For backers of evolution in the global legal sector, the recent American Bar Association (ABA) decision to halt its ethics study of non-lawyer ownership of law firms was a bitter disappointment. Moves towards liberalisation in the UK and Australia were tipped for a repeat in the US, with its larger commercial dimensions – and the Law Society of England and Wales, which had overseen legal reforms in the UK, had helped to keep the issue on the US agenda.

Pro-liberalisation parts of the legal sector had hoped that a failed attempt by personal–injury law firm Jacoby & Meyers to secure non-lawyer ownership in the state of New York was just a local affair. Even as the state’s Supreme Court blocked the firm’s bid, a wider debate on the matter – with a national outlook – was still progressing within the ABA’s Commission on Ethics 20/20.

But it turned out that the Jacoby ruling was just a sign of things to come with the rejection of non-lawyer ownership at national level following shortly after.

With the liberalisation debate brought to a close in April, the Commission announced the following month that it had examined ethical issues in work carried out between lawyers employed by traditional law firms and non-lawyers hired by Legal Services Outsourcing (LSO) companies – although it should be noted that LSO companies themselves also employ significant numbers of trained lawyers.

So, why the sensitivity – and what has the ABA said?

A pragmatic decision

Non-lawyer involvement in legal services has been a subject of debate in US ethics circles since the mid-to-late 1990s. Then, the so-called ‘Big Six’ accounting firms began to circle around law firms as potential acquisitions. Ethical alarms sounded over the possibility that such ownership structures would only produce conflicts of interest between corporate power and legal principles – and the economic crisis that began in 2008 only served to fuel the debate.

The Commission on Ethics 20/20 was appointed by the ABA to comb through the organisation’s Model Rules to assess whether they were still relevant and fit for purpose. In 2010, as NewLegal Review reported, it decided not to make them more restrictive in ways that could have limited the opportunities – and therefore growth – of LSO providers.

The Commission had been expected to form this view: in 2008, the ABA itself had already given LSO companies a clean bill of health – on the proviso that lawyers met existing ethical and professional obligations while contracting them. In doing so, it had accepted that the LSO industry – which employs large numbers of non-lawyers in addition to trained lawyers to work closely with traditional law firms – as a fact of life, driven by client demands for more cost-effective service delivery.

Professional obligations

In May this year, the Commission released proposed changes to professional guidelines for practising lawyers – which supplement the Model Rules – addressing the specific area of legal outsourcing. Its additions provide a framework for how working relationships between traditional lawyers and non-lawyers in LSO companies should be conducted.

Those additions, which will go before a full ABA vote in August, are:

i) A lawyer may use non-lawyers outside the law firm to assist the lawyer in rendering legal services to the client. Examples include:

• The retention of an investigative or paraprofessional service.

• Hiring a document-management company to create and maintain a database for complex litigation.

• Sending client documents to a third party for printing or scanning.

• Using an internet-based service to store client information.

ii) When using such services outside the law firm, a lawyer must make reasonable efforts to ensure that they are provided in a manner compatible with the lawyer’s professional obligations. The extent of this obligation will depend upon the education, experience and reputation of the non-lawyer; the nature of the services involved; and the terms of any arrangements concerning the protection of client information.

iii) When retaining or directing a non-lawyer outside the law firm, a lawyer should communicate directions appropriate under the circumstances to give reasonable assurance that the non-lawyer's conduct is compatible with the lawyer’s professional obligations.

iv) Where a law firm’s client directs the selection of a particular non-lawyer service provider outside the firm, the lawyer ordinarily should agree with the client on the proportional allocation of responsibility for monitoring that service provider.

Those points are supported by an addition on retaining other lawyers and firms: ‘When lawyers from more than one law firm are providing legal services to the client on a particular matter, the lawyers ordinarily should consult with each other and the client about the scope of their representations, and the allocation of responsibility among them.’

If there is a watchword at the heart of the additions, it is communication – and the overall rationale behind the new guidelines is to uphold that value as a means of avoiding ethical pitfalls.

In a recent ABA podcast on the ethics of traditional lawyers’ working with LSO providers, Brant Weidener – claims manager of the lawyers’ liability department at specialist insurer Beazley – said that his company is ‘paying a lot of attention’ to the debate around disaggregated legal services.

‘When you break up an engagement and split it into parts,’ he said, ‘the ethics guidance and caselaw on this dictate that the lawyer is responsible for this work. And the law firm will be looked to by the judge – or by the client – to be the ultimate arbiter of what is going on.’

Setting standards

Speaking from the LSO provider's perspective, John Riedel, Senior Corporate Counsel at CPA Global, said: ‘Leading LSO providers like CPA Global work with many of the world's most respected corporations and law firms, and are already adhering to high standards of conduct that are entirely consistent with our clients' professional obligations.

‘Our internal teams are led by lawyers who are qualified in at least one jurisdiction and work closely with the clients’ own legal teams. Prior to any engagement and throughout the relationship, we cooperate with our clients to review and maintain security systems; to lay down clear procedures and processes around workflow, roles and responsibilities, and client interaction; and to ensure the quality of the LSO teams working on client assignments. This latter area includes interviews for the client with the main project lawyers, and evaluations of the quality, character and educational and career backgrounds of all those staffing a project. On top of this, clearly established performance metrics are put in place.

‘Furthermore,’ Riedel added, ‘LSO providers are careful to ensure that their activities are well within the guidelines set by their respective jurisdictions with regards to the unauthorised practice of law. These precautions include, among other things, LSO teams acting only under the supervision of client attorneys; and LSO providers refraining from advertising or holding out to clients that they provide legal advice.’