Most of us have used a Groupon-type site to obtain a discount on restaurants, car washes, children’s parties, or some other product or service. As consumers, we appreciate the deals the sites provide, and as lawyers marketing our services to the general public, we see the great marketing exposure of these sites. The potential to convert discounted service clients to longer-term engagements and referral sources is phenomenal.
Before leaping to advertise your discounted services, though, be sure to see what the ethics regulators are saying about it. The ABA says to use extreme caution, while some jurisdictions such as Alabama are saying absolutely not. Know your own state’s opinion, and if it hasn’t been directly addressed, read the ABA guidance carefully to see where you can easily go wrong. An ethics violation could quickly eat up any profit the marketing campaign brings.
The Deals and Services
Groupon, Amazon Local, Restaurant.com, and similar marketing sites operate in roughly the same way—consumers purchase a voucher through the website for a product or service, and that product or service is provided by a third-party business for the sum paid to the site. (Here we speak of Groupon to refer to any of these types of sites.) From where the consumer sits, they pay their smaller amount to the site, get their service paid for, and walk away happy. For the merchant, it is a little more complicated.
Some vouchers act as coupons. The merchant offers a discounted price for the coupon purchased on the site. For instance, the consumer may pay Groupon $25 for a voucher worth 50% off of a lawyer’s regular hourly rate for a certain number of hours. Other vouchers are actually prepayment for services. For instance, the consumer would pay Groupon $500 for five hours of legal services to be provided by the advertising lawyer.
In theory there are infinite variations of vouchers that could be offered, limited only by the imagination of the merchant and the site. The coupon and prepayment variations are the most common and are the focus of the ABA’s recent discussion.
Potential Ethical Pitfalls
There are many ways advertising through Groupon might run afoul of the ethics rules. Here are some of the regulators’ biggest concerns.
- Fee-Splitting With Non-Lawyers: All states prohibit fee sharing between lawyers and nonlawyers. When Groupon charges a fee for advertising and calculates it as a percentage of the consumer’s cost for the service, it looks like fee-splitting if the consumer is prepaying legal fees. Several states (with Maryland, North Carolina, and South Carolina among them) have affirmatively said that this is not fee-splitting because the lawyer is just paying for advertising, while other states (including Alabama, Arizona, Indiana, and Pennsylvania) have come out the other way. The ABA says it isn’t fee-splitting as long as the percentage is reasonable, hinting that most such arrangements would be considered reasonable.
- Attorney Advertising Rules: Every state has its own, albeit similar, regime of advertising rules. All attorney advertising must be truthful, not mislead, contain certain disclaimers, and describe the services being offered. For a lawyer advertising on Groupon, the ad goes out to the public in a number of media, including websites, mobile apps, and emails. As a merchant offering the deal, the lawyer must exercise a certain amount of control over what specific information is included in each advertisement. Ethics rules hold the attorney, not Groupon, responsible for compliance. The ABA expressed its view that lawyers can manage compliance through Groupon advertising, though not all states (again, look to Alabama) agree.
- Formation of Attorney-Client Relationship: In a typical advertising scenario, there is little question that simply viewing an ad does not create an attorney-client relationship between the viewer and the advertising lawyer. When the viewer becomes a purchaser of prepaid legal services prior to any contact with the lawyer, it is less clear. The ABA says that there is not yet an attorney-client relationship prior to contact, and stresses that hurdles such as conflicts checks have yet to be cleared.
- Identity of Client: Another issue the ABA raises is the transferability of the Groupon. If the purchaser is not the ultimate intended client of the lawyer, it complicates other issues such as trust accounting (see below). Transferability of the voucher must be addressed in the advertisement.
- Type and Scope of Engagement: Attorneys must appropriately limit the services to which the voucher can be applied to areas of the attorney’s competence and address what happens if the attorney or firm needs more time than the prepaid hours to competently perform the services.
- Trust Accounting: The ABA withheld a final verdict on whether the prepaid legal services vouchers are permissible, and the biggest holdup is handling the fees received from Groupon. If they are indeed prepaid legal fees, the full amount should be placed in the attorney’s trust account until earned, and recorded as belonging to a specific client. However, merchants typically don’t know the identity of purchasers when they receive funds from Groupon, the advertising fee has already been deducted, and the purchaser may not be the ultimate client. There is not an attorney-client relationship yet, and theoretically the voucher might never be redeemed and, thus, the fees never earned. These issues are far simpler with the coupon arrangement, where no prepaid fees are involved. The ABA says the lawyer has to make arrangements with the marketing site that allow compliance with the applicable accounting rules in his jurisdiction. Other regulators say no such compliance is possible (again, see Alabama, for instance).
Each regulator who comes out with an opinion on Groupon for lawyers stresses how difficult it is to successfully navigate the ethical landscape. It may be possible to do so in some states, particularly with a coupon offer, but after seeing all of the landmines out there, simply avoiding Groupon is surely the safer route.