MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2024-01
Incentive Agreements with Independent Contractors for Law Firm Advertising
In your letter of November 13, 2023 you requested an opinion concerning the propriety of Incentive Agreements with Independent Contractors for Law Firm Advertising. The Committee on Ethics of the Maryland State Bar Association considered and approved the following as our written opinion on the matter you raised.
QUESTION PRESENTED:
May an attorney hire an independent contractor to conduct advertising for the attorney’s law firm if the contract agreement includes an incentive whereby the contractor can receive a percentage of the firm’s overall net income or revenue?
CONCLUSION:
No. Entering into an incentive agreement with an independent contractor based on a law firm’s overall financial performance constitutes fee-splitting with a non-lawyer in violation of the Maryland Attorneys’ Rules of Professional Conduct (MARPC), discussed below, and is therefore impermissible.
BACKGROUND:
You advised that you are planning to open your own law firm focusing mainly on tax law. You currently do not have any employees. You would like to hire a non-lawyer independent contractor to handle advertising for your firm and pay the contractor either a set amount per month, or a percentage of your firm’s overall net income or revenue, whichever is greater. By entering into this agreement, you hope to incentivize the contractor and align your interests for mutual benefit. Although you will work directly with the contractor, and supervise their work, your agreement would not be exclusive, meaning the contractor could seek other clients, and you could hire other marketing firms. The contractor would only be paid based on either the agreed upon set amount or a percentage (noted above) calculated on a firm-wide basis. The contractor’s pay would not be tied to any particular matter or representation undertaken by your law firm, nor would they receive a referral fee or bonus. You requested a written opinion from the committee on whether this incentive agreement is permissible under the MARPC.
DISCUSSION/ANALYSIS:
Under MARPC 19-305.3, Responsibilities Regarding Non-Attorney Assistants, Maryland attorneys who supervise non-lawyers (either directly or through their law firms) must make reasonable efforts to ensure the non-lawyer’s conduct is compatible with the professional obligations of the attorney. Further, Maryland attorneys are responsible for the conduct of non-lawyers that would violate the MARPC if engaged in by the attorney if the attorney orders or ratifies the conduct, or if supervising the non-lawyer, fails to take reasonable remedial action. Comment # 1 to this rule specifies that these obligations apply regardless of whether the assistants are employees or independent contractors.
Given that you will be supervising the independent contractor, either directly or through your law firm, you must ensure that their conduct is compatible with your professional obligations under the MARPC. In particular, since the independent contractor will be handling your firm’s advertising, you must ensure that any advertising they prepare complies with the rules on Information About Legal Services, MARPC 19-307.1-19-307.5. We recommend that you review these rules carefully with the independent contractor and review any advertising campaigns beforehand to ensure compliance with these rules.
Under MARPC 19-305.4., Professional Independence of an Attorney, an attorney or law firm is prohibited from sharing fees (fee-splitting) with a non-lawyer except in limited circumstances. The underlying rationale behind this rule, as noted in Comment # 1 to the rule, is to “protect the attorney's professional independence of judgment.” Splitting fees with non-lawyers raises the possibility that the non-lawyer will seek to influence the attorney’s judgment or decisions based on their own financial interest. Because of this, our past opinions have consistently held that sharing fees with non-lawyers is prohibited, absent an exception. See MSBA Ethics Committee Ethics Dockets 2013-01, 2001-21, 1992-01 and 1984-103.
One exception to the rule against fee-splitting with non-lawyers allows an attorney or law firm to include their non-lawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement. You are considering hiring an independent contractor to conduct advertising for your firm, not an employee. This committee has never formally opined on the question of whether an independent contractor would fall under this exception. Certainly independent contractors are similar to employees in some respects, and categorizing them correctly can be difficult, but it’s beyond the scope of this committee to determine whether in this instance the contractor you plan to hire should be classified as an employee. Suffice it to say that the independent contractor will not be an employee, and although this committee has never considered whether this exception applies to independent contractors, other State bar ethics committees have found that it does not.
