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: ParalegalGateway Blawg

Paralegal Compensation: A Primer to Permissible and Impermissible Pay Structures

By ParalegalGateway.com

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by Peter G. Golden

Last month, we highlighted the federal overtime law as it applies to paralegals, concluding that in most cases, paralegals are not exempt from the Fair Labor Standards Act?s overtime laws and must be appropriately compensated for any hours work in excess of 40 in a given week (1). This month, we?ll tackle the ethical boundaries of creatively compensating paralegals for something other than the mere quality and quantity of the work performed.

Has your firm ever proposed to give you a cut of a contingency fee recovery on a case you?ve been assigned to? Ever been on a job interview where the lawyer promised you a referral fee for any case you brought to the firm as part of the overall compensation package? Well, these compensation arrangements can sure seem enticing, but do your state?s rules of professional responsibility allow for them? Probably not.

While the rules of professional conduct are not identical in every state, in virtually all states, general ?fee splitting? or specific sharing of fees received from a particular matter is not allowed. Thus, lawyers may not, by advance agreement, make contingency payments to paralegals based on the outcome of a case. For example, your boss likely cannot, within the bounds of professional responsibility, promise to pay you a bonus equivalent to 5% of the amount of attorneys? fees recovered in a particular matter. This, and similar fee splitting arrangements have been near universally rejected by state bar associations and boards of ethics. The rationale for prohibiting this conduct is to ?protect the lawyer?s professional independence and judgment.? (2)

But to the contrary, attorneys may compensate paralegals based on the quantity and quality of their work and the value of that work to the law practice. (3) Thus, in addition to regular compensation, paralegals generally may also be paid discretionary merit based bonuses or bonuses based on the overall success of the firm or practice area. (4) Thus, a lawyer or law firm that has a profitable year may award a paralegal a bonus based on the overall success of the firm, or the paralegal?s contribution or extraordinary work on a particular case.

Separate from the fee splitting issue, is the issue of referral fee payments. In a nutshell, lawyers are prohibited from paying paralegals for referring legal work to the firm. The rationale for prohibiting an attorney from sharing a percentage of attorney?s fees with a paralegal is that it may lead to improper interference in a case by the paralegal. (5) In fact, it was referral fee payments to non-lawyers and charges of fee splitting that ultimately resulted in disciplinary action against attorneys in one highly successful New Jersey law firm. In 2000, Tomar Simonoff, a well known personal injury firm in New Jersey dissolved after allegations surfaced that it paid referral fees to paralegals, secretaries and other non-lawyers and that it conditioned the bonus of an office administrator on office revenue. During proceedings to determine whether the attorneys involved acted improperly, numerous firm employees came forward to claim that paralegals and secretary referral fees were a standard part of the compensation package. Ultimately, the New Jersey Disciplinary Review Board recommended that two attorneys in the firm have their license suspended for one year. Thus, for attorneys, the punishment for providing non-lawyers with improper forms of compensation can be significant. (more>>>)

Full post as published by ParalegalGateway Blawg on October 07, 2008 (boomark / email).