The following is an excerpt from my book, Red Flags In Legal Bills: What Signals Are Attorneys Sending?

Related to the issue of “transient billers” who are likely employees of the firm, there is the use of temporary or contract workers from outside the firm. If it is suspected that an outside temporary or contract attorney or paralegal is billing in a matter, an immediate red flag should go up.

One of the reasons for the red flag is that when it comes to using temporary employees, such as those that might be obtained through an employment agency, the ethics of the legal profession allow the lawyer a choice. That choice is that the lawyer can bill the payment to the agency to the client either as a “cost” or as “fees.”

The difference between billing a contract worker to the client as a cost or as a fee can be significant. For example, if the lawyer bills the payment as a “cost,” then the lawyer can charge the client no more than the direct cost of the third-party services.” [1] Thus, if the lawyer is charged $25 an hour for a temp paralegal, then the lawyer can bill the client $25 an hour if the third-party services of the paralegal are billed as a cost.

But the lawyer has the option of billing the temp paralegal as “fees,” just as he would for any other paralegal who is an employee of the law firm. Thus, the lawyer can bill the client for the temporary employees at the same hourly rates he bills for similar full-time firm employees.[2] That means that a temporary paralegal that might cost the law firm $25 an hour can be charged to the client at the firm rate of $100 an hour (or more). Similarly, temporary lawyers may cost the law firm as little as $50 an hour but be billed to the client at $200 an hour (or more).

And the ethics of the legal profession provide that it is the lawyer’s choice whether to bill temporary employees to the client as a cost or fees. As such, guess which one the lawyer will choose EVERY SINGLE TIME?!

Because of the generous way the ethics of the legal profession allow lawyers to bill for temp employees, anytime new billers are observed in a legal bill, the lawyer should be asked if the billers are temporary or contract workers. If they are temporary or contract workers, the lawyer should be asked to bill them as an expense and at the cost the law firm is actually paying the temporary workers.[3]

[1] See ABA Formal Opn. 93-379 (19930 Billing for Professional Fees, Disbursements, & Other Expenses at  p. 1 (“A lawyer may not charge a client more than her disbursements for services provided by third parties . . . except to the extent that the lawyer incurs costs additional to the direct cost of the third-party services.).

[2] See ABA Formal Op. 00-420 allows attorneys the option of choosing if they want to bill the services of temp or contract attorneys as either “fees” or “expenses.”

[3] I discuss this issue further in my book, How to Negotiate an Attorney Fee Agreement  and Save on Legal Costs.