• The Virginia Standing Committee on Legal Ethics found, on very similar facts, that a law firm compensating an advertising agency in part based on a profit sharing plan would violate the prohibition on fee-splitting with non-lawyers. The Virginia committee held that the non-lawyer employee exception was inapplicable because the advertising agency was independent of the law firm and did not act as a bona fide regular employee of the law firm. VA Legal Eth. Op. 1438, 1999 WL 348585
• The Utah Ethics Advisory Opinion Committee found that the non-lawyer employee exception did not apply to independent contractor paralegals because as contractors, they were in a less subordinate role than employees, and therefore at greater risk of exerting undue influence on the attorney. UT Eth. Op. 02-07, 2002 WL 31079593
• The Michigan Standing Committee on Professional and Judicial Ethics found that an independent contractor consultant hired by a law firm could not be compensated by the firm based on a percentage of tax savings received by the client since the independent contractor was not an employee of the law firm. MI Eth. Op. RI-104, 1991 WL 12008971
With regard to employee compensation plans under this exception, in Dockets 2013-01 and 1992-01, noted above, we held that profit sharing plans or bonuses tied to specific cases or claims fall outside the exception and constitute impermissible fee-splitting. We have not specifically considered what constitutes a “compensation or retirement plan” under this exception, or whether they can include just a single employee; however, our prior opinions suggest that such plans based on overall firm profitability or revenue would be permissible, since they are not tied to any specific case, claim, file or referral. Other bar ethics committees have considered this question as it relates to non-lawyer employees and found that such plans are permissible.
• The District of Columbia Bar Ethics Committee found that a non-lawyer employee consultant’s compensation plan that tied the consultant’s earnings to fees received for specific cases violated the rule against fee splitting with non-lawyers, but also upheld the proposition that bonuses tied to overall profitability were permissible. DC Bar Ethics Opinion 322
• The Philadelphia Bar Association Professional Guidance Committee found that a law firm’s plan to pay a non-lawyer employee collector a bonus if the employee’s collections exceeded a set number was permissible, provided the bonus was not tied to or contingent on the payment of a fee from a particular case or specific class of cases relating to a particular client or debtor. Philadelphia Bar Ethics Opinion 2001-7
• The New York State Bar Association Committee on Professional Ethics found that law firms could compensate non-lawyer employees based on a profit sharing arrangement, but the remuneration could not be tied to the success of specific efforts by employees to solicit business for lawyers or law firms. NY Eth. Op. 733, 2000 WL 33347719
Based on the foregoing, a majority of this committee believes that Maryland should take a narrow reading of the non-lawyer employee exception and not extend it to independent contractors. The committee also supports following our sister bars with respect to non-lawyer employee compensation plans under the exception, and permitting those based on overall firm profitability, while maintaining the prohibition on those tied to a specific case, claim, file or referral. We should note that paying the independent contractor a flat fee is permissible, as this fee would not be tied to the financial performance of your firm, or any matters undertaken by your firm. Using the overall firm revenue or income percentage as an incentive may be permissible if you hired the independent contractor as an employee instead, but given that you would have only one participating employee, it’s unclear if the exception would apply; therefore, we take no position on whether this specific arrangement is permissible under the MARPC.
We hope this response is helpful. Thank you for contacting the Committee on Ethics.
Very truly yours,
MSBA COMMITTEE ON ETHICS
REFERENCES:
• Rules cited
• MARPC 19-305.3
• MARPC 19-305.4
• MARPC 19-307.1-19-307.5
• Cases cited
• Ethics Dockets cited
• MSBA Ethics Committee Ethics Dockets 2013-01, 2001-21, 1992-01 and 1984-103
• VA Legal Eth. Op. 1438, 1999 WL 348585
• UT Eth. Op. 02-07, 2002 WL 31079593
• MI Eth. Op. RI-104, 1991 WL 12008971
• DC Bar Ethics Opinion 322
• Philadelphia Bar Ethics Opinion 2001-7
• NY Eth. Op. 733, 2000 WL 33347719
• Other authority cited