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Building Your Law Firm Through Of Counsel Relationships

February 01, 2021

Sometimes solo practitioners and small law firms find that their client matters require legal counsel outside their core practice areas. Other times, client matters grow to the point where overflow work and trial preparation simply can’t be handled by their firms’ own lawyers. In these situations, firms may refer these matters out entirely or bring on co-counsel to assist.

But there may be a better way for law firms to consistently have access to lawyers with complimentary legal practices who can step in when client matters require it — without breaking the bank or disrupting firm culture.

Enter the of counsel relationship.

What is an of counsel relationship?

While it is not clear how many law firms use of counsel lawyers, the practice of bringing on such help is nothing new for law firms. It has been more than three decades since the American Bar Association analyzed of counsel relationships in a seminal 1990 ethics opinion, ABA Formal Ethics Opinion 90-357. In that opinion, the ABA defined the core characteristics of an of counsel relationship as a “close, regular, personal relationship” between the of counsel lawyer and the law firm with which they are associated.

Generally speaking, an of counsel relationship is a formal arrangement between a law firm and a lawyer in which the lawyer can service the firm’s clients but is neither an associate nor a partner at that firm. This arrangement allows a law firm to provide a broad array of legal counsel, including counsel outside their core competencies, through a particular lawyer or lawyers but without necessarily hiring them full-time.

In its 1990 ethics opinion, the ABA suggested four different ways an of counsel relationship could operate:

  • A part-time lawyer who is associated with a law firm but whose practice differs from other lawyers at the firm.
  • A retired partner of a law firm who serves more as a consultant than as an active, practicing lawyer.
  • A lawyer who joins a law firm with the expectation of becoming a partner at the firm in the near term.
  • A lawyer who practices full-time for a law firm with a status in between that of an associate and partner, and who has no expectation of being elevated to partner.

Staying in line with the ABA’s “close, regular, personal relationship” definition, of counsel relationships are not temporary relationships. The relationships must be closer than lawyers who just bounce ideas off each other. They must be more regular than an occasional collaboration between a law firm and an outside lawyer. And, of course, they must be legitimate relationships that were not formed primarily as a way to circumvent rules of professional conduct, such as those covering fee sharing.

Of counsel relationships are not consulting relationships like those a law firm might have with outside tax advisors, coaches, industry experts or specialists. Nor are of counsel relationships formed merely by lawyers sharing office space.

How can an of counsel relationship benefit a law firm?

While it would be ideal for law firms to provide for every legal need of a client, the reality is that there are times when clients require legal counsel beyond what most firms’ lawyers can competently offer. Of counsel relationships can increase both client satisfaction (because they won’t need to be referred out to another law firm) and law firm revenue (because those law firms can bill their clients for these additional services).

Additionally, many firms find themselves needing to bring on additional help during trial preparation but may not have the revenue and client work to employ additional lawyers full-time. Of counsel relationships enable a firm to provide overflow work to a lawyer who is known and trusted, whose role remains in-house and whose expertise can be relied upon by their colleagues.

When properly structured, of counsel relationships can also positively impact a firm’s marketing efforts. An of counsel lawyer can use their established name and reputation in a geographical area or within a practice area to further elevate the firm with which they are associated. This can help lesser-known or new firms quickly establish themselves among prospective clients and referral sources.

Are there ethical considerations to consider when bringing on an of counsel lawyer?

When exploring whether to bring on an of counsel lawyer, law firms must be cognizant of the ethical considerations of doing so. Typically, the three leading ethical considerations are conflicts of interest, confidentiality, and compensation.

Regarding conflicts of interest, which are governed by ABA Model Rules of Professional Responsibility 1.7 through 1.11, an of counsel’s client matters — either ones they have independent of the law firm or the ones they bring into the firm — could be problematic if those matters lead to a conflict with a firm’s current or prospective clients. In of counsel relationships, the of counsel and law firm are frequently treated as one entity governing disqualification, recusal, and other conflict issues.

However, some states allow screening to allow a law firm to represent a client despite having a lawyer at the firm who is conflicted from representing that client. This prevents the lawyer with conflicts from accessing the firm’s files regarding the client with whom the lawyer has a conflict, and vice versa.

