Opinion 2001-7
(July 2001)

The inquirer's firm is retained by collection agencies and creditors to work on collection matters on a contingency fee basis. In addition, the inquirer and one of his law partners formed a non-law partnership for the purpose of buying and collecting charged off debt. The inquirer has asked two questions related to the collection work.

The inquirer's first question is whether his law firm may pay its non-lawyer employee collectors a bonus if the gross amounted collected by them exceeds a predetermined figure.

Pennsylvania Rule of Professional Conduct 5.4(a) provides:

A lawyer or law firm shall not share legal fees with a nonlawyer, except that:...

(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.

Rule 5.4(a)(3) permits the sharing of legal fees with non-lawyer employees if such sharing is pursuant to a compensation or retirement plan. A number of ethics opinions have explained that Rule 5.4(a)(3) permits the payment of compensation to non-lawyer employees based upon a law firm's annual profits or gross income or based on the number of non-lawyer billable hours invoiced to all clients. See Ct. Informal Op. 93-1 (January 1993) (law firm may compensate paralegal based upon a per billed hour rate provided the paralegal does not participate in any decision making of the firm's fees, share in any particular fee of the firm, make professional judgments or undertake professional responsibilities that are entirely reserved for and exercised by the lawyers of the firm); Va. State Bar, Stndg. Comm. on Legal Ethics, Op. 885 (1987) (lawyer handling collections may compensate non-lawyer employee a percentage of all profits from collections received); Pa. Bar Ass'n,, Op. 97-20 (January/February 1998) (lawyer may compensate law student a per-hour rate per billable hour invoiced to clients provided that the payment is not contingent upon the client's rendering payment of lawyer's billing statement); SC Bar Advisory, Op. 97-02 (March 1997) (firm may award a bonus to individual paralegals based upon the charges billed by each paralegal to clients provided the amount billed is reasonable and not based on a percentage of a particular fee earned); Utah Ethics Advisory Op. Committee, Op. 139 (January 1994) (non-lawyer employees may be compensated based on a percentage of profits or gross receipts so long as it is not tied to specific fees from a particular case).

It is this committee's opinion that the inquirer's proposal to pay non-lawyer employee collectors a bonus if the gross amount collected as a result of their efforts exceeds a predetermined figure would not violate Rule 5.4 provided that the bonus is 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. In the employment and use of employee collectors, the inquirer must comply with the other Rules of Professional Conduct, including, but not limited to, Rules 1.4, 1.5, 1.6, 5.3, 5.5 and 5.7.

The inquirer's second question is whether his law firm may pay his non-law partnership for the services of the non-law partnership's collectors based upon the gross amount of money collected by the non-law partnership each month. It is this committee's opinion that such an arrangement would be unethical as it violates Rule 5.4's prohibition against sharing fees with non-lawyers.

 

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.