Lawyers and law firms who hire Flex freelance lawyers often ask us: How do I bill out the freelance lawyer’s time or cost to my client?

In response we have drafted our own “How To Guide: Billing Out & Marking-Up Flex Freelance Lawyers’ Fees to Clients” based on our research and analysis.  

While we recommend you review the full Guide, we know you are busy lawyers (!) so the short answer is that there are several options on how to bill out the cost of a freelance lawyer to a client:

1) pass the direct cost of the freelance lawyer to the client as a disbursement (although our courts discourage categorizing a freelance lawyer’s cost as a disbursement when seeking a costs award or on a costs assessment, noting that they should be characterized as legal fees (see cases in the Guide));

2) pass the cost of the freelance lawyer on to the client as legal fees at the same rate the hiring firm or hiring lawyer paid the freelance lawyer;

3) pass the cost of the freelance lawyer on to the client as legal fees and mark-up the rate paid by the hiring firm or hiring lawyer (note: you cannot mark up a disbursement); or

4) the hiring lawyer absorbs the cost themselves.

The most common question we receive is with respect to #3: Is it ethical for the hiring lawyer to mark-up the freelance lawyer’s legal fees before passing them on to the client?

After reviewing the analysis and research in our Guide, we’ve concluded that nothing in the Rules of Professional Conduct, legislation, or case law prohibits a mark-up of a freelance lawyer’s fees, as long as the mark-up is passed along as legal fees, and not a disbursement. The overarching principle and governing rule being that the ultimate fee charged to the client must be “fair and reasonable” in accordance with Rule 3.6-1 of the Rules.

This makes sense, as there is no denying that employee associates are a law firm’s main profit centre. It would be unfair to prohibit lawyers or law firms who do not have the resources to hire full-time employee associates from using independent contractor associates (i.e. freelance lawyers) as profit centres. Admittedly employees have corresponding overhead costs that independent contractors do not, however, law firms mark-up employee associates’ rates above and beyond those costs. Also, in both scenarios, the employee associate and the independent contractor associate (freelance lawyer) are working under the supervision of a lawyer or law firm that is taking responsibility for the work completed by the associate.

Bottom line: the employment relationship between the associate and the hiring lawyer or law firm should have no bearing on the ultimate fee that the client pays for that associate’s time.

It is less clear whether a hiring lawyer must obtain consent from the client before marking-up a freelance lawyer’s fees.

Once again, nothing in the Rules or in case law advises that clients must consent to any fee mark-up.  This is understandable as law firms with employee associates are not required to seek consent from their clients to bill out their associate’s time at $350/hr when that associate is taking home only $90/hr.

However, there is a 20-year-old comment in a letter (see p.6 of the Guide) from the Professional Conduct Committee of the Law Society of Upper Canada (now the Law Society of Ontario) advising that the mark-up must be revealed to the client and the client must consent.

Respectfully, we disagree with this position. The compensation paid by the hiring firm to their associates (either full-time or freelance) is “irrelevant”[1] and the overall concern should be whether the fee charged to the client is “fair and reasonable”. Requiring lawyers and firms who use independent contractor lawyers (often solo and small firm lawyers) to meet the additional burden of revealing the mark-up and seeking out their client’s consent (something large firms are not required to do) is unfair and discriminatory. Profit from providing legal services is both appropriate and expected of both large and small firms.

However, despite disagreeing with the position, in order to be in full compliance with the only commentary from the Law Society on this issue, we recommend obtaining the consent of the client before marking-up the fees. Hiring lawyers already need consent from the client to engage the freelance lawyer and to provide the client’s confidential information to the freelance lawyer. When obtaining this preliminary consent (most often in a clause in the initial retainer) the hiring lawyer can add a reference to the mark-up (a sample is provided in the Guide).

We hope this answers your questions on the ethics of marking-up a freelance lawyer’s fees, if not, please review the full Guide or contact us!
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This is the third post in our series on the “Ethics of Freelance Lawyering”. The first two posts were on the Duty of Confidentiality and Avoiding Conflicts of Interest.

Note: This article provides an overview only for informational purposes and does not constitute legal advice. 
 
[1] See Willowrun Investment Corp. v. Greenway Homes Ltd.  (1987), 21 CPC (2d) 129 (Ont HC), [1987] OJ No 803, appeal dismissed [1987] OJ No 1020 (CA) (discussed in detail in the Guide).

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This is the second post in our series on the “Ethics of Freelance Lawyering”. This post examines best practices to avoid conflicts of interest while freelancing or when hiring a freelance lawyer. (Our first post was on Confidentiality)

What should Freelance Lawyers do to Avoid Conflicts of Interest?
Avoiding conflicts of interest is an important duty for all lawyers, especially freelance lawyers who by nature are working for a number of lawyers or law firms with a number of end-clients.

Rule 3.4-1 of the Law Society of Ontario’s Rules of Professional Conduct outlines a lawyer’s “Duty to Avoid Conflicts of Interest”:

3.4-1 A lawyer shall not act or continue to act for a client where there is a conflict of interest, except as permitted under the rules in this Section.

