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In streamlining their back-office functions to cut costs and comply with COVID-19 best practices, lawyers must be mindful that outsourcing can pose potential ethical minefields. By apprising themselves of applicable ethics rules, lawyers can confidently outsource legal and nonlegal services while creating a win-win scenario for themselves and their clients.
“Outsourcing” generally refers to “the practice of taking a specific task or function previously performed within a firm or entity and, for reasons including cost and efficiency, having it performed by an outside service provider.” ABA Commission on Ethics 20/20, Revised Proposal—Outsourcing (Sept. 19, 2001). In an era where lawyers and law firms seek to run “lean” as a way of keeping costs down, many practices find that outsourcing legal and nonlegal services once performed in-house by law firms can be a wise financial move. The advent of COVID-19—and accompanying social distancing and remote work requirements—has accelerated consideration of outsourcing various administrative services so as to streamline back-office functions.
Although COVID-19 has brought outsourcing into the spotlight, it is not a novel concept, and there are significant ethical issues to be considered when retaining outside counsel and third-party vendors to handle certain aspects of a firm’s legal work and support services. Those issues include the ethical implications when hiring a lawyer, whether deemed of counsel, associated, or a contract lawyer. There are also ethical implications to outsourcing other aspects of a law firm’s work, including the following:
- Investigative or paralegal services
- Third-party vendors for scanning, replication, or printing of mail and other documents
- Internet-based services to store client information
- Advertising and marketing
- Document-management companies for creation and maintenance of complex litigation databases
- Third-party vendors to provide and maintain a law firm’s computer system, accounting and bookkeeping, call handling, and legal research
Outsourcing on the Upswing
As practices become more specialized and support options proliferate, even more activities traditionally handled by lawyers may come to be outsourced in the future.
In September 2020, Winston & Strawn cited a “fundamental shift” in the legal industry and created a new center for professional support services. The Winston Resource Center is a virtual, cross-functional group that provides 24/7 professional support services for Winston’s attorneys and clients. The resource center is intended to address evolving work practices while improving operating efficiencies. The creation of the resource center went hand in hand with other austerity measures implemented earlier this year that allowed the firm to eliminate redundant employee positions.
Similarly, in October 2020, Thompson & Knight, in partnership with a global provider of skilled business support services, opened the TK Administrative Resource Center to handle the firm’s document processing, finance, and some aspects of marketing and business development. The firm eliminated approximately 18 staff positions as a result of the resource center opening.
Heart of the Ethical Issues of Outsourcing
The principle at the heart of the ethics issues when outsourcing is this: the attorney choosing to outsource work bears the ultimate responsibility for her work, and that responsibility cannot be delegated. See, e.g., Fla. Bar Ethics, Op. 07-2 (Jan. 18, 2008). The ABA Standing Committee on Ethics and Professional Responsibility’s Formal Opinion 08-451 (Aug. 5, 2008) states:
A lawyer may outsource legal or nonlegal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client under Model Rule 1.1. In complying with her Rule 1.1 obligations, a lawyer who engages lawyers or nonlawyers to provide outsourced legal or nonlegal services is required to comply with Rules 5.1 and 5.3. She should make reasonable efforts to ensure that the conduct of the lawyers or nonlawyers to whom tasks are outsourced is compatible with her own professional obligations as a lawyer with “direct supervisory authority” over them.
In addition, appropriate disclosures should be made to the client regarding the use of lawyers or nonlawyers outside of the lawyer’s firm, and client consent should be obtained if those lawyers or nonlawyers will be receiving information protected by Rule 1.6. The fees charged must be reasonable and otherwise in compliance with Rule 1.5, and the outsourcing lawyer must avoid assisting the unauthorized practice of law under Rule 5.5.
Lawyers engaged in the outsourcing of substantive legal work must consider their ethical obligations to do the following: (1) ensure competence and appropriate supervision, (2) preserve the client’s confidential information, (3) check for conflicts of interest, (4) disclose the outsourcing arrangement to the client, and (5) avoid assisting in the unauthorized practice of law.
Competence and Supervision
Lawyers have a duty to ensure that those who are working under their supervision perform competently. Work performed on a client matter by an outsourced provider must ultimately contribute to a “competent” representation. A lawyer who outsources work must ensure that the tasks in question are delegated to individuals who possess the skills required to perform them, and that the individuals are appropriately supervised to ensure competent representation of the client. See ABA Formal Op. 08-451. Ensuring that an outsourced provider contributes to a “competent” representation can be largely accomplished by how the provider is supervised.
Under Model Rules 5.1 and 5.3 of the ABA’s Model Rules of Professional Conduct, an outsourcing attorney has the responsibility to require the ethical conduct of lawyers and nonlawyers under the attorney’s supervision. For lawyers, the attorney must make reasonable efforts to ensure that their conduct “conforms” to the Model Rules. Model Rule 5.1(b). For nonlawyers, the attorney must make reasonable efforts to ensure that their conduct is “compatible with” the Model Rules. Model Rule 5.3(a). With both lawyers and nonlawyers, a supervising attorney has committed an ethics violation if she orders or ratifies conduct that constitutes a rule violation. See Model Rules 5.1(c), 5.3(c)(1).
“Competence” also includes technological competence. There are two ways that lawyers can satisfy their ethical duty of technological competence. One way is by learning about technology and becoming more proficient in the use of legal tech tools. The other is by working in association with tech-savvy lawyers and legal professionals.
From an ethics standpoint, there is a key distinction between competence by education and by association. A lawyer who directs others’ work has a duty to make reasonable efforts to ensure compliance with all applicable rules of professional conduct. See Model Rules 5.1, 5.3. Education and association are complementary answers to the problem of technology competence. Competence by association not only supplements education, it promotes it as well. Delegating tech tasks is a prime opportunity to learn about relevant technology. Lawyers should seize the educational opportunity as they fulfill their ethical duty of supervision.
