Fee Sharing with Nonlawyer/Claimant’s Representative in Social Security Case
Opinion rules that a Social Security lawyer may agree to compensate a nonlawyer/ claimant's representative for the prior representation of a claimant.
The Social Security Act permits nonlawyers to represent claimants in matters before the Social Security Administration (SSA) including representing claimants at administrative hearings before an administrative law judge (ALJ). However, only a lawyer may represent a client who is appealing an unfavorable decision of the SSA to federal district court. The nonlawyer representatives, as well as the lawyers who represent claimants before the SSA, do so almost exclusively on a contingent-fee basis.
A claimant's representative (whether a lawyer or nonlawyer) does not have to file a fee petition with the SSA if, at the time the representation commences, the representative submits a copy of his or her fee agreement with the claimant to the SSA. In most situations, if the fee agreement complies with the law capping the fee for representation of a claimant, the fee is automatically approved. If the claim is denied at the administrative level and an appeal to district court must be filed, a lawyer representative may pursue the legal fees available under the Equal Access to Justice Act in addition to the contingent fee payable under the fee agreement with the claimant.
Inevitably, some nonlawyer representatives die or decide to stop representing claimants. On occasion, a nonlawyer representative turns over a case to a lawyer to pursue an appeal to federal district court. Given the prohibition on sharing legal fees with nonlawyers set forth in Rule 5.4(a) of the Rules of Professional Conduct, may a lawyer negotiate an agreement with a nonlawyer representative of Social Security claimants by which the lawyer takes over the representation of a claimant from the nonlawyer and agrees to compensate the nonlawyer representative for his or her work on the case in the event the case is favorably resolved for the claimant?
Rule 5.4(a) prohibits a lawyer from sharing legal fees with a nonlawyer except in limited circumstances which are inapplicable here. The purpose of the prohibition, as noted in comment  to the rule, is to protect the lawyer's professional independence of judgment from interference from a nonlawyer. The prohibition also prevents solicitation of cases by lawyers and discourages nonlawyers from engaging in the unauthorized practice of law. (The latter reason for the prohibition is not implicated here because the Social Security Administration authorizes nonlawyer representation before a claim is appealed to federal court.)
When a lawyer represents a client on a Social Security claim, it is presumed that the lawyer utilizes his or her legal knowledge, skill, and professional judgment for the benefit of the client. Indeed, some Social Security claimants may seek out a lawyer to represent them precisely because these attributes are not held by nonlawyer representatives.
Rule 5.4(a) should not be applied in a way that may make it difficult or impossible for a claimant to switch to a lawyer representative. Nor should the rule be applied in a way that ignores the prior work the nonlawyer representative did on the case or the fact that the nonlawyer representative may be compensated, by law, on a contingent fee basis. Therefore, a lawyer representative may negotiate an agreement with a nonlawyer representative to transfer a claimant's case and to compensate the nonlawyer although the compensation will be paid from the legal fee ultimately paid on behalf of the client from the Social Security benefits awarded. The amount of the compensation paid to the nonlawyer representative must be reasonable and must be related to the work actually performed by the nonlawyer on behalf of the claimant. To guard against the potential dangers of fee sharing with a nonlawyer, there must be full disclosure to the presiding ALJ or federal judge. This can be accomplished by submitting a fee agreement with the claimant that recites the lawyer's arrangement for compensation with the prior representative even if such compensation is a percentage of the fee ultimately approved by the court.