|Oregon State Bar Bulletin NOVEMBER 2008|
It happens with sometimes startling regularity. Another manufacturing plant closes. Another 500 jobs are shipped overseas. You may think this can’t happen to you. You are a lawyer. Lawyers are professionals. Professional jobs aren’t shipped overseas. Sure some people may fly to India for cheaper medical treatment, but practicing law is different than practicing medicine. What do people outside the United States know about our laws? A lot, according to Arin Greenwood, author of "Manhattan Work at Mumbai Prices: Inside India’s Hottest Legal Outsourcing Firm," ABA Law Journal (October 2007). Providing legal services to United States’ law firms is becoming big business in India. Greenwood writes:
(Outsourcing) started gaining steam after 2000, and Jindal estimates that there are about 100 legal outsourcing companies that employ between 600 and 800 Indian attorneys. While that number is still a tiny percentage of India’s legal sector, which is estimated to have 80,000 new law graduates every year, it can only increase based on estimates of how big outsourcing is expected to become. Exact figures are hard to pin down, but an oft-quoted figure puts the current value of these offshore services in India at $80 million per year, with the expectation that it will reach $4 billion by 2015.
So if you think overseas outsourcing can’t happen to lawyers, think again.
In theory at least, shipping legal work overseas is not much different than hiring your local contract lawyer to do your legal research, draft a motion or summarize boxes of discovery. But in practice, outsourcing legal work to lawyers overseas presents unique challenges for the outsourcing lawyer in supervising the work and ensuring that it is done professionally, competently and, of course, ethically.
The ABA Standing Committee on Ethics and Professional Responsibility recently issued Formal Opinion 08-451, which details the ethics obligations of lawyers that outsource legal work.1 The committee determined that there is nothing per se unethical about a lawyer outsourcing legal work. In fact, it praised outsourcing as a way to reduce client costs and allow smaller firms to provide representation on large, discovery-intensive litigation. Even so, the opinion cautions lawyers to be mindful of their ethical obligations regarding competence, supervision, protection of confidential information, reasonable fees and not assisting others with the unauthorized practice of law.
ABA Model RPC 1.1, like its counterpart in Oregon, obligates lawyers to provide competent representation, which requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. ABA Formal Op No 08-451 explains this requirement further by quoting from comment (1) to ABA Model RPC 1.1:
In determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question, the preparation and study the lawyer is able to give the matter and whether it is feasible to refer the matter to, or associate or consult with, a lawyer of established competence in the field in question.
The challenge for outsourcing lawyers is to ensure that their contract lawyers have the legal knowledge, skill, thoroughness and preparation reasonably necessary to handle the assigned project. ABA Model RPC 5.1 and 5.3 impose obligations on lawyers who have direct supervisory authority over other lawyers and nonlawyers.2 Rule 5.1(b) says that "(a) lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer confirms to the Rules of Professional Conduct." Similarly, Rule 5.3(b) requires lawyers who employ, retain, or associate with nonlawyers to "make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer."
ABA Formal Op No 08-451 discusses the unique issues facing lawyers who outsource legal work to individuals overseas, where physical separation and substantial time differences can make supervision more difficult. In order to ensure the provision of competent services, the opinion suggests that outsourcing lawyers conduct reference checks and background investigations into the principals of foreign firms and its employees. It may also be prudent to determine the educational background of the employees who will be handling a project and whether their legal training, particularly on the subject of legal ethics, is similar to that which they might receive in the United States.
A review of the foreign firm’s security systems, computer network and refuse disposal practices may also be necessary in order to ensure that the confidentiality of client information will be adequately protected. Whether client documents and confidentiality can be adequately preserved may also depend on the political landscape of the country to which the services are being outsourced. Might client information be subject to judicial or administrative seizure? Are remedies available to recover client property if a dispute arises between the outsourcing lawyer and the overseas contractor? With these concerns in mind, the opinion strongly advises the use of written confidentiality agreements in outsourcing relationships.
To Tell or Not
Another consideration for the outsourcing lawyer is if and when the client must be informed of the use of a contract lawyer. ABA Formal Op No 88-356 discussed the ethics of using temporary lawyers, a form of outsourcing, to perform legal work for a client, and determined that a client ordinarily is not entitled to notice of the use of a temporary lawyer as long as the hiring lawyer is closely supervising the temporary lawyer’s work. However, ABA Formal Op No 08-451 cautions that:
…(w)here the relationship between the firm and the individuals performing the services is attenuated, as in a typical outsourcing relationship, no information protected by Rule 1.6 may be revealed without the client’s informed consent. The implied authorization of Rule 1.6(a) and its Comment (5) thereto to share confidential information within a firm does not extend to outside entities or to individuals over whom the firm lacks effective supervision and control.
Reading these two opinions together suggests that the prudent practice for outsourcing lawyers would be to secure the client’s informed consent3 before disclosing confidential information to an overseas law firm.
What to Charge
Finally, the outsourcing lawyer may only charge fees for the contract lawyer’s services that are reasonable and comply with the requirements of Rule 1.5. In the absence of an agreement with the client to the contrary, law firms that engage the services of a contract lawyer may add a surcharge to the costs paid by the hiring firm, provided that the markup reflects a reasonable allocation of overhead costs incurred, such as office space, support staff, equipment and supplies for the lawyer under contract.4 The opinion notes that such overhead costs may be minimal or nonexistent for work outsourced to an overseas firm, where need for infrastructure support is unnecessary. In that case, "the outsourced services should be billed at cost, plus a reasonable allocation of the cost of supervising those services if not otherwise covered by the fees being charged for legal services." ABA Formal Op No 08-45.
Whether outsourcing of legal work overseas is the wave of the future, as suggested by Greenwood, or whether it will ever catch on in Oregon, ABA Formal Op No 08-451, is an important reminder of lawyers’ ethical duties whenever legal work is farmed out to a third party. Of primary concern is that lawyers take care to adequately supervise the contract lawyer’s work to ensure that competent services are provided and confidentiality protected.
1. ABA formal ethics opinions are not binding in Oregon. However, to the extent that the Oregon Rules of Professional Conduct mirror the ABA Model Rules, the ABA opinions can provide useful guidance in interpreting Oregon lawyer ethics.
2. Oregon RPC 5.1 and 5.3, while similar, are not identical to the ABA Model Rules.
3. "Informed consent" is defined in Rule 1.0(g).
4. See also ABA Formal Op Nos 00-420 (Surcharge to Client for Use of a Contract Lawyer) and 93-379 (Billing for Professional Fees, Disbursements and Other Expenses).
ABOUT THE AUTHOR
Helen Hierschbiel is deputy general counsel for the Oregon State Bar. She can be reached at (503) 620-0222, or toll-free in Oregon at (800) 452-8260, ext. 361, or by e-mail at email@example.com.
© 2008 Helen Hierschbiel