Lawyers and law firms who hire Flex freelance lawyers often ask us: How do I bill out the freelance lawyer’s time or cost to my client?
In response we have drafted our own “Definitive Guide: Billing Out & Marking-Up Flex Freelance Lawyers’ Fees to Clients” based on our research and analysis. You can find this Guide on our Free Resources page.
While we recommend you review the full Guide, we know you are busy lawyers (!) so the short answer is that there are several options on how to bill out the cost of a freelance lawyer to a client:
1) pass the direct cost of the freelance lawyer to the client as a disbursement (although our courts discourage categorizing a freelance lawyer’s cost as a disbursement when seeking a costs award or on a costs assessment, noting that they should be characterized as legal fees (see cases in the Guide));
2) pass the cost of the freelance lawyer on to the client as legal fees at the same rate the hiring firm or hiring lawyer paid the freelance lawyer;
3) pass the cost of the freelance lawyer on to the client as legal fees and mark-up the rate paid by the hiring firm or hiring lawyer (note: you cannot mark up a disbursement); or
4) the hiring lawyer absorbs the cost themselves.
The most common question we receive is with respect to #3: Is it ethical for the hiring lawyer to mark-up the freelance lawyer’s legal fees before passing them on to the client?
After reviewing the analysis and research in our Guide, we’ve concluded that nothing in the Rules of Professional Conduct, legislation, or case law prohibits a mark-up of a freelance lawyer’s fees, as long as the mark-up is passed along as legal fees, and not a disbursement. The overarching principle and governing rule being that the ultimate fee charged to the client must be “fair and reasonable” in accordance with Rule 3.6-1 of the Rules.
This makes sense, as there is no denying that employee associates are a law firm’s main profit centre. It would be unfair to prohibit lawyers or law firms who do not have the resources to hire full-time employee associates from using independent contractor “associates” (i.e. freelance lawyers) as profit centres. Admittedly employees have corresponding overhead costs that independent contractors do not, however, law firms mark-up employee associates’ rates above and beyond those costs. Also, in both scenarios, the employee and the independent contractor (freelance lawyer) are working under the supervision of a lawyer or law firm that is taking responsibility for the work completed.
Bottom line: the employment relationship between the associate/lawyer and the hiring lawyer or law firm should have no bearing on the ultimate fee that the client pays for that lawyer’s time.
It is less clear whether a hiring lawyer must obtain consent from the client before marking-up a freelance lawyer’s fees.
Once again, nothing in the Rules or in case law advises that clients must consent to any fee mark-up. This is understandable as law firms with employee associates are not required to seek consent from their clients to bill out their associate’s time at $350/hr when that associate is taking home only $90/hr.
However, there is a 20-year-old comment in a letter (see p.6 of the Guide) from the Professional Conduct Committee of the Law Society of Upper Canada (now the Law Society of Ontario) advising that the mark-up must be revealed to the client and the client must consent.
Respectfully, we disagree with this position. The compensation paid by the hiring firm to their associates (either full-time or freelance) is “irrelevant”[1] and the overall concern should be whether the fee charged to the client is “fair and reasonable”. Requiring lawyers and firms who use independent contractor lawyers (often solo and small firm lawyers) to meet the additional burden of revealing the mark-up and seeking out their client’s consent (something large firms are not required to do) is unfair and discriminatory. Profit from providing legal services is both appropriate and expected of both large and small firms.
However, despite disagreeing with the position, in order to be in full compliance with the only commentary from the Law Society on this issue, you could consider obtaining the consent of the client before marking-up the fees, if you wish. Hiring lawyers already need consent from the client to engage the freelance lawyer and to provide the client’s confidential information to the freelance lawyer. When obtaining this preliminary consent (most often in a clause in the initial retainer) the hiring lawyer can add a reference to the mark-up (a sample is provided in the Guide).
We hope this answers your questions on the ethics of marking-up a freelance lawyer’s fees, if not, please review the full Guide or contact us!
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This is the third post in our series on the “Ethics of Freelance Lawyering”. The first two posts were on the Duty of Confidentiality and Avoiding Conflicts of Interest.
Note: This article provides an overview only for informational purposes and does not constitute legal advice.
[1] See Willowrun Investment Corp. v. Greenway Homes Ltd. (1987), 21 CPC (2d) 129 (Ont HC), [1987] OJ No 803, appeal dismissed [1987] OJ No 1020 (CA) (discussed in detail in the Guide).
Photo by pina messina on Unsplash
