chevron-down Created with Sketch Beta.

GPSolo Magazine

GPSolo Magazine Article Archives

Model Rule 5.4: How It Protects Little, Harms a Lot, and Why Its Removal Can Greatly Benefit Lawyers

Zachariah James Demeola and Michael Houlberg


  • The provisions of Model Rule 5.4 prohibit lawyers from allowing others to interfere with their professional judgment and dictate how lawyers can structure their business.
  • The inefficiency of the rules contributes to an environment where lawyers struggle to make ends meet and charge fees that most people can’t afford.
  • An argument against reform is that certain business practices influence lawyers to act unethically for profit, but lawyers already work within corporations, insurance companies, and accounting firms.
  • Evidence demonstrates that removing Rule 5.4’s restrictions and economic barriers would lead to more innovation, efficiency, and access, with lawyers’ independent judgment firmly intact.
Model Rule 5.4: How It Protects Little, Harms a Lot, and Why Its Removal Can Greatly Benefit Lawyers
scyther5 via Getty Images

Jump to:

To serve a client’s best interest, a lawyer must have independent judgment—it is the bedrock of any attorney’s ethical obligations. Enter ABA Model Rule of Professional Conduct 5.4 (, ostensibly in place to safeguard lawyers from outside influence and, in doing so, protect the public. Why, then, is Model Rule 5.4 currently being debated across the country, with Utah and Arizona going so far as to revise or repeal the rule almost a century after its adoption?

The answer lies in the evidence. When the assumptions currently underlying Model Rule 5.4 are separated from the facts, what is left is a rule that does more harm than good—with small law firms and consumers bearing the brunt of the damage.

The Costs of Rule 5.4

A lawyer’s independent judgment is unquestionably paramount, and Model Rule 5.4 contains two provisions—5.4(c) and 5.4(d)(3)—that explicitly prohibit lawyers from allowing others to interfere with their professional judgment. However, Model Rule 5.4 contains additional provisions that consist of economic rules dictating how lawyers are allowed to structure their business, and these regulations, while ultimately rooted in conjecture, have real, chilling effects.

Under these provisions, lawyers are not allowed to bring in partners with expertise in business, marketing, or technology. While big law firms can create workarounds, Clio’s 2018 Legal Trends Report ( suggests that solos and small firm practitioners earn just 1.6 hours in billable work per day, in part because they spend much—if not most—of their day-to-day time on administrative tasks and work related to marketing and earning new clients. These lawyers have to run a business with structural impediments to making services more efficient—a detriment unique to the legal profession.

Rule 5.4’s ban on lawyers sharing income with “nonlawyers,” either as partners or investors, creates additional problems. It prevents law firms from raising the equity capital critical to build and sustain their businesses, essentially forcing smaller firms to rely on debt and after-tax income instead. This limitation would be unthinkable in any other sector—the developments we’ve had in technology, for example, would be impossible without access to private capital to fund research and growth. The ban on fee-sharing also hinders innovation, effectively walling off lawyers from new ideas and different perspectives. While the rest of society is taking advantage of technology, multidisciplinary collaboration, and the ability to leverage to scale services, lawyers remain woefully behind.

Consequently, lawyers are at a severe disadvantage in today’s economy, where consumers expect solutions to be both readily available and accessible. According to the 2020 survey Law Firms in Transition from Altman Weil (, 69 percent of attorneys in firms with fewer than 250 lawyers indicated their firms were losing business to corporate law departments; nearly 14 percent reported losing business to alternative legal providers.

To get a sense of exactly what opportunities have been lost to Rule 5.4, the California Access Through Innovation of Legal Services Task Force compiled a list of examples, including:

  •, an online service that allows users to consult with attorneys by email, Skype, or phone, which was prevented from expanding into other jurisdictions due to fee-sharing prohibitions; and
  • Dupro, an online service to help people understand rental agreements, employment contracts, and court documents, which directed them to a lawyer if they needed more assistance. Because the company was not wholly owned by lawyers, the lawyer cofounder faced disbarment, and the founders closed the business.

