Five questions to ask yourself before going freelance
Written By - Yoned Khan - December 02,2019
The option of becoming a freelance solicitor makes it cheaper and easier to set up and practise alone than ever before. Unlike the process of establishing as a sole practitioner – it can take months to get a new firm authorised – if you have a practising certificate and want to become a freelance solicitor, you could be up and running in less than a week.
To get going, you simply need to notify the Solicitors Regulation Authority and ensure that you have a letter of engagement and terms of business which meet the notification requirements set out by the regulator. If you want to offer reserved legal services, you will also need three years’ post-qualification experience and ‘adequate and appropriate’ professional indemnity insurance. It really is that simple.
Except, of course, nothing is quite that simple. The low upfront costs and promise of reduced bureaucracy make the prospect of becoming a freelance solicitor attractive to many, but this new model of practice is not without its challenges. Some of these may be worked out over time, as freelance solicitors bed in to the profession, while others may be longer-term, and could perhaps shape your entire career. So, before you leap into the exciting new world of the freelance solicitor, you might want to ask yourself some serious questions.
Is it the right time for you to become a freelance solicitor?
This is not about whether you should wait to see how things work out for the first wave of freelance solicitors (although you may want to do so), rather it is about whether you are at a stage in your career where it makes sense to go freelance. Until now, solicitors setting out on their own have generally gained some experience in practising the law and business management, and sole practitioners have been able to employ staff to help them with administrative work, anti-money laundering and other tasks. But under the SRA’s new Standards and Regulations, newly qualifieds will be able to set up as freelance solicitors almost immediately.
For newer solicitors, even if you are confident that you have a foolproof business plan, it might be overly ambitious to assume the responsibility of running your own business at a time when your legal skills are untested, your reputation and client base are unestablished, and your income is far from secure. You could find yourself competing on price against large firms for high-volume, low-value work, and unable to earn what you need.
For established solicitors with a loyal group of clients, starting capital, a steady turnover, and ample experience in business and the law, becoming a freelance solicitor may prove a better option. For employed solicitors the new way of working can offer welcome independence, and for partners it could reduce overheads and mean that you no longer need to share fee income.
Will the freelance model allow you to do the kinds of work you want to do?
At this stage, we do not know whether freelance solicitors will be able to offer most of the services currently provided by solicitors in regulated entities, or if practical considerations will mean they will end up working in areas that are fairly narrowly defined. For instance, it remains to be seen if mortgage lender panels will accept freelance solicitors, or whether the Court of Protection will allow freelance solicitors to operate as professional deputies. It will take some time for these, and innumerable other decisions, to be worked through.
Freelance solicitors will not be able to hire locums, which may create difficulties if they are ill or simply want to take a holiday, and it may limit their ability to take on work which is time-sensitive.
Even basic considerations, such as where freelancers choose to work, can have serious implications. Would you want clients knowing your home address? Does a shared office space provide sufficiently secure facilities to meet your data protection obligations and the SRA requirements regarding client confidentiality?
Have you sorted out your paperwork?
In addition to notifying the SRA that you intend to serve clients as a freelance solicitor, you will also need to establish terms of business, and an engagement letter that sets out the restrictions on how you can practise and the impact these could have on your clients.
The most significant restriction is that preventing freelancers holding money in a client account (they can hold their own fees and funds for disbursements in a business account, but this cannot be a client account). There are no restrictions on the use of a third-party managed account (TPMA), but that will require additional work engaging a TPMA provider, selecting the right type of TPMA, ensuring that your engagement letter explains how your clients’ money will be handled in a way that makes it easy to understand, and informing the SRA that you will be using a TPMA.
Can you get ‘adequate and appropriate’ insurance?
Freelance solicitors are sole proprietors, and as such they have unlimited liability, meaning they can be held personally accountable for any of the businesses’ debts.
The SRA only requires freelance solicitors to get ‘adequate and appropriate’ PII if they are offering reserved legal activities. But, aside from the danger of some ostensibly non-reserved services straying over the line, it would be foolhardy for solicitors to work in private practice without securing insurance protections for themselves and their clients, whatever work they are doing.
The chief complaint about purchasing PII on the SRA’s minimum terms and conditions (MTCs) is that it is expensive – and it is – but the cover it provides is comprehensive (not even failure to pay your final premium is sufficient to void your insurance), and freelance solicitors are unlikely to find anything equivalent on the open market. Underwriters have been reluctant to offer similar terms to anyone unless it is specifically required by the regulator, but the market could develop quickly, so it is worth looking around to find the best deal you can.
The SRA has produced guidance on what it means by ‘adequate and appropriate’ insurance (although it fails to address important issues such as aggregation clauses and run-off cover). If a solicitor can demonstrate that they made an assessment – including factors such as their number and type of clients, the value of their work, their likely maximum losses, and claims history – and reached a reasonable decision as to the appropriate level of cover, the SRA will not take action against them. We have not yet seen insurance products for freelance solicitors emerging, even to meet these minimal requirements, but if there is demand then the market may adapt.
The prospects may be better for established solicitors with good claims histories, working in low-risk areas, but early indications are that the insurance that will be available to freelance solicitors will be standard miscellaneous PII policies, with broad exclusion clauses, so it may be difficult to know with certainty whether particular kinds of claim will be covered until they have been made.
The low value of the policies means that it will not be economical for brokers to provide advice, and doing so may put their own errors and omissions insurance at risk. This uncertainty may deter prospective clients, if it is properly explained, and – especially after the decision in Dreamvar –solicitors in regulated entities may be unwilling to interact with freelance solicitors who cannot establish that they have PII at or very near the level of the SRA’s MTCs.
The ability of freelance solicitors to find run-off cover when they close their businesses is as yet undetermined, but without this possibility, many freelance solicitors could be vulnerable to potential uninsured claims for years to come.
How might working as a freelance solicitor affect your career options?
In the fullness of time it may be that freelance solicitors come to be viewed as wholly unexceptional, but initially at least they raise unique questions for firms that might otherwise want to take them on as employees or partners.
Becoming a freelancer could well have an impact on your ability to join a traditional law firm or alternative business structure in the future. Law firms may ask you to show them the PII policy you have in place, and may insist through your contract of employment that you either purchase six years of run-off cover or maintain your policy for six years after you cease to practise as a freelance solicitor. This is because insurance is generally on a ‘date of claim’ basis, which means that if a claim arises five years after you did the work as a freelancer, you still need to have a policy in place to cover the claim.
This is especially likely to be the case if your freelance clients follow you to a new firm, as the firm might fear reputational damage if they say they are not responsible for a claim which happened before you joined them, and you have not secured the proper insurance to cover your earlier work. Risk-averse firms may decide not to employ former freelance solicitors at all until the whole regulatory and insurance position becomes clear.
It may be more straightforward for freelance solicitors intending to move in-house.
To conclude, while the practical steps to becoming a freelance solicitor may be quite simple, anyone considering this significant step in their career should take the time to think through the wider implications and make sure they have identified the best route and model for them.