State of independence

In July, the Solicitors Regulation Authority (SRA) published ethics guidance, which sets out compliance obligations for freelance solicitors.

The new SRA Standards and Regulations, effective from 25 November 2019, will ease the restrictions 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 in chambers, sharing back-office functions, but working as self-employed individuals.

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

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

These two categories of self-employed solicitors will not have to maintain the same high level of client protections that are expected of solicitors under the current regime, and the extent of the protections that they must secure will vary depending on whether they are doing reserved or exclusively 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).

Self-employed solicitors doing exclusively reserved work, or a mixture of reserved and non-reserved work, are defined as ‘freelance solicitors’. They will practise in their own name and be engaged directly by 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 must also have three years’ practising experience and “adequate and appropriate” PII. However, their PII does not need to be at the same 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 exclusively 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 need authorisation). It is of some concern that they will not be required to have any practising experience, nor to purchase any PII; this could expose clients and other solicitors dealing with self-employed solicitors in this category to new risks. Their clients will have access to the SRA Compensation Fund if the solicitor meets certain conditions under the SRA Compensation Rules 5.2 – the solicitor is self-employed, does not have any employees and has their fees paid directly to them.

Freelance solicitors must inform clients about their insurance arrangements. Specifically, under the SRA’s transparency rules, freelance solicitors must inform all clients before engagement that they are not insured 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 SRA hopes that introducing self-employed practise will lower costs for clients by freeing up small practices from some of the 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 a freelance solicitor

Liability implications and limitations on holding client money are likely to make the freelance solicitor model more suitable to small practices which specialise in less contentious legal issues, carrying lower risk. The client money restrictions 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. Freelance solicitors might be able to use third-party managed accounts to hold client money, enabling them to carry out conveyancing work, but this is untested and potentially risky.

The freelance model is intended to apply to genuinely 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 going freelance should also be aware that they will need to close their practice first, and purchase six years’ mandatory run-off cover. The Law Society’s most recent PII survey suggests that the average cost of run-off cover for a sole practice is around £21,600.

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

The Law Society has produced a practice note on the freelance model.