For many law firms, it would not make sense to bring on an of counsel whose practice and matters could regularly raise conflict of interest concerns. However, for some law firms, the additional client work and revenue an of counsel lawyer could produce with their complementary legal practice could justify having to occasionally contend with a conflict of interest.

When it comes to confidentiality, which is governed by ABA Model Rule of Professional Conduct 1.6, lawyers are generally considered to be formally associated with the law firms where they serve as of counsel, thereby imparting on them a duty to keep information about client matters confidential.

Finally, while the ABA does not require that of counsel lawyers be compensated in a particular manner, your local jurisdiction may not agree. For example, you may not be able to compensate an of counsel lawyer with bonuses taken from your firm’s profits. And, in some jurisdictions, law firms are not permitted to split fees with of counsel lawyers.

If you choose to explore of counsel relationships for your firm, consult your jurisdiction’s rules of professional conduct and ethics opinions to determine your ethical obligations when it comes to conflicts of interest, confidentiality, and compensation regarding of counsel lawyers.

Tips for creating of counsel relationships

Thinking about bringing on an of counsel lawyer or two? Here are some tips for creating and maintaining mutually fruitful relationships.

1. Know your firm’s growth strategy before you bring on an of counsel lawyer

 As we’ve noted, of counsel relationships can take many forms. You will not be able to determine the best candidate for an of counsel position unless you know why you are creating that position. And you won’t know why you are creating that position until you know what your strategic plans are for your firm.

Are you simply looking for some help with overflow work? Then you will need an of counsel lawyer who can jump on various matters with short notice. Are you looking to get involved in more litigation? You will want your of counsel to handle discovery and trial preparation without much guidance. Are you looking to grow certain practice areas? Your of counsel should be an experienced practitioner in one of those areas and, probably, a savvy marketer.

While of counsel relationships are not permanent, your law firm will benefit from understanding exactly how an of counsel lawyer can help your firm get to where you want it to go tomorrow, next month, and next year.

2. Communicate to your of counsel lawyers what their roles are at your firm

Make sure your of counsel lawyers know why you brought them on.

An of counsel relationship could be an opportunity for a senior associate to build their book of business and continue to gain necessary training before being named a partner. If that’s the case, the lawyer should know that you want to see prolonged professional and business development growth before you make them partner.

On the other hand, you may wish to bring on as of counsel a lawyer who has a unique practice but no desire or ability to develop new business on their own. Here, you both should understand that while you do not expect the lawyer to develop a book of business, you do expect them to bill a certain number of hours each month to the firm’s clients.

Clear communication with of counsel lawyers at the beginning of your firm’s relationship with them can avoid misaligned expectations and priorities.

3. Synchronize of counsel compensation with your firm’s profitability and cash flow

If your local rules of professional conduct do not restrict how you can compensate an of counsel lawyer, you will have the freedom to provide a compensation package that meshes well with your law firm’s business model.

There are many ways to pay an of counsel lawyer. You could pay them a flat per-hour rate as you would a contract lawyer. You could give them a full-time salary. You could split the revenue generated by them, such as by paying them between 25% and 50% of the fees they bill clients. Or you could compensate them based on a mix of these methods. And, of course, there is the question of when to pay them. Every other week? Every month? When a client’s matter is resolved?

When considering how to compensate of counsel lawyers, consider a structure that is aligned with the economics of your firm. Some firms operate with razor-thin profit margins but have recurring monthly client revenue. These firms may not be able to afford to pay of counsel lawyers a percentage of client billings and may instead prefer a fixed hourly rate paid biweekly or monthly. Other firms have healthy profit margins but rely on contingency fees they receive on an irregular basis. For these firms, an hourly rate paid on a biweekly or monthly basis could cause a cash flow crunch.

Syncing of counsel compensation packages to your firm’s profitability and cash flow may help prevent financial headaches down the road.

Growing your law firm through of counsel relationships

Whether through the addition of new practices or simply by freeing up your firm’s lawyers to handle larger client matters or to increase their marketing efforts, of counsel relationships could help your law firm grow to new heights. After considering your jurisdiction’s ethical rules regarding of counsel relationships, your firm’s growth strategy, and its financial condition, you may find that the time is right for you to begin bringing on of counsel lawyers.