SBM - State Bar of Michigan


August 25, 1992


    A law firm may pay a legal assistant employee compensation based upon a set salary and a percentage of the net profits of the practice area in which the legal assistant is employed.

    References: MRPC 5.4(a); CI-478; ABA i1440.


A law firm contemplates hiring a legal assistant for the firm's sports and entertainment law practice area. The legal assistant's duties would include collecting and organizing salary and personnel information, monitoring legislative developments, monitoring National Collegiate Athletic Association developments, servicing day-to-day inquiries from clients, and assisting in the development of the practice area. The law firm asks whether it may base the legal assistant's compensation on a percentage of the firm's net profits derived from the sports and entertainment law practice area.

MRPC 5.4(a) states in pertinent part:

    "(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 law firm's compensation proposal appears to be explicitly permitted by the Rule. The proposal is clearly a compensation plan including nonlawyer employees, and a compensation formula based upon net profits is a "profit-sharing arrangement" within the rule.

In CI-478 we approved a lawyer's proposal to pay nonlawyer employees a set salary plus bonuses calculated on the lawyer's gross or adjusted gross income, provided that the bonus was not in any way tied to the employee's efforts to solicit clients for the firm.

In ABA i1440, a law firm proposed to pay the law office administrator a flat salary plus a percentage of the firm's net profits. In applying ABA Model Code of Professional Responsibility DR 3-102, which is identical to Rule 5.4(a), the Committee stated:

    "In our view, the foregoing proposed does not constitute dividing legal fees with a nonlawyer under DR 3-102, because the compensation related to the net profits and business performance of the firm and not to the receipt of particular fees. An organization practicing law may employ many nonlawyers. The source of funds to pay them for their services will be fees for legal services rendered."

Does it matter that the particular employee's compensation is based upon net profits of a law practice area, rather than upon the net profits of the law firm's entire practice? We find no such limitation in the rule.The Comment indicates that the rule was intended to protect a lawyer's exercise of independent professional judgment. We find no indication that the legal assistant would be interfering with lawyer judgment; the law firm has a general duty, and the legal assistant's lawyer/supervisor has a specific duty, under MRPC 5.3 to ensure that the legal assistant's conduct is compatible with the ethical obligations of lawyers.

The result might be different if the compensation plan were based on the fees generated from a particular case or a particular client, rather than net profits of the law practice area of the firm.