What are the Ethical Implications of Bartering?
When a lawyer accepts in-kind payment for legal services, whether the payment consists of the client providing services to the lawyer or an ownership interest in the client’s business, the lawyer is going beyond simply establishing a contract for legal services, and instead is doing business with a client. When entering into a business transaction with a client, lawyers must follow the requirements of RPC 1.8(a). [Excerpted from Alternative Pricing Models: What’s in a Fee?]
- The terms of the agreement must be reasonable and fair.
- Your fee agreement must be in writing.
- You must obtain the informed consent of your client to proceed (usually contained within the fee agreement).
- You must recommend that the client consult with another attorney in deciding whether consent should be given.
- You must fully disclose the details of the business transaction and each party’s role (part of informed consent).
Bartering and Professional Liability Exposure
Prior to 2016, Oregon lawyers were required to provide the Professional Liability Fund [PLF] with copies of business transaction disclosure letters or risk exclusion of coverage. The reporting requirement to the PLF has been removed for plan year 2016. Lawyers are no longer required to provide the PLF with copies of disclosure and consent letters when engaging in business transactions with clients. As a courtesy, the PLF continues to offer a sample disclosure letter on its Website.
Beyond the Obvious Ethical Traps and Liability Exposure
Barter exchanges have practical implications. Ask yourself:
- If you do not complete the work for the client, how will you “refund” a portion of your “fee?”
- Are you prepared to keep the proper records?
- Do you understand the tax requirements for barter exchanges and the penalties for failure to report?
If you plan to barter with a client in exchange for legal services, be prepared:
- Read Alternative Pricing Models: What’s in a Fee? by Helen Hierschbiel.
- Obtain a copy of the sample disclosure letter on the PLF Website.
- Understand how your professional liability coverage works. The PLF Primary and Excess Plans are available on the PLF Website. Call the PLF with coverage questions: 530-639-6911 or 800-452-1639 (Toll-Free in Oregon.)
- If you’re still foggy on the ethics, contact Oregon State Bar General Counsel.
- If you need help with tax-related recordkeeping and reporting, speak with your accountant or a tax lawyer.
- Learn the ins and outs of bartering – if you are trading legal services for a new Website, verify that your potential client can do the job. Check out these informative sites and posts: BarterQuest – when, where, and how to barter; How to Barter Anything; How to Barter for Goods & Services – Tips and Methods to Trade; and Barter 101: Trading For Services.
Nothing prohibits bartering with a client for legal services, but like so many alternative fee approaches, be sure you know what you are doing before you enter into an agreement you might regret.
[All Rights Reserved 2016 Beverly Michaelis]
For more on the topic of engaging in business with clients, see Too Good to Be True: The Ethics of Business Transactions With Clients.