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Formal Advisory Opinion No. 05-4

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STATE BAR OF GEORGIA
FORMAL ADVISORY OPINION NO. 05-4
Approved And Issued On March 19, 2007 Pursuant to Bar Rule 4-403
By Order Of The Supreme Court Of Georgia With Comments Thereby Replacing FAO No. 91-3
Supreme Court Docket No. S06U0797

COMPLETE TEXT FROM THE ORDER OF THE SUPREME COURT OF GEORGIA


    We granted a petition for discretionary review brought by the State Bar of Georgia asking the Court to adopt an opinion of the Formal Advisory Opinion Board ("Board").  At issue is Formal Advisory Opinion ("FAO") 05-4, which is a redrafted version of FAO 91-3.  Although both FAO 91-3 and FAO 05-4 address the ethical propriety of a lawyer paying nonlawyer employees a monthly bonus from the gross proceeds of the lawyer's firm, the board reached contrary conclusions in these opinions based on ethical rules in place at the time.  For the reasons which follow, we agree with the board that under current Georgia Rule of Professional Conduct 5.4, the payment of a monthly bonus by a lawyer to nonlawyer employees based on the gross receipts of his or her law office in addition to the nonlawyer employees' regular monthly salary is permissible; and that it is ethically proper to compensate nonlawyer employees pursuant to a plan that is based in whole or in part on a profit-sharing arrangement.

    In 1990 this Court issued FAO 91-3 addressing the same issue under former Standard 26 of Bar Rule 4-102 (and identical Directory Rule 3-102), which, in pertinent part, prohibited a lawyer from sharing fees with a nonlawyer except that "a lawyer or law firm may include nonlawyer employees in a retirement plan, even though the plan is based in whole or in part on a profit-sharing agreement."  Former Standard 26 (c).  In 2000 the Court issued the Georgia Rules of Professional Conduct, effective January 1, 2001, to replace the former Standards of Conduct.  Rule of Professional Conduct 5.4 supercedes Standard 26 (c) and enlarges the circumstances under which a lawyer or law firm may share legal fees with a nonlawyer.[1] In pertinent part, Rule 5.4 (a) (3) provides:

(a) 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.

 

    The Board reviewed FAO 91-3 to determine what impact, if any, application of the Rules of Professional Conduct would have on the opinion and concluded that the substance and conclusions reached in FAO 91-3 are no longer in compliance with current ethical considerations. As a result, the board drafted FAO 05-4.  That opinion was published in the April and October 2005 issues of the Georgia Bar Journal; no comments were received in response to the publications, see Rule of Professional Conduct 4-403 (c); and the State Bar sought and was granted discretionary review by this Court.  Rule of Professional Conduct 4-403 (d).

 

    The distinction between Rule 5.4 (a) (3) and Standard 26 (c) is that the former permits a nonlawyer employee to participate in both a compensation and retirement plan, whereas the latter permitted nonlawyer compensation only in the context of a retirement plan.  We agree with the board that the support for FAO 91-3 has changed due to the adoption of the Rules of Professional Conduct and that FA0 91-3 no longer provides an accurate interpretation of the applicable rules of ethics.  In contrast, FAO 05-4 is consistent with current Rule of Professional Conduct 5.4 (a) (3) in that it allows compensation to a nonlawyer employee in the form of a monthly bonus paid from the gross receipts of the law firm under the rule that a nonlawyer employee may participate in a compensation plan, even though based in whole or in part on a profit-sharing arrangement.  Accordingly, we adopt proposed FAO 05-4 and retract FAO 91-3.

[2]

Formal Advisory Opinion 05-4 approved. All the Justices concur.


FORMAL ADVISORY OPINION NO. 05-4


Question Presented:
    Ethical propriety of a lawyer paying his nonlawyer employees a monthly bonus from the gross receipts of his law office.

Summary Answer:
    The payment of a monthly bonus by a lawyer to his nonlawyer employees based on the gross receipts of his law office in addition to their regular monthly salary is permissible under Georgia Rule of Professional Conduct 5.4.  It is ethically proper for a lawyer to compensate his nonlawyer employees based upon a plan that is based in whole or in part on a profit-sharing arrangement.

Opinion:
    Correspondent asks whether a lawyer may pay nonlawyer employees a monthly bonus which is a percentage of gross receipts of the law office.

    Georgia Rule of Professional Conduct 5.4 necessitates the modification of Formal Advisory Opinion No. 91-3, which was based largely on Standard No. 26 of Georgia Bar Rule 4-102.  Georgia Rule of Professional Conduct 5.4 replaces the former standard and provides as follows:

(a)    A lawyer or law firm shall not share legal fees with a nonlawyer, except that:
 
(1) an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for the payment of money, over a reasonable period of time after his death, to the lawyer's estate or to one or more specified persons;

(2) a lawyer or law firm who purchases the practice of a deceased, disabled, or disappeared lawyer may, pursuant to the provisions of Rule 1.17, pay to the estate or other representative of that lawyer the agreed-upon purchase price;

(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; and

(4) a lawyer who undertakes to complete unfinished business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer.


    Georgia's Rule of Professional Conduct 5.4 is analogous to its counterpart in the ABA Code of Professional Responsibility. In 1980, the ABA amended DR 3?102(A) to add an additional exception regarding the sharing of fees with nonlawyer employees: "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." (emphasis added). ABA DR 3-102(A)(3).  The Georgia Rules of Professional Conduct are consistent with the ABA's principles of fee sharing with non-attorneys.

    As the Comment to the Model Rule 5.4 of the ABA Model Rules of Professional Conduct states, the policy underlying the limitation on the sharing of fees between lawyer and layperson seeks to protect the lawyer's independent professional judgment. The Comment cautions that if a layperson, not guided by professional obligations, shares an interest in the outcome of the representation of a client, the possibility exists that he or she may influence the attorney's judgment.

    In light of all of the foregoing, we conclude that the payment of a monthly bonus payable to nonlawyer employees based upon a plan that is in whole or in part on a profit-sharing arrangement does not constitutes a sharing of legal fees in violation of Georgia Rule of Professional Conduct 5.4.



1.Rule 5.4 is now analogous to its counterpart in the American Bar Association Code of Professional Responsibility. ABA DR 3-102 (A) (3).

2.By our approval of FA0 05-4, it becomes "binding on all members of the State Bar [of Georgia]." Rules of Professional Conduct 4-403 (e).

 



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