Memorandum from Joanna Mendoza to the Access Through Innovation of Legal Services Task Force Re: Regulatory Sandbox Recommendation, January 31, 2020; on file with author.

All this inefficiency has significantly contributed to an environment where lawyers must charge fees that most people cannot afford. According to the World Justice Project’s Rule of Law Index 2020 (, the United States ranks 109 out of 128 countries for accessibility to affordable legal services; not only do the poorest lack access to legal services, but so do the middle class and small businesses. Studies suggest Americans seek or consider seeking lawyers for help with only 16 percent of the civil justice situations they encounter, and 76 percent of cases in state courts involve at least one self-represented party. (See Rebecca L. Sandefur, Accessing Justice in the Contemporary USA: Findings from the Community Needs and Services Study, American Bar Foundation, University of Illinois at Urbana-Champaign, 2014,; and The Landscape of Civil Litigation in State Courts, National Center for State Courts, 2015,, respectively.)

Our country’s access-to-justice crisis is not only indefensible—it is a stark reminder that there is an enormous demand for legal services that lawyers are not meeting. So long as rules act as barriers to prevent lawyers and others from effectively serving that need, the public will continue to forgo the legal system entirely, and many lawyers will struggle to make ends meet. This should be unacceptable to the legal profession, particularly when revenue for sole practitioners is in a tailspin amid the pandemic. (See Lyle Moran, “Solo Practitioners Saw Steeper Revenue Declines Amid COVID-19, New Report Finds,” ABA Journal, Feb. 24, 2021,

The Benefit of Change

Opponents of change rely on the specter of harm they claim would come with reform. Certain business practices, they argue, influence lawyers to act unethically for the purpose of profit. Yet, lawyers currently work within corporations, insurance companies, and accounting firms—and have been doing so for years. There is no evidence this arrangement inherently destroys these attorneys’ independent judgment and certainly not in any way that requires categorical prohibition. In reality, the evidence proves the opposite is true.

For example, in 1990, Washington, D.C., adopted a modified version of Rule 5.4 in which lawyers are permitted, in limited circumstances, to form partnerships with others. If reform naysayers are right, Washington, D.C., should be rife with instances of public discipline. In fact, according to the ABA, Washington, D.C., has the third-lowest percentage of public discipline (ABA Profiles of the Legal Profession 2020,

It’s also necessary to look beyond our borders and recognize that other countries are far ahead of the United States on these issues—and their lawyers and citizens are the better for it. The 2007 Legal Services Act (LSA) allows alternative business structures (ABSs) in England and Wales—clearing the way for business entities that provide legal services and include people other than lawyers who have an economic interest or decision-making authority. Since the passage of the LSA, “[t]here have been no major disciplinary failings by ABS firms or unusual levels of complaints” (Legal Services Consumer Panel, Consumer Impact Report 2014, And in Australia, which has allowed “nonlawyer” ownership under a management-based regulatory approach since 2001, there has been no increase in complaints against lawyers (Memorandum to ABA Entities, Courts, Bar Associations (state, local, specialty, and international), Law Schools, Disciplinary Agencies, Individual Clients and Client Entities from the ABA Commission of the Future of Legal Services re: For Comment: Issues Paper Regarding Alternative Business Structures, Apr. 8, 2016).

Another variant of the “harm” argument is that megacompanies (e.g., the Big Four accounting firms or Walmart) will enter the legal market, drive out competition, close down law firms, and degrade the quality of legal services overall.

