Ethics Panel Says Senior Nonlawyer Staffers May Be Designated as ‘Directors' or ‘Officers'

The ABA/BNA Lawyers’ Manual on Professional Conduct™ is a trusted resource that helps attorneys understand cases and decisions that directly impacts their work, practice ethically, and...

By Samson Habte

Feb. 2 — Law firms may give nonlawyer staffers titles such as “officer” and “director” without violating legal ethics rules, the Philadelphia bar's ethics committee concluded in a January opinion.

The committee expressed its disagreement with a controversial Texas ethics advisory that disapproved firms' use of such titles for nonlawyer employees.

Echoing critics who convinced the Texas committee to reconsider its May 2014 opinion, the Philadelphia panel rejected the notion that state variants of ABA Model Rule 5.4—which disallows most forms of multidisciplinary partnerships between attorneys and other professionals—prohibit law firms from bestowing nonlawyers with titles such as Chief Information Officer, Chief Marketing Officer, Chief Financial Officer, Chief Operations Officer, Director of Human Resources, Director of Facilities or Executive Director.

“It is clear that a lawyer's independent professional judgment must not be compromised by allowing non-lawyers to be partners in, principals of or have ownership interests in law firms,” the opinion states. “The Guidance Committee does not believe, however, that any use of the word ‘officer' or ‘director' in the title of a non-lawyer employee of a law firm is improper.”

“Simply because a job title contains the word ‘officer' or ‘director' does not mean that that employee is a corporate director or corporate officer of the law firm as prohibited by Rule 5.4,” the committee concluded.

It said its advice was valid even when a Philadelphia-based firm has an office in Texas.

Essential Skills

The opinion was triggered by an inquiry in which two large Philadelphia-based firms expressed concerns about how Texas Ethics Op. 642, 30 Law. Man. Prof. Conduct 367 (2014), might implicate the hiring and organizational practices of law firms that rely on nonlawyers to manage finance, human resource, technology and marketing operations.

Nonlawyer professionals have skills that are essential to managing large partnerships, and competition for the best candidates makes it “necessary to provide titles commensurate with the significant responsibilities” that will be assigned to those individuals, the firms told the committee.

The firms said nonlawyer administrators would have no “partnership or ownership interest” in a firm and no “control over or direction of [the] professional legal judgment or independence” of lawyers. They then posed the following questions:

1. Title—Given the express limitations on the scope of these positions, can firms use … the word “Officer” or “Director” in the job title?

2. Management Role—May the individuals in these positions serve on the governing bodies of the firms in an ex-officio, but voting capacity? May they do so if they are not permitted to vote on any matter related to the provision of legal services, professional legal judgment or the evaluation of legal judgments?

3. Jurisdiction—Does the answer change if the firm has its principal place of business in Pennsylvania but has an office in Texas?

Although it was not posed directly, the Philadelphia committee also addressed—and rejected—the Texas panel's finding that nonlawyer employees may not receive bonuses that are “contingent upon [a] firm's achieving a specified level of revenue or profit.”

Everything Except ‘Principal.'

The Philadelphia committee said it agreed with the Texas panel that ethics rules prohibit “the use of the word ‘principal’ by law firms in the job titles of non-lawyer employees.” That title, it said, “would imply that the non-lawyer has a proprietary interest in the firm.”

However, the Philadelphia committee said it disagreed with the Texas panel that there is a “per se prohibition on the use of the word ‘officer' by law firms in the job titles of non-lawyer employees.”

“The Texas Opinion does not analyze the word ‘officer' in terms of whether that means ownership or control, but rather states flatly that ‘officer' must not be used in a job title for a non-lawyer, without regard to the non-lawyer's management role,” the committee said. “This is simply too limiting.”

“The crux of the issue is not the title of the non-lawyer, but what the non-lawyer does in his or her position at the law firm,” the committee stated.

Accordingly, it concluded that so long as nonlawyer employees do not have managerial control over attorneys, a law firm's use of the terms “officer” or “director” to designate its high-level nonlawyer supervisors would not “mislead the public” in violation of Rule 7.1.

That conclusion echoes arguments made by representatives of 53 law firms who have urged the Texas bar's ethics committee to reconsider its opinion. “[T]he term ‘officer' must be interpreted functionally, not mechanically,” those signatories said in a June 2014 letter drafted by Stacy L. Brainin, general counsel at Haynes & Boone LLP.

In October, the Texas committee agreed to reconsider its opinion. The panel's chairman, Mark Osborn of Kemp Smith LLP, said in an e-mail that the committee “is still in the process of reconsidering the opinion.”

Limiting Voting Power

Addressing the inquirers' second question, the Philadelphia bar's ethics committee said law firms must limit voting authority of nonlawyer managers “to administrative matters such as leases, purchasing, travel expenses, finances or any of the many similar types of issues that the administrative officers and directors are retained by the law firms to handle.”

In a footnote, the committee also rejected the Texas panel's conclusion that nonlawyer employees may not receive bonuses that are “contingent upon [a] firm's achieving a specified level of revenue or profit.”

“Bonuses may not be contingent upon a specific client's fee or be a share of particular clients' fees, but if a law firm is profitable to a certain (perhaps predetermined level), Rule 5.4 does not prohibit paying bonuses to non-lawyers based on that level of profitability,” the committee said.

Firms With Texas Branches

Finally, the committee said its analysis would not differ for Pennsylvania firms that have offices in Texas. It pointed to Rule 8.5(b)(2), which provides that a lawyer's conduct generally is governed by the rules of the jurisdiction in which the “predominant effect” of the conduct is felt.

The inquiring firms “are based in Pennsylvania and have the majority of their senior administrative personnel located in Pennsylvania, so the predominant effect of the conduct is in Pennsylvania,” the committee said.

To contact the reporter on this story: Samson Habte in Washington at shabte@bna.com

To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com

Full text at http://www.philadelphiabar.org/WebObjects/PBAReadOnly.woa/Contents/WebServerResources/CMSResources/Opinion2014-8.pdf.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

Copyright 2015, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.