Outsourcing on the Upswing
In an era where lawyers and law firms seek to run “lean” as a way of keeping costs down, outsourcing services once performed in-house by law firms can be a wise financial move. The advent of COVID-19 has accelerated consideration of outsourcing various administrative services so as to streamline back-office functions.
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.’’ See ABA Commission on Ethics 20/20, Revised Proposal – Outsourcing (Sept. 19, 2001). Due to the COVID-19 pandemic, additional reasons for outsourcing include the need for social distancing and the necessity of firms working remotely.
Outsourcing is not a novel concept, and significant ethical issues should 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, an associate or a contract lawyer. Ethical implications also apply to outsourcing other aspects of a law firm’s work, including:
- 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 company 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.
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 will provide 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 it to eliminate redundant staff positions.
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 initiative.
Wilson Sonsini Goodrich & Rosati also recently entered into an agreement with legal services firm Epiq. According to Wilson Sonsini’s press release, Epiq will handle records management and office services for several of Wilson Sonsini’s offices. “By partnering with Epiq, we are granted access to extensive resources including skilled talent, innovative technology, and deep expertise to provide us more flexibility which helps us serve our clients better,” Dan Carrier, director, purchasing and business services at Wilson Sonsini, said in a statement. “Epiq’s support during COVID-19 has been critical in keeping our operations running smoothly while enabling and supporting our remote workforce.”
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 ultimate responsibility for her work and that responsibility cannot be delegated. See Fla. Bar Ethics Op. 07-2 (Jan. 18, 2008); Kentucky Bar Ethics Op. E-142 (Mar. 1976). ABA Standing Committee on Ethics and Professional Responsibility Formal Op. 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 Op. 08-451. Ensuring that an outsourced provider contributes to a ‘‘competent’’ representation can largely be accomplished by how the provider is supervised.
Under Model Rules 5.1 and 5.3, an outsourcing attorney has the responsibility to ensure the ethical conduct of lawyers and non-lawyers under the attorney’s supervision. For lawyers, the attorney must take reasonable efforts to ensure their conduct ‘‘conforms’’ to the Model Rules. See Model Rule 5.1(b). For non-lawyers, the attorney must take reasonable efforts to ensure their conduct is ‘‘compatible with’’ the Model Rules. See Model Rule 5.3(a). With both lawyers and non-lawyers, a supervising attorney has committed an ethics violation if she orders or ratifies conduct that constitutes a rule violation. See Model Rule 5.1(c) and 5.3(c)(1).
“Competence” also includes technology competence. There are two ways lawyers can satisfy their ethical duty of technology 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 assure compliance with all applicable Rules of Professional Conduct. See Model Rule 5.1 and 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 confidential information. Lawyers are responsible to vet 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, and 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 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.’’ See 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’’ to the former client’s representation. See 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 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 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 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 NYC Bar Ethics Op. 2006-3 (Aug. 2006), note 9. 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 NYC Bar Ass’n Comm. on Prof. Resp., Report on the Outsourcing of Legal Services Overseas (2007), n. 56. 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. See 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 concludes the more attenuated supervision and control makes 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. See 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.” See NYC Bar Ethics Op. 2006-3 (Aug. 2006), n. 9.
The lawyer must remain responsible for competently carrying out the client’s representation, and must appropriately supervise the work performed by non-lawyers. 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 and has been accelerated by the pandemic. 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 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 so long as the lawyers remain mindful of the duties and limitations imposed by the pertinent rules.
About the Authors
William E. Gericke (left; WGericke@cozen.com) and Thomas G. Wilkinson (right; TWilkinson@cozen.com) are members of Cozen O’Connor’s Legal Profession practice group. Bill is a member of the Philadelphia Bar Association Professional Guidance Committee. Tom is a member of the ABA Litigation Section’s Ethics and Professionalism Committee. He is also a past chair of the Pennsylvania Bar Association Legal Ethics and Professional Committee and served on the ABA Standing Committee on Professionalism.