Again, the example of Washington, D.C., is instructive: Although PricewaterhouseCoopers has an independent law firm as part of its network there, there have been no signs that the Big Four are taking over the legal market. And across the pond, even though all the Big Four and other ABSs have entered the legal market in England and Wales, there are no signs they have dominated the market or that other law firms are worse off for their entry. Around 10 percent of regulated firms there are ABSs, and they range from nonprofits that serve the most vulnerable clients, to sole practitioners who brought a spouse into ownership, to local and regional multidisciplinary practices (Stephen Mayson, Reforming Legal Services: Regulation Beyond the Echo Chambers, Centre for Ethics and Law, University College London, 2020, And there has been no decrease in market share for traditional lawyers—the number of law firms remains steady, with small firms continuing to thrive where they deliver what their customers want (see Annual Statistics Report 2019, Law Society,; see also Are Small and Medium Firms Up to Succeed?: The Lawyer-Entrepreneur—A Study of Small and Medium Law Firms, Thomson-Reuters, 2017, generally showing growth among small and medium law firms and expectations for increasing revenue). Moreover, the quality of legal services in England has improved, as measured by the 12 percent increase in resolution of “first-tier” complaints (Changes in the Legal Services Market 2006/07-2014/15, Legal Services Board,

The evidence not only strongly contradicts current assumptions about Rule 5.4’s necessity, but it also affirms that removing Rule 5.4’s economic barriers would lead to more innovation, efficiency, and access. ABSs in England and Wales have shown greater innovation than non-ABSs by introducing more new or improved services and involving more clients in their service evaluations (Technology and Innovation in Legal Services—Main Report, Legal Services Board, 2018, ABSs are also better at reducing the cost of service delivery, and they are more likely to use customer-facing technologies such as interactive websites and live chat/virtual assistants (id.). The greater the use of consumer-centered technology—and the subsequent lower cost of services—the greater likelihood of affordable and accessible legal services.

The idea that loosening restrictions leads to greater opportunities and innovation is starting to catch on in the United States. In 2019, the Utah Supreme Court approved the establishment of a regulatory sandbox where nontraditional legal service providers can enter the legal market should they provide a self-assessment of potential risks to consumers and a process of how to mitigate those risks, in addition to submitting frequent reports on outcomes, consumer complaints, and satisfaction. Within the sandbox, Rule 5.4 is modified to allow fee-sharing and equity ownership or partnership in law firms with people who are not lawyers. At the end of a seven-year trial, these providers can continue in the Utah legal market if they prove, with data, that they have provided legal services to consumers in a safe way.

And, in 2020, the Arizona Supreme Court issued an order that removed Rule 5.4 altogether, with the goals of improving access to justice and encouraging innovation in how legal services are delivered. The order took effect January 1, 2021.

In both states, lawyers remain subject to the rules of professional conduct—including conflicts rules—within new entities, and both the lawyer and the ABS entity in which they are participating must ensure that the lawyer adheres to the ethical standards of the rules. We are already seeing innovative new business models showcasing collaboration between lawyers and other professionals, including:

  • Blue Bee Bankruptcy Law in Salt Lake City, Utah, providing a long-time paralegal with 10 percent equity interest as a reward for high-quality work and commitment to the firm;
  • LawHQ, a plaintiff’s firm in Salt Lake City, providing equity ownership to software developers and building an app for consumers to opt into spam tort litigation; and
  • LawPal, a collaboration between a lawyer and a software developer in Utah to build a platform like TurboTax to generate legal documents in contested and uncontested divorce and custody cases, eviction cases, and debt-related property seizure cases.

We expect to see even more.


When assumptions are replaced with facts, Model Rule 5.4’s economic restrictions can no longer be attributed to preserving independent judgment or protecting consumers from harm. The independent judgment of a lawyer is amply protected elsewhere in the Model Rules (see, for example, Model Rule 1.7, which prohibits a lawyer from representing a client if there is a significant risk that the representation will be materially limited by the lawyer’s responsibilities to a third person, and Model Rule 1.8(f), which directs that third-party payers cannot interfere with a lawyer’s independent professional judgment). Given these other protections, the lack of any real evidence for the need for Rule 5.4 becomes alarming, especially in light of the severe consequences that the Rule’s economic restrictions have had for lawyers and for people in desperate need of legal services. As evidence coming out of England and Wales, Australia, and now Utah and Arizona demonstrates, removing Rule 5.4’s restrictions would grant all lawyers, including those in small firms or solo practice, the chance to adapt to a rapidly changing society and increasingly technologically adept clientele—with their independent judgment firmly intact.