ETH 2011-2.

• Case Date: December 02, 2011
• Court: Ohio

Ohio Ethics Opinions 2011. ETH 2011-2. December 2, 2011OSBA Informal Advisory Opinion 2011-02Re: Request for Informal Advisory OpinionYou have requested the opinion of the Ohio State Bar Association Committee on Legal Ethics and Professional Conduct on two questions: a) whether a law firm may contract with a professional employer organization ("PEO") that would assume and manage human resource and personnel responsibilities as to the firm's lawyers; and b) whether the law firm itself may own and operate a PEO as an ancillary business of the firm. The Committee concludes that the Ohio Rules of Professional Conduct ("ORPC") do not prohibit either arrangement per se, providing that such arrangements do not interfere with the lawyers' professional responsibilities. Background: A PEO is a business entity that enters into an agreement with one or more employers for the purpose of co-employing all or part of the employer's workforce. See Ohio Rev. Code § 4125.01(C),(fn1) APEO, acting as a "co-employer" with a law firm,(fn2) can potentially carry out many fimctions, including: handling the firm's payroll; being responsible for withholding and similar tax payments; dealing with employment laws (such as unemployment compensation); and administering employee benefits. The firm's lawyers are paid by or through the PEO. The firm remits payments to the PEO covering the firm's payroll, benefits and related costs, plus some increment above that amount as payment to the PEO for its services. See generally National Association of Professional Employer Organizations, http://www.napeo.org/. Applicable Rules of Professional Conduct: Your request for an opinion requires consideration of the following rules of the Ohio Rules of Professional Conduct ("ORPC"):

1,4 (a)( 1) (lawyer shall promptly inform client of any decision or circumstance that requires client's informed consent);

1,6 (lawyer shall not reveal information relating to representation of client);

1.7, 1.9 (conflicts of interest as to current clients and former clients);

2,1 (lawyer shall exercise independent professional judgment in representing client);

5.4 (lawyer shall not share legal fees with non-lawyer, form partnership with a non-lawyer where activities consist of practice of law or permit person who employs lawyer to direct or regulate professional judgment);

5.7 (responsibilities regarding law-related services).

Opinion: "In recent years, an increasing number of businesses have engaged unrelated companies to perform one or more human resources functions. In some cases the employee management company acts as a co-employer .... The principal advantage of such contracting out is that the business does not have to handle the administrative functions. Additional benefits of a co-employment arrangement include the creation of larger employee groups for purposes of purchasing health and other benefits and the coverage of the employee management company by the workers' compensation laws." D.C. Bar Ass'n Ethics Op. 304 at 2-3 (Feb, 20, 2001).(fn3) Such co-employment arrangements can potentially be of benefit to law firms, especially smaller firms, which can possibly realize financial efficiencies by contracting with a PEO, potentially reducing overhead costs. However, these arrangements also raise ethics issues. A. Professional Independence of the Lawyer Rule 5.4 of the ORPC sets out several limitations applicable to any arrangement between a law firm and a PEO. First, Rule 5.4(c) provides that a lawyer may not permit a person who employs the lawyer "to direct or regulate the lawyer's professional judgment in rendering" legal services, Thus, notwithstanding any legal status of the PEO and law firm as "co-employers," the PEO cannot be allowed to interfere with the lawyers' advice and judgment on behalf of their clients, or be involved in...