With rate pressures and expenses mounting, law firms are looking for new ways to make ends meet. One area that seems to be exploding is the use of contract, or freelance, attorneys. Often, these attorneys are willing to apply their legal training on select projects without making a commitment to a full-time schedule or to a particular firm.

If used correctly, contract attorneys can help attorneys with projects—at lower costs—without a loss in the quality or efficiency demanded by clients. But without the appropriate supervision and controls, contract attorneys can create risks that law firms never considered. To avoid these risks, there are some important things for firms to remember when hiring and using contract attorneys.

The Duty to Supervise

Contract attorneys are attorneys who perform work by contract or agreement for a law firm or attorney. That contract can be an employment agreement making clear that the contract attorney is not an associate and is not on partnership track. It can also be an independent contractor agreement, providing for payment to the contract attorney for the time worked, but without the benefits associated with an employment relationship (presuming that the contract otherwise meets the IRS requirements for an "independent contractor").

Unless a client contracts directly with a contract attorney, it is the law firm that usually undertakes the attorney-client relationship, giving rise to a direct duty to the client. This relationship carries with it a number of duties, responsibilities and obligations imposed on the law firm with regard to the conduct of the contract attorney.

The California Rules of Professional Conduct do not specifically address contract attorneys; instead, the general ethics rules apply to all attorneys equally. For example, just as with an associate, law firms and their attorneys have the duty to supervise work performed by contract attorneys on their behalf to ensure compliance with all applicable ethical, professional and legal obligations. See Cal. R. Prof'l Conduct 3-110. These include the obligations to maintain confidences and secrets, perform ordinarily skillful work, and otherwise abide by the ethics rules.

The Exclusivity of Contract Attorneys

Conflict issues are relatively straightforward for law firms that hire a contract attorney as an employee to work exclusively for the firm and its clients. The imputation under California Rule of Professional Conduct 3-310 applies equally to all attorneys in the law firm, including contract attorneys.

State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion 1992-126 and ABA Formal Opinion No. 88-356 shed some light on this issue. Whether a contract attorney's individual conflicts are imputed to the firm hiring that attorney will depend on the nature and extent of the attorney's relationship with the firm and the extent of the contract attorney's access to the firm's confidential client information.

Where a contract attorney works with a firm sporadically on a few projects or on a single project for a long period, the contract attorney's conflicts are less likely to be imputed to the firm. According to the ABA, the question is whether the contract attorney is "deemed to be 'associated with' the firm" to such an extent that the contract attorney "has access to information relating to the representation of firm clients other than the client on whose matters the lawyer is working."

Per California State Bar Formal Opinion 1992-126, "the responsibility for checking conflicts of interest falls on both the firm and the contract attorney." The contract attorney "should maintain a personal record of clients and firms for whom he/she has worked, in addition to a general description of the work performed for the clients." Still, the firm hiring the contract attorney has "the most direct obligation" to monitor for potential conflicts of interest.

To ensure that a contract attorney's conflicts are not imputed to the firm, it is recommended that the firm take steps to delineate the contract attorney's limited role. For many firms, this typically means physical separation, such as working away from the office space or within a segregated or designated area at the firm's office. The contract attorney's access to firm databases or records could be limited to the specific project within the project attorney's assignment, and the project attorney typically should not be invited to attend meetings involving cases beyond the scope of work.

Overtime

If a law firm decides to simply hire a contract attorney as an employee, will all of the rules relating to employer-employee relationships attach, notwithstanding the fact that the employee is an attorney? California courts have provided some guidance on this issue, but courts across the country have blurred the line. For example, in 2011, California's First District Court of Appeal ruled that a law school graduate who had not yet passed the bar examination was ineligible for overtime pay for work he did as a law firm clerk. See Zelasko-Barrett v. Brayton Purcell, LLP, 131 Cal. Rptr. 3D 114 (2011). The court found that, even while working unlicensed, the clerk had exercised the discretion and judgment necessary to trigger the exception to overtime pay.

Still, as recently as May 2015, the U.S. Court of Appeals for the Second Circuit heard oral arguments from a contract attorney who sued a high-profile firm seeking overtime for document review services. In July, the Second Circuit vacated the New York district court's dismissal of the case and found that document review performed under tight constraints may not constitute the "practice of law" and thus may not fall under any overtime exemption. Other large firms have faced similar suits based on the theory that document review does not constitute "legal work" or "the practice of law" and, as such, is not subject to exemptions from overtime.

The same is true for other rules, regulations and laws that prohibit various forms of discrimination and impose other obligations on employers. The bottom line is that law firms opting for an employment relationship must abide by all of the rules, regulations and laws that attach to any employment relationship.

The Employment or Contractor Agreement

To avoid these risks, the best practice is to eliminate any ambiguity in two regards. First, the firm should consider making clear (preferably in writing) that both the law firm and the contract attorney agree to abide by the ethical, legal and professional rules that apply regardless of the type of relationship that may exist.

Second, law firms should consider documenting the exact nature of the relationship, whether employee or independent contractor; and, if the latter, whether exclusive or nonexclusive. For each option, firms should confirm compliance with the rules, regulations and laws that apply.

The failure to do so can mean unexpected risks arising out of a relationship that was actually intended to make the law practice more efficient and more profitable, not more risky.