A look at the new Freelance Solicitor Model
In November 2019, the SRA introduced a new model of operating for so-called “freelance solicitors”. The intention was to allow solicitors greater flexibility when providing services. We were told that the changes took place as the regulator felt that the previous arrangements created an unnecessary and restrictive ‘artificial entity’ model around solicitors operating as individuals. Prior to the changes, sole practitioners were required to have their practice authorised as a ‘recognised sole practice’.
What is a Freelancer?
A good starting point is to look at what the SRA means by ‘freelance solicitor’.This term is used to describe a self-employed solicitor who:
is practising on their own;
doesn’t employ anyone else in connection with the services they provide;
is practising in their own name (rather than using a trading name or through a service company);
is engaged directly by the client with fees payable directly to the solicitor;
and without that practice being authorised. So, essentially, we’re talking about individuals who are genuinely self-employed.
Rules and Regulations
Freelancers are subject to various rules and regulations.The three key ones to note are as follows:
The SRA Authorisation of Individuals Regulations 2019 (the Regulations)
You must have practised as a solicitor for a minimum of three years since admission or registration.
You are self-employed and practise in your own name, and not through a trading name or service company.
You must take out and maintain indemnity insurance that provides adequate and appropriate cover in respect of all of the services that you provide or have provided (this includes both reserved and unreserved legal services), and that takes into account any alternative arrangements you or your clients may make.
You are not permitted to employ anyone.
You are engaged directly by the client, and the client pays their fees directly to you.
You may only hold client money in limited circumstances, i.e. when it’s for payments on account of costs and disbursements that you have not yet billed where:
any money held for disbursements relates to costs and expenses incurred by you on behalf of your client and for which you are liable, and
you have told the client in advance where and how that money will be held.
SRA Code of Conduct for Solicitors, RELs and RFLs (the Code)
Freelance solicitors are regulated in the same way as other solicitors and are subject to the provisions of the Code.
The Transparency Rules
Those freelancers providing reserved legal services are also subject to the requirements of the Transparency Rules. This includes publishing costs information where they offer any the services listed in the rules, publishing details of their complaints' procedure, and telling clients that they will not be covered by insurance on the SRA's minimum terms and conditions and that alternative arrangements are in place.
As a more general rule, freelance solicitors will need to ensure that clients fully understand the implications of their “freelance” status and any additional risks to the client. This should include informing clients if they are unable to benefit from the SRA Compensation Fund.
Other key regulations to think about
Freelance solicitors will also need to consider whether they are an “'independent legal professional” (ILP) for the purposes of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). The MLR 2017 apply to freelancers providing legal or notarial services to others as part of financial or real property transactions. If you are an ILP, you’ll need to comply with the regulations, which includes having a risk assessment, policies and controls and procedures in place. You’ll also need to separately register with the SRA to comply with the MLR 2017.
What activities can Freelancers undertake?
The Regulations differentiate between those performing reserved legal activities and those just providing non-reserved legal activities – essentially differentiating between the areas of law considered riskier and those of low-risk. As you’d expect, the restrictions are more stringent for those undertaking the former. There are six reserved activities which you’ll find listed at Section 12 and Schedule 2 of the Legal Services Act 2007. If you’re planning to work as a freelancer, it’s important that you familiarise yourself with these:
Exercise of a right of audience
Conduct of litigation
Reserved instrument activities (includes conveyancing and linked matters)
Administration of oaths
Historically, you’ve only been able to provide these types of services as a solicitor through an entity that is authorised to do so.However, if you’re a solicitor practising on your own account, you can now provide these types of services without needing to be authorised as a recognised sole practitioner if you meet the conditions set out in Regulation 10.2(b) of the Regulations.
More on the Restrictions in Regulation 10.2(b)
Experience: Whilst solicitors solely providing non-reserved legal activities don’t need to meet the three years’ PQE requirement, newly qualified solicitors will need to be mindful of the need to satisfy the competency requirements set out in the Code, which still apply.
