State of independence

In July, the Solicitors Regulation Authority published ethics guidance setting out compliance obligations for freelance solicitors, who are officially described as “independent solicitors”.

The new SRA Standards and Regulations, which will be introduced on 25 November 2019, will ease the practising restrictions imposed on solicitors by allowing them to practise on their own, without the need to be authorised as a recognised sole practitioner or work through a regulated firm. The SRA believes this change will give solicitors more flexibility and enable them to operate on the same model as barristers, attached to chambers and sharing back-office functions, but working as self-employed individuals.

So how flexible is the independent solicitor model, and should you be tempted to branch out on your own?

The SRA uses “independent solicitor” in reference to individual self-employed solicitors doing exclusively reserved work, or a mixture of both reserved and non-reserved work, as well as self-employed solicitors working exclusively in non-reserved areas.

This is likely to confuse both clients and other solicitors, who may not realise that self-employed solicitors have different requirements for professional indemnity insurance

These categories of self-employed solicitors will not be required to maintain the same high level of client protections expected of solicitors under the current regime. The extent of the protections that they are obliged to secure will vary depending on whether they are doing reserved or non-reserved work. This is likely to confuse both clients and other solicitors, who may not realise that self-employed solicitors have different requirements for professional indemnity insurance (PII).

Independent solicitors will practise in their own name and be engaged directly by their clients. They will not be able to practise in a partnership, as a consultant on behalf of someone else, or through a limited company. They will not be permitted to operate a client account or have any employees. They will also be required to have three years’ practising experience and “adequate and appropriate” PII. However, their PII does not need to be at the same high level as the minimum terms and conditions expected of solicitors working in entities regulated by the SRA. Clients will have access to the Legal Ombudsman and the SRA’s compensation fund.

There are fewer restrictions placed on self-employed solicitors doing non-reserved work in terms of client engagement, except for limitations on holding client money, and restrictions on immigration, claims management or regulated financial services work (for which they will require authorisation). It is a concern that they will not be required to have any practising experience, and any PII; this could expose both clients and other solicitors dealing with self-employed solicitors in this category to new risks. Clients will also be cut off from the compensation fund, but will still have access to the Legal Ombudsman.

Independent solicitors must inform clients about their insurance arrangements, and if they will be ineligible to claim from the compensation fund. Specifically, the SRA’s transparency rules require that, before engagement, independent solicitors must inform all clients that they do not have insurance on the SRA’s minimum terms and conditions, “and specify that alternative insurance arrangements are in place if this is the case (together with information about the cover this provides, if requested)”. Where applicable, they must also “inform clients that they will not be eligible to apply for a grant from the SRA Compensation Fund”.

The intention behind the SRA’s introduction of the self-employed practice is to lower costs for clients by freeing up small practices from some regulatory requirements imposed on larger firms, such as entity compliance obligations, as well as lowering or removing PII cover. However, the potential benefits of reducing red tape are set against the risk of civil liability for self-employed solicitors contracting directly with clients, and no limited liability.

Becoming an independent solicitor

Liability implications and limitations on holding client money are likely to make the independent solicitor model more suitable to small practices specialising in less contentious legal issues, carrying lower risk. The restrictions placed on client money will exclude freelancers from conveyancing work, because they will not be able to hold transactional client funds, such as the proceeds of sale on conveyancing, court fees or the stamp duty payable on a house purchase. Independent solicitors might be able to use third-party managed accounts to hold client money, enabling them to carry out conveyancing work, but this is an untested and potentially risky possibility.

The model is intended to apply to genuine self-employed individuals and not those who run a firm employing others or who seek to disguise a firm by restructuring it to meet these formal requirements. It may attract solicitors who are looking for more work-life balance, such as those wanting to work part-time, the semi-retired, and solicitors with young families.

Sole practitioners contemplating becoming independent solicitors should also be aware that they would need to close their practice first, and purchase six years’ mandatory run-off cover. The Law Society’s most recent PII survey suggests the average cost of run-off cover for a sole practice is £21,600.

So solicitors thinking of practising on their own as independent solicitors will need to assess the suitability of this model for their work and type of practice, and the associated risks and liabilities.

The Law Society will be producing further guidance on the freelance model ahead of its implementation.

lawsociety.org.uk/sra-standards