PEO arrangements with Texas Law Firms

PEOs have often wanted to do business with lawfirm clients. High wages, low workers' compensation risks, and fairly stable business operations tend to make lawyers attractive to PEOs. The stumbling block in Texas for many years was an old State Bar Ethics Committee opinion that appeared to prohibit Texas lawyers from entering into PEO arrangements.

That is no longer the case, and has not been for some time. In 2005, the State Bar Ethics Committee issued Opinion no. 560 which squarely allows Texas lawyers to enter into PEO arrangements for their firms, without running afoul of the ethics rules. Opinion 560 can be found here.

Here is the Committee's summary of their decision:

"Under the Texas Disciplinary Rules of Professional Conduct, a law firm may contract with an employee leasing company for the provision of limited employee compensation and benefit services for the law firm's employees so long as the law firm maintains exclusive control over the hiring and termination of its employees, there is no sharing of employees among various clients of the employee leasing company, the leasing company has no managerial or supervisory rights over the law firm's employees, and the leasing company has no access to client information."

Opinion 560 squarely supersedes the older opions on the subjcet, No. 508 and 515. Since the publication of this opinion in 2005, Texas has been consistent with the modern authorities in other states, which have also permitted lawyers to enter into PEO arrangements.

Because this is a state by state kind of issue, PEOs will need to look at this question for each state in which they propose to do business with a lawfirm. Unfortunately, there is no "one size fits all" answer here. While it is true that this issue is a problem of professional ethics for the lawfirm and not directly for the PEO, do you really want to sell a lawfirm on a PEO deal only to have them figure our somewhat later that they just put their law licenses at risk?

PEOs would be well served to provide a lawfirm specific addendum to their customer service agreement confirming that the lawfirm customer and the PEO have agreed to terms consistent with that state's ethics opinions. In addition, PEOs might want to consider whether to permit the lawfirm to easily cancel the contract in the future if the lawfirm believes that the arrangement would be ethcially improper. I can't imagine a worse situation than a PEO trying to hold an unhappy lawfirm client into the PEO arrangement.