Principals for hire – a risky proposition

Often, these solicitors run their own law practice and are asked, typically by a person who is not legally qualified or a solicitor who has not satisfied the requisite conditions to become a law practice principal, to supervise another practice, while ownership of the other practice remains with the other person. Effectively, the principal solicitor is being hired for their principal of a law practice practising certificate.

While this is not prohibited under the legal profession legislation, it is recommended that solicitors avoid putting themselves in a situation where they are responsible for more than one practice. Failure by law practice principals to fully appreciate and comply with the extent of their responsibilities under the Legal Profession Uniform Law (NSW) and associated legislation (together, the Uniform Law), can lead to serious harm to clients and disciplinary action.

In this article, we discuss the risks of solicitors being ‘principals for hire’ and the considerations every solicitor should have before accepting the role of being a principal of a law practice when already the principal of another law practice.

What is a principal solicitor?

Section 6 of the Uniform Law defines ‘principal’ of a law practice as an Australian legal practitioner who is either a:

• Sole practitioner,
• Partner of a law firm partnership,
• Supervising legal practitioner of a community legal service,^[1]
• Director of an incorporated legal practice (ILP) who holds an Australian practising certificate authorising them to be a principal of a law practice; or
• Partner of unincorporated legal practice who holds an Australian practising certificate authorising them to be a principal of a law practice.

To engage in legal practice as a principal of a law practice in NSW, a legal practitioner must hold a practising certificate in the category of ‘principal of a law practice’. A legal practitioner is not entitled to hold a principal of a law practice practising certificate if their practising certificate is subject to Condition 2 (Supervised Legal Practice) or Condition 3 (Practice Management Course).

What are the obligations of a principal?

Section 34(1) of the Uniform Law provides that a law practice principal is responsible for ensuring that reasonable steps are taken to ensure that:

• all legal practitioners in the law practice comply with their obligations under the Uniform Law, and their other professional obligations; and
• the legal services provided by the law practice are provided in accordance with the Uniform Law and other ethical and professional obligations.

A failure to uphold this responsibility may constitute unsatisfactory professional conduct or professional misconduct.^[2]

A principal solicitor holds ultimate responsibility for the management of the law practice, including supervision of staff. They are therefore liable for any contraventions of the Uniform Law by the law practice or its staff, if they were, or should reasonably have been, in a position to influence the conduct of the practice and failed to do so.^[3]

Reasonable steps for compliance include developing and maintaining internal practices and procedures to ensure that:

• All solicitors hold an appropriate practising certificate and are covered by professional indemnity insurance
• All staff are reasonably supervised
• Client matters are kept up to date, and carried out by solicitors who have both the capacity and competence to do so
• Legal documents are checked by the authorised principal before being issued to clients or third parties, or filed in court
• Trust money is handled in accordance with the trust accounting requirements of the Uniform Law
• Client confidentiality is maintained and conflicts of interest are avoided
• Costs are disclosed and updated, and invoices are issued in accordance with the requirements of the Uniform Law
• The workplace environment is safe and supportive for all staff

The responsibilities outlined above are significant and should not be taken lightly.

A solicitor should only accept the position as principal of a law practice if they are authorised to do so and have the capacity, knowledge and experience to meet these obligations. While a principal solicitor may seek assistance from others in managing their responsibilities, they are ultimately accountable and liable for their own legal practice.

What are the risks of being a principal for hire?

A principal solicitor is at risk of unsatisfactory professional conduct or professional misconduct if they are unable to competently and diligently carry out their role and responsibilities. Circumstances that might aggravate this risk include:

• When the solicitor is already the principal of another law practice
  Managing one legal practice is a significant responsibility; managing two can be a difficult challenge. Depending on the size of the practice – the number of client matters on foot, the number of staff employed and their experience and expertise, and the number of principal solicitors – managing a legal practice requires a great deal of time and resources. Lacking time and resources to appropriately oversee client matters and the supervision of staff, and to ensure that practice management systems are fit for purpose, will likely lead to dissatisfied clients and negligent practice.
  This can be especially challenging for solicitors who lack experience as a principal solicitor. Careful consideration needs to be given to the requirements of ss 34 and 35 of the Uniform Law and r 4.1.3 of the Australian Solicitors’ Conduct Rules – to deliver legal services competently, diligently and as promptly as reasonably possible.
  Solicitors with two or more legal practices must also consider how they manage their obligations to maintain client confidentiality^[4] and avoid conflicts of interest, including between the two practices.^[5]Without due consideration of how these obligations are to be systematically managed, solicitors risk breaching their ethical obligations and fiduciary duties to their clients.

• When the solicitor merely takes on a supervisory role within the law practice without authority over how the practice is run
  Given the scope of responsibilities that fall on principal solicitors, they need to have the authority to manage and run the practice as they see fit and in compliance with the requirements of the Uniform Law. Where a principal solicitor lacks this authority, for example, where shareholders or non-legal practitioner directors drive decisions around the management of an ILP, they may find themselves conflicted and unable to fulfil their legal, professional and ethical obligations. This may arise, for example, where shareholders decide to expand the services offered by the law practice to areas of law the principal solicitor is unfamiliar with or has no experience in.

Key takeaways

Solicitors should consider whether they have the capacity and competency to take on the role of principal of more than one law practice, and whether they can exercise the requisite level of diligence and authority necessary to fulfil the requirements of the role.

Carefully consider whether you have the experience, time and resources to operate and manage two legal practices, and whether you can comply with your ethical obligations. If the answer is no, then you should turn down the offer.

Being a principal of a law practice carries many responsibilities and failure to fulfil these can lead to serious consequences, such as harm to clients and disciplinary action.

Resources and further guidance

The Law Society of NSW’s PSU has developed numerous resources to assist principal solicitors understand and comply with the practice management requirements of the Uniform Law and Rules. These resources are available on the Law Society website.

For further guidance on the ethical and regulatory issues that may arise in situations where solicitors are being hired for their practising certificate, contact PSU for a confidential discussion.

Mehzabin Farazi is a Professional Support Solicitor with the Law Society of NSW, providing guidance to solicitors regarding regulatory compliance in legal practice. Mez is an experienced family law practitioner and has worked in both private and community legal practice.
Katherine Lau is Team Leader of the Law Society of NSW’s Professional Support Unit.

Endnotes

[1] Legal Profession Uniform Law (NSW), s 117.

[2] Legal Profession Uniform Law (NSW), s 34(2).

[3] Legal Profession Uniform Law (NSW), s 35.

[4] Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015, r 9.

[5] Ibid, rr 10, 11 and 12.