Does your firm have Non-Equity Partners? Of Counsel, Consulting, or Contract Attorneys? All of the above? What is the nature of their relationship with the firm, and how are they compensated? Are these attorneys paid as employees (W-2), independent contractors (1099), or do they receive a K-1? How are they described on your website and to clients?
As law firm managers find themselves adapting to the changing workplace, law firms are increasingly hiring, promoting, and affiliating with lawyers in different capacities to meet various needs, sometimes without giving much thought to how best to structure those relationships. During departures or attorney transitions, the exact nature of these relationships tends to be under a microscope. However, these decisions are about more than just what to call these attorneys (although the lawyer’s title is one factor); they implicate a variety of significant legal, ethical, and risk management issues for the law firm – and should be managed with care.
Are non-equity partners really “partners”?
Non-equity partner status in law firms continues to be on the rise, as more law firms slow their equity partners admissions and expand this class of lawyers at the firm. The benefits to law firms are apparent. With the “partner” title, non-equity partners can take on more prominent roles in client matters, can be billed out at higher rates, and maintain or keep the firm’s profits per equity partnership (PEP) ratio. From the lawyer’s perspective, it offers a promotion (hopefully with a corresponding salary increase), a prestigious new title, and ostensibly the chance to become an equity partner, although not always. (As we have previously written, using the title “partner” to describe a non-equity partner may be ethically proper if specific criteria are met.) If not properly managed, such an arrangement may also involve downsides and risks to both the law firm and the non-equity partners.
To be clear, non-equity partners are not owners, and may not even be partners. Depending on the circumstances and how the firm structures this relationship, that partner title may have no substantive meaning under relevant partnership laws. The non-equity partner may not have any rights or obligations as a partner to the law firm. And, in fact, that non-equity partner actually may be or should be an employee.
Of Counsel, Contract, and Consulting Attorneys.
Using Of Counsel, contract, or consulting attorney positions works well for law firms of all sizes trying to balance growth and dynamic staffing and client needs. They also offer the promise of flexible arrangements as more and more attorneys look for alternative working relationships with law firms. However, law firms must carefully consider how to work with and structure their relationships with these attorneys properly.
First, there are important employment law considerations. Do you intend for this attorney to be an employee or an independent contractor, and do they fit the relevant criteria? Do you have an agreement to memorialize the relationship?
Second, there are many ethical issues implicated by this arrangement. How are these attorneys held out to clients and the general public? Are multi-jurisdictional practice issues involved? Will these attorneys be supervised? If so, by whom? Does the attorney practice in more than one firm? Does your proposed compensation method implicate attorney-fee share rules?
Third, from both an ethical and risk management perspective, how will conflicts be managed? What systems will be in place to maintain client confidentiality? How will professional liability insurance be handled? These are just a few of the many issues that need to be appropriately considered and evaluated as part of these outside counsel working relationships.
As law firms continue to grow and pivot during these usual times, law firm managers continue to think more about what role their various lawyers will play in the future of the firm. A thoughtful analysis of your law firm’s attorney promotion systems, its use of non-equity partners, and Of Counsel, contract, and consulting attorneys, to achieving both short term and long term goals is critical to your success.
Dena M. Roche
O’Rielly & Roche LLP
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