UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 97-02
The firm employs paralegal personnel and, with the knowledge and consent of clients, charges clients for time expended on their case by paralegal personnel. These charges are separately documented on client billings.
Questions:
Is it permissible for the firm to award a bonus or incentive payments to individual paralegal personnel based upon the charges billed by each such person to clients? For instance, may the firm award a monthly, semi-annual or other payment to a paralegal if that bonus or award is calculated as a percentage of the amount that the paralegal has billed to clients for services rendered?
Summary:
Under Rule 5.4(a)(3) of The Rules of Professional Conduct, a lawyer or law firm may institute a paralegal bonus system that bases the amount of a bonus on the amount billed to clients, provided that the amounts billed to clients are reasonable under Rule 1.5.
Opinion:
Rule 5.4 (a) allows a lawyer or law firm to share legal fees with a nonlawyer only under certain circumstances. Subsection (a)(3) states: "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." A compensation system in which a paralegal receives a bonus based on the charges billed to a client is in essence a profit-sharing arrangement, and therefore is expressly permitted under Rule 5.4(a)(3). A law firm, however, may run afoul of fee splitting rules if the bonus is based on a percentage of a particular fee earned. See In Re Anonymous 295 S.C. 25, 367 S. E. 2d 17 (1988); In the Matter of Brown ___ S. C. ___, 461 S. E. 2d 385 (1995).
We caution that Rule 1.5 requires that a lawyer's fee be reasonable. A bonus system based on time charged to a file could induce a paralegal to spend more time on a file than is actually required to handle the matter. Such a situation could result in a violation of Rule 1.5.