Compensation for the Attorney "Of Counsel" to Your Law Firm

The title "Of Counsel" is used to describe a number of different attorney relationships to a law firm. "Of Counsel" attorneys are not partners or associates, but rather lawyers who have a "close and continuing relationship" with the firm. They could be part-time lawyers, retired partners who occasionally consult, probationary partners, or lawyers whom the firm does not intend to make partner but nevertheless wishes to employ continually. An affiliation that amounts to no more than a referral relationship, or that involves only one case, does not merit "Of Counsel" designation.

Assuming a lawyer is properly designated "Of Counsel," are there any restrictions on methods of compensating him or her?

ABA and State Ethics Opinions

Many years ago when "Of Counsel" relationships were not as frequent as they are today, the American Bar Association (ABA) ethics committee was of the view that an "Of Counsel" attorney could not be an employee, and could be compensated only by a division of fees in particular cases or on a basis of consultation fees. When the ABA issued its landmark opinion on the "Of Counsel" relationship in 1990, however, it took a more modern approach, stating that the method of compensation is not relevant to determining whether an affiliation may be designated "Of Counsel." Some states such as Michigan and New York are in accord with the ABA approach. Under this view, an "Of Counsel" attorney can be compensated by, for instance, a salary or payment of retirement benefits.

In other states, ethics opinions have imposed some restrictions on methods of compensating "Of Counsel" attorneys. In California, for example, it is suggested that an "Of Counsel" attorney should be compensated on the basis of individual cases and should not share in the firm's general profit or expenses.

In Los Angeles County, a firm should not pay to an "Of Counsel" lawyer a bonus computed as a percentage of profits from referred business, and should not pay any bonus without client consent. You should check your state's ethics opinions to see if they allow unrestricted compensation arrangements, or whether limits apply.

If No Compensation Restrictions Apply

If you're satisfied that it's appropriate to designate an attorney "Of Counsel" to your firm and that all methods of compensation are permissible, the terms of compensation are freely negotiable and should be set forth in the employment agreement. For an "Of Counsel" attorney functioning as a salaried consultant, there may be a variety of bonus configurations, including those based on billable hours, billed and collected revenue, or percentage of contingency awards. The "Of Counsel" attorney could be given profit participation in the firm, which is often coupled with a straight gross revenue share of the fees paid by the attorney's clients. You can hire "Of Counsel" attorneys as independent contractors, as well. Frequently "Of Counsel" attorneys are provided with office space, administrative assistance, and medical or other benefits.

Fee Sharing with an Attorney "Of Counsel"

Under ABA Model Rule of Professional Responsibility 1.5(e), if two lawyers from different firms are going to split a fee, it must be divided in proportion to the services performed by each lawyer, unless, with written consent of the client, the lawyers have agreed to assume joint responsibility for the representation.

Does this Rule Have Any Bearing on the "Of Counsel" Relationship?

One way of looking at this issue is to treat the "Of Counsel" attorney as part of the firm for purposes of fee sharing. Such an attorney, therefore, would not be subject to the restrictions applicable to lawyers outside the firm. This is the view of the Restatement of the Law Governing Lawyers, section 47, Comment g (2000), and several state and local ethics opinions including Alabama, New Jersey, New York City, Philadelphia, Texas and Virginia.

But because the "Of Counsel" attorney is not a partner or associate of the firm, some authorities find it only logical that the rules regulating division of fees between lawyers who are not in the same firm apply to the "Of Counsel" relationship such as in Arizona, California, and Maryland.

Splitting the difference, other ethics opinions such as from the District of Columbia and the state of Florida say that the rules governing the division of fees between lawyers in different firms apply unless the "Of Counsel" attorney in effect functions as a partner or associate of the firm.

Consult your state or local ethics authorities for their views on fee sharing with "Of Counsel" attorneys. It should go without saying that it's never a good idea to try to avoid the rules on fee sharing by using the label "Of Counsel" when the relationship does not qualify as such.