Alanna Clair and Shari Klevens. Alanna Clair and Shari Klevens

In recent years, the use of contract attorneys has been on the rise as busy law practices reluctant to commit to hiring full-time attorneys instead choose to seek additional support on an as-needed basis. However, with the increased use of contract attorneys comes some (manageable) risks, including some that may be less than obvious.

The associated risks vary widely. Using contract attorneys can implicate ethical issues created by undetected conflicts of interest, as well as employment law issues resulting from wage and overtime claims. Wage claims in particular have become an increasingly important issue, and courts around the country (including in California) have weighed in on the question of when law firms might be required to pay overtime.

This is not to suggest, however, that there is anything inherently wrong, unethical or unprofessional in using contract attorneys. This is a routine part of staffing cases in the modern law practice and provide great benefits to firms and clients. Rather, the key is to understand the potential risks and, to the extent possible, take steps to limit those risks while allowing the firm to enjoy the benefits of using contract attorneys. Below are suggestions for addressing risks associated with the use of contract attorneys.

Availability of Insurance Coverage

When it comes to insurance coverage for contract attorneys, it is helpful for law firms to proactively address the issue with their insurer and/or insurance broker rather than wait until a legal malpractice claim arises involving services performed by a contract attorney. Insurers often ask about the firm’s use of contract attorneys on the insurance application, but the issue may not always be addressed.

Without confirming coverage for contract attorneys, both law firms and the contract attorneys themselves incur unnecessary risk. Many policies require that, for coverage to exist, the services performed must arise out of an attorney-client relationship. For law firms who retain contract attorneys as independent contractors (subject to IRS standards), this can be especially complicated. The law firm may find itself arguing on one hand that an independent contractor attorney does not actually represent the law firm’s client for conflict purposes, but does represent the client in order to qualify for coverage under the legal malpractice insurance policy.

Law firms can help avoid these difficult situations by precisely defining the nature of the relationship between the law firm and the contract attorney, and further by confirming during the application process that the legal malpractice insurer will provide coverage should a claim arise. Coverage can be provided through the law firm’s own policy or through separate coverage purchased by the contract attorney.

‘Independent’ Contractors or Employees

Another potential ambiguity that can lead to risks is the age-old question of whether contract attorneys are employees of the law firm or instead independent contractors, incapable of binding either the law firm or the client.

While this question requires a fact-intensive analysis, the ramifications of the distinction are serious and range from ethics issues to tax and employment considerations. Indeed, the IRS’s definition of an independent contractor involves a consideration of more than 20 factors.

Even if a contract attorney meets the tax definition for an independent contractor, there may still be ethics issues to address. The law firm may want to consider, for example, the use of a common interest agreement to protect the attorney-client privilege among counsel not in the same law firm.

To avoid confusion, it is helpful for law firms to remain consistent with respect to their treatment of contract attorneys. If the contract attorney is to be truly “independent,” the law firm should consider whether the contract attorney is in fact treated that way for all purposes, including with respect to employment, tax, and ethics issues.

Documenting the Relationship

When a legal malpractice claim arises out of work performed by a contract attorney, the most compelling evidence regarding the nature of the relationship between the contract attorney and the law firm is typically a written agreement. In the absence of any written documentation, the issue may be left to the competing recollections of the parties involved, as well as to a consideration of what a reasonable third party may have believed.

A number of issues can be addressed in the written agreement between the law firm and the contract attorney. For example, law firms can ensure that the contract terms are consistent with the tax and employment statutes governing the nature of the relationship (i.e., employee or independent contractor) desired by the law firm.

Law firms can also address the ethical obligations associated with the use of contract attorneys, which vary depending on the nature of the relationship. If the contract attorney is an employee, then the law firm may want to specify that the standard procedures for training and supervising employed attorneys will apply. If the contract attorney is not an employee, then the contract might include provisions addressing conflicts of interest, confidences and secrets, compliance with ethics rules, and the performance of ordinarily skillful services.

In addition, given the importance of ensuring that legal malpractice insurance is in place that protects both the law firm and the contract attorney, any documentation confirming coverage under the law firm’s policy or under a policy obtained by the contract attorney (as discussed above) is helpful to avoid any uncertainty as to the availability of coverage and as to the party responsible for procuring such coverage.

Finally, law firms may choose to document the client’s consent to the use of contract attorneys on a matter, which can also help avoid any misunderstandings as to the role of the contract attorney and her or his relationship with the law firm.

The goal for law firms is to leave nothing to chance, but instead to take steps to avoid the unnecessary complications that can lead to liability when using contract attorneys.

Shari L. Klevens is a partner at Dentons US and serves on the firm’s US Board of Directors. She represents and advises lawyers and insurers on complex claims, is co-chair of Dentons’ global insurance sector team, and is co-author of “California Legal Malpractice Law” (2014).  Alanna Clair is a senior managing associate at Dentons US and focuses on professional liability defense. Klevens and Clair are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance.”