Preservation of Client Confidential Information
One of a lawyer’s core ethical duties, of course, is to safeguard her client’s information. Lawyers are responsible for vetting an outsourced provider to ensure that client data will be protected from a technological, procedural, and legal standpoint.
Under Model Rule 1.6, a lawyer must take appropriate steps to ensure that client information is not disclosed by an outsourced provider, whether accidentally or intentionally. The comment to Model Rule 1.6(c)
requires a lawyer to act competently to safeguard information relating to the representation of a client against unauthorized access by third parties and against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer’s supervision.
Data security is one of the most serious ethics concerns with outsourced providers. At a minimum, a lawyer outsourcing services for ultimate provision to a client should consider conducting reference checks and investigating the background of the lawyer or nonlawyer providing the services. That reference check includes any nonlawyer intermediary involved in the outsourcing, such as a placement agency or service provider.
Lawyers should also consider interviewing the principal outsourced lawyers involved in a project to assess their experience and understanding of the duties of client confidentiality and avoidance of conflicts of interest. Any lawyers and nonlawyers to whom you outsource work should reflect the professionalism that you would expect of your own law firm staff.
Conflicts of Interest
Ethics committees agree that law firms must guard against conflicts of interest when using outsourced providers. The ABA advises that the outsourced provider must not work for adversaries of clients “on the same or substantially related matters.” ABA Formal Op. 08-451, at 5. This language invokes the legal standard applicable to duties owed to former clients: an attorney cannot represent a new client in “the same or a substantially related matter” with respect to the former client’s representation. Model Rule 1.9(a).
The ABA Standing Committee has previously opined that a contract lawyer “represents” a client on whose matter he works for the hiring firm. See ABA Standing Comm. on Ethics & Pro. Resp., Formal Op. 88-356 (Dec. 16, 1988). In other words, a contract lawyer is “associated” with the hiring firm for purposes of conflicts-of-interest rules. Some ethics commentators maintain that this means that the hiring firm takes on all of the contract lawyer’s former representations and would be unable to undertake a “substantially related” matter prohibited under Model Rule 1.9. In any event, it is important to assess the guidance in the jurisdiction to determine whether the conflicts of a contract lawyer provided by an intermediary, such as a placement agency or service provider, will be imputed to the law firm.
Although lawyers must adhere to strict and well-known rules governing conflicts of interest, those rules do not directly apply to nonlawyers. Instead, under Model Rule 5.3, nonlawyers within a firm must conduct themselves in a manner that is “compatible” with the lawyer’s obligations, including to screen for conflicts. That requires the outsourcing attorney to take steps to screen outsourced providers for conflicts.
Commentators and ethics opinions agree that attorneys have a duty to take steps to avoid conflicts. See N.Y. City Bar, Formal Op. 2006-3, at n.9 (Aug. 2006). The firm and its outsourced provider must have a mechanism in place to screen for conflicts. It may be wise to have the outsourced provider complete a conflict check questionnaire to memorialize that the check was performed. See N.Y. City Bar Ass’n Comm. on Pro. Resp., Report on the Outsourcing of Legal Services Overseas, at n.56 (2007). By requiring the outsourced provider to complete the conflict check questionnaire as a condition precedent to retention, the outsourcing attorney will have fulfilled his or her duty of taking steps to avoid conflicts. Id.
Client Disclosure/Client Consent
Model Rule 1.6 prohibits an attorney from revealing information “relating to the representation of a client” absent informed consent or implied authorization from the client. Model Rule 1.6(a). The scope of Rule 1.6 is broad enough to encompass virtually any information received from a client during a legal representation. The prevailing view is that an attorney must secure informed consent to release confidential information to an outsourced provider. See ABA Formal Op. 08-451, at 5.
The ABA has opined that a client impliedly consents to disclosure of information with contract attorneys working within a firm but concluded that the more attenuated supervision and control make outsourced providers qualitatively different. Id. There is no “convenience” exception to Model Rule 1.6.
Unauthorized Practice of Law
Model Rule 5.5 prohibits a lawyer from assisting in the unauthorized practice of law. Likewise, under Model Rule 8.4, it is misconduct for a lawyer to “knowingly assist or induce another” to violate the rules of conduct. Model Rule 8.4(a). The question of whether a particular activity constitutes the practice of law is not itself an ethics question but rather depends on the regulatory law of a particular jurisdiction.
Addressing the issue, the New York City Bar Association cautions that lawyers must remain at the helm of the representation; and
to avoid aiding the unauthorized practice of law, the lawyer must at every step shoulder complete responsibility for the non-lawyer’s work. In short, the lawyer must, by applying professional skill and judgment, first set the appropriate scope for the non-lawyer’s work and then vet the non-lawyer’s work and ensure its quality.
N.Y. City Bar, Formal Op. 2006-3, at n.9.
The lawyer must remain responsible for competently carrying out the client’s representation and must appropriately supervise the work performed by nonlawyers. In doing so, the lawyer must generally abide by the client’s decisions concerning the objectives of the representation, and consult with the client concerning the means by which they are to be pursued.
There is no question that the use of outsourced providers for the mutual benefit of clients and law firms may be done ethically. The choice of whether to delegate work to an outsourced provider should be based on whether it allows a firm to deliver outstanding legal services to its clients at a reasonable cost. The fundamental duties of client confidentiality and avoidance of the unauthorized practice of law do not present an insurmountable bar to the use of outsourced providers as long as the lawyers remain mindful of the limitations imposed by the pertinent rules.
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