Employing others: Despite this restriction, the SRA Ethics guidance (“Preparing to become a sole practitioner or a freelance solicitor”) clarifies that this isn’t intended to stop freelancers from contracting with others to provide pure administrative support to help them to provide their services, so long as they don’t “employ” those people. This would, for example, enable you to work in a Chambers model where the Chambers provides administration and other business support. It would also enable freelancers to receive similar services from a serviced office type arrangement.
It’s also important to note that if you do decide to employ someone to assist you in connection with the services you provide (including a paralegal or secretary), your clients will not benefit from protection under the SRA Compensation Fund (see Regulation 5.2, SRA Compensation Fund Rules) – you must be genuinely practising on your own.
Professional Indemnity Insurance (PII): Another apparent rational for the introduction of the revised
regime was the SRA viewing that the high cost of purchasing PII on minimum terms was deterring
entry to the market of sole practitioners wanting to practise independently.
Now, freelancers who carry out purely non-reserved activities are not required to have any PII. However, prudent freelancers should consider whether having no cover is in their own, and indeed their clients’ best interests. Conversely, freelancers carrying out reserved legal activities must have “adequate and appropriate insurance” in place, but do not need to comply with the SRA’s minimum terms. Cover must be for all of the work done as a solicitor and not just any reserved activities. When speaking with insurers or brokers, it’s advisable to let them know if you’ll be seeing clients at home or working from home on a regular basis, to make sure you obtain appropriate cover. When arranging cover, factors to think about may include an assessment of maximum probable loss for each work type, your claims history (if any; number/type/value/frequency of client matters) and likely client profiles. You should also record how you reached your decision on the level of cover so you can produce this if asked to demonstrate that you meet the “adequate and appropriate” requirement.
Although the cost of insurance can sometimes be prohibitive, freelancers should also consider taking out run-off cover if they decide to stop practising – at least until the risk of claims has fallen away. If solicitors decide to move back into private practice, this may be something that new employers will look for.
Insurers will undoubtedly be looking closely at the risk and compliance framework that freelancers put in place to ensure that any risks are being properly managed before they offer cover; so this is likely to be a key focus for those wanting to take advantage of the new model of working. Here at Teal we work closely with insurers and can help you to ensure that you have an appropriate framework in place that will satisfy your insurers’ requirements. Please do not hesitate to contact us if we can assist.
Restrictions on holding client money: Given the limitations on holding client money, if a client needs to pay or is due to receive other types of client money (such as damages or money from an estate), a freelance solicitor will need to make alternative arrangements to safeguard these funds – for example via a third party managed account such as Shield Pay (see https://www.shieldpay.com/business/professional-services).
As a freelancer solicitor you’re strictly prohibited from adopting any kind of entity structure, such as a limited company, limited liability partnership or partnership and can only operate under your own name.This means that you’ll be personally liable for your actions in the same way as a sole trader.
Law Society guidance (see link below) envisages that individuals may consider working together with other like-minded solicitors in a Chambers-style arrangement, with practices complementing one another.Each freelancer in the arrangement remains individually regulated and may, for example, just offer non-reserved legal activities, whilst others may offer reserved activities or perhaps offer both.
The process for getting set up as a freelancer
To get started, you will need to notify the SRA that you intend to practise on your own and whether or not you will be providing reserved legal services. If so, the SRA will then check whether you meet the conditions set out in the Regulations mentioned above.
Risks for law firms
Law firms should consider training staff on freelance solicitors and the implications for firms – for example, given the restrictions on holding client money, freelancers will be limited in the undertakings that they will be able to give.
Given the requirements for freelancers to contract personally for services, and the ban on freelancers holding client money, the SRA considers that the arrangements are unlikely to appeal to a sole practitioner who is currently running a business and employing staff and instead, are more likely to appeal to those who wish to undertake ad hoc freelance work or set up in a chambers style model.
When the new model for freelancers was first discussed, it received a considerable amount of negative commentary in the press, mostly relating to lack of regulation.However, as mentioned above, the Code still applies to all freelancers.
The Gazette reported back in early March 2020 just prior to lockdown, that 71 solicitors had already registered with the SRA as freelancers.The model is likely to be attractive to solicitors with a good client following or with small practices – so clearly poses a threat to firms, although quite how extensive the threat will be, only time will tell.