABA Center for
Professional Responsibility.
ABA JOURNAL June 2006
(2005), North Carolina Formal Opinion 6 (2003) and
Connecticut Informal Opinion 02-08 (2002).
The principle of professional independence is set forth
in Rule 5.4 of the ABA Model Rules of Professional Con-
duct, which are the basis for rules of professional conduct
for lawyers in most states.
Law firms must exercise strict management and con-
trol over all employees-lawyers and nonlawyers alike-
to comply with Model Rule 5.4(d), which prohibits lawyers
from allowing nonlawyers to interfere with their profes-
sional judgment.
Model Rule 5.4(a) prohibits a law firm from splitting
legal fees with nonlawyers, meaning that payments to
the employee leasing company may not be a function of
fees earned by the law firm. Instead, it is generally per-
missible for the firm to reimburse the company for pay-
roll expenses, supplemented by an administrative fee.
Under Model Rule 5.1, partners and other lawyers
with management or supervisory authority shall make
reasonable efforts to ensure that lawyers at the firm
conform to professional conduct rules. Model Rule 5.3
imposes a similar obligation on lawyers to ensure that the
work of nonlawyer employees is compatible with law-
yer ethics rules.
THE ETHICS CHECKLIST
UNDER MODEL RULE 1.6 (CONFIDENTIALITY OF INFORMA-
tion), lawyers must ensure that the employee leasing
company does not have access to confidential client in-
formation. Rule 1.15 (Safekeeping Property) imposes a
similar obligation on lawyers to safeguard client property.
Conflicts issues may arise under Model Rule 1.7 (Con-
flict of Interest: Current Clients) and Model Rule 1.9
(Duties to Former Clients). The Illinois State Bar Associa-
tion's Committee on Professional Ethics concluded that
it would be improper for a
lawyer employed by a
PEO to continue working
for the company if the in-
terests of his client are ad-
verse to those of a client
of another lawyer em-
ployed by the same leas-
ing company. Opinion
90-23 (1991).
>. Both Illinois and the
District of Columbia
'9 have concluded that it
may be necessary for a
. law firm to disclose em-
ployee leasing arrange-
ments to clients.
As more firms consid-
er launching employee
leasing arrangements,
they must be sure that
? / they've carefully gone
o o c o e e c { over their preflight
. ] ethics checklist. U
ETHICS](ViewImageLocal?handle=hein.journals/abaj92&div=112&collection=&method=preview&ext=.png&size=3)
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