Conflict of interest is defined under Rules 1.1-1:

“Conflict of Interest” means the existence of a substantial risk that a lawyer’s loyalty to or representation of a client would be materially and adversely affected by the lawyer’s own interest or the lawyer’s duties to another client, a former client, or a third person. The risk must be more than a mere possibility; there must be a genuine, serious risk to the duty of loyalty or to client representation arising from the retainer.

Each province has a similarly worded rule, as does the Federation of Law Societies of Canada’s Model Code of Professional Conduct.

All our freelance lawyers who take on legal work are called to the Bar in at least one province in Canada and licensed with the law society or regulator of that province. This means that they all must abide by any applicable Rules or Code of Professional Conduct.

To abide by the Rules, a freelance lawyer cannot work on projects for different firms where the end-clients could be deemed to be adverse in interest to each other. Likewise, a freelance lawyer cannot assist one firm in a matter substantially related to (or the same as) a previous matter formerly handled for a different firm where the former and current client have materially adverse interest to each other.

The Law Society of Ontario provides best practices when hiring a “Contract Lawyer (or Paralegal)” to act as a locum for lawyers who take extended leaves from their solo practice.[1] While this is a different situation than freelancing (locums or contract lawyers “step into the shoes” of the hiring lawyer and work directly for and represent the end-client; freelance lawyers work remotely, only under the supervision of the outsourcing lawyer, and with likely no end-client contact), the LSO provides the following indirect guidance:

The same rules apply to the Contract Lawyer or Paralegal and to the contracting firm/lawyer/paralegal. The Contract Lawyer or Paralegal must set up a system to check for conflicts prior to working on the contracting firm/lawyer/paralegal's files. A Contract Lawyer or Paralegal needs to keep a list of clients to whom he or she has provided legal services during all Contract Lawyer or Paralegal projects. The Contract Lawyer or Paralegal must ensure that no conflict exists between his or her present clients and those to whom the Contract Lawyer or Paralegal provided legal services during all past Contract Lawyer or Paralegal arrangements or in his or her separate practice, if one exists.[2]

Therefore, to avoid the potential for conflicts, freelance lawyers maintain a list of current and former lawyer/law firm clients and the name of the end-clients those firms are assisting. Before commencing any project, a freelance lawyer will complete a “conflicts check”, just like any other lawyer taking on work.

What can Outsourcing Lawyers do to Avoid Potential Conflicts When They Hire Freelance Lawyers?
In the United States, the American Bar Association has provided helpful assistance for best practices for outsourcing legal work to freelance lawyers, including information on avoiding conflicts of interest. According to “ABA Formal Opinion 88-356 – Temporary Lawyers”, the analysis of whether conflicts are imputed as between a freelance lawyer and a hiring firm turns on whether the freelance lawyer is deemed to be “associated” with the hiring firm. The most important factor to determine “association” is whether the freelance lawyer has access to information related to the representation of firm clients other than the client on whose matters the freelance lawyer is working.
 
Courts in Canada have also confirmed the presumption of imputed knowledge between partners and associates at the same firm[3] and where lawyers work in “association” but hold themselves out to the public as a law firm (without taking the required steps to inform the public that the lawyers have separate practices, take proactive steps to avoid conflicts, etc.).[4] Neither of these situations apply where the freelance lawyer is brought on only to work on one particular aspect of a file, under the supervision of the lawyer, works remotely, does not have access to the other files at the firm, does not appear on the firm’s website or letterhead, etc.

Best Practices
Best practices dictate that freelance lawyers should only have access to the file or files they are assisting with or only the documents necessary for completion of the agreed upon projects. The freelance lawyer should not have access to any other files belonging to the outsourcing law firm. By limiting access to only the documents needed for the task at hand, the freelance lawyer is denied access to files that could create an association or potential for conflicts. Fortunately, technology is available for file sharing or remote access to only specific files or documents.

Freelance lawyers should also have a freelance lawyer agreement in place outlining the specific duration of the project and scope of work and clarifying that the freelance lawyer is an independent contractor and not practicing in association with the firm.

What about Flex Legal? Does it check for conflicts?
Flex Legal is not a law firm and is not retained on any of the projects, nor is anyone who manages Flex. While Flex works closely with lawyers or law firms who hire our freelance lawyers to ensure quality control and satisfaction with the work produced, Flex does not have access to any of the confidential documents, information, or work products. This eliminates the potential for conflicts of interest to arise.

Hope this helps clarify any questions you may have about conflicts of interest and freelance lawyering. If not, please feel free to contact us!
 
[1] See “Tips for Hiring a Contract Lawyer”, Law Society of Ontario website: https://lso.ca/getdoc/ab5868f6-8b2b-424f-b4d0-42d7063b004b/tips-for-hiring-a-contract-lawyer-or-paralegal
[2] See https://lso.ca/getdoc/d528d5ae-10c1-4f2c-8650-5b32c8c91417/ethical-issues-and-practice-management
[3] MacDonald Estate v. Martin, [1990] 3 SCR at 1235.
[4] Jajj v 100337 Canada Ltd 2013 ONSC 5743, Performance Diversified Fund v Flation GP Group, 2016 ONSC 1133 (DIv Ct).

Note: This article provides an overview only for informational purposes and does not constitute legal advice. 

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