Managing the risks of outsourcing, part 2: the Solicitors Code of Conduct
In the second part of his examination of the regulatory issues arising out of outsourcing (part one is here), Duncan Finlyson of Legal Futures Associate Lawyers Defence Group outlines the relevant provisions in the Solicitors Code of Conduct 2007
Looking over your shoulder: the Code of Conduct is very specific on the level of supervision a firm must have in place
The Solicitors Code of Conduct 2007 has some important things to say about outsourcing, especially in relation to issues such as confidentiality, supervision and practice management. The new Code of Conduct that will come into effect on 6 October will place a duty upon firms to measure outcomes as an indicator of compliance, meaning confidentiality, supervision and management are going to be fairly near the top of the Solicitors Regulation Authority’s list of matters solicitors should be aware of.
Rule 4 – confidentiality
So far as confidentiality is concerned, rule 4.01 states: “You and your firm must keep the affairs of clients and former clients confidential except where disclosure is required or permitted by law or by your client (or former client).”
It goes on to clarify this at guidance note 8 to rule 4 by saying: “(f) If you outsource services such as word processing, telephone call handling or photocopying you must be satisfied that the provider of those services is able to ensure the confidentiality of any information concerning your clients. This would normally require confidentiality undertakings from the provider and checks to ensure that the terms of the arrangements regarding confidentiality are being complied with. Whilst you might have implied consent to confidential information being passed to external service providers, it would be prudent to inform clients of any such services you propose to use in your terms of business or client care letters.”
Thus, firms planning to outsource any aspect of work containing confidential client information – or even information capable of indicating that the firm acts for a particular client – must take all necessary steps to ensure that those providing the service will keep that information confidential and should ensure that the client is aware – for example through the firm’s terms and conditions – that such outsourcing could take place.
Rule 5 – business management
The requirements of rule 5 will also present those wishing to outsource with something of a headache since they are quite specific in the extent to which firms are responsible for ensuring that matters are properly managed and supervised. In particular it requires that firms:
- Exercise “appropriate supervision over all staff, and ensure proper supervision and direction of clients’ matters” (5.01(1)(a));
- Identify conflicts of interests (5.01(1)(d)); and
- Manage risk (5.01(1)(l).
In particular, it is worth noting in relation to rule 5 some of the points raised in the guidance notes, including:
Guidance note 8: “For example, if certain work is to be done by unqualified staff it may only be done at the direction and/or under the supervision of persons who are allowed by law to do that work themselves.”
Guidance note 9: “The duty to supervise staff covers not only persons engaged under a contract of service, but also those engaged under a contract for services to carry out work on behalf of the firm, e.g. consultants, locums and outdoor clerks. You cannot avoid responsibility for work carried out by the firm by leaving it entirely to staff, however well qualified.”
Guidance note 12: “If a firm has more than one office, the recognised body and its managers, or the recognised sole practitioner, must be able to demonstrate the adequacy of their arrangements throughout the firm. This includes supervision and management of staff not working from a conventional office – for example, homeworkers, teleworkers, those visiting clients, attending court, at a police station, at a consulting room open only for a few hours a week, or staffing a stand at an exhibition.”
Guidance note 19: “Firms must adopt a systematic approach to identifying and avoiding conflicts of interests, dealing with conflicts between the duties of confidentiality and disclosure, and maintaining client confidentiality.”
Guidance note 47: “Those supervising client matters… would need to have sufficient legal knowledge and experience to be able to identify problems with the quality or conduct of the work; but might not need to be an expert in the area of work. The training, qualifications and experience of the member of staff whose matters are being checked… will be relevant in assessing the level and type of expertise required by the person conducting the checks.”
Firms who outsource work must, therefore, ensure that there are sufficient procedures in place to ensure that those responsible for the work – ie, the partners and senior managers within the outsourcing firm – are able to monitor:
- How it is undertaken;
- By whom it is undertaken;
- The level of expertise of those who undertake it;
- The extent to which those doing the work are supervised at a local level and the qualifications of those supervising;
- The safeguards that are put in place to ensure that it is undertaken securely and confidentially;
- That conflicts of interest do not arise; and
- That criminal activities are not supported by the work.
Other important rules
Finally, firms who are considering outsourcing should also give thought to a number of other issues, including:
- Equality and diversity implications. Rule 6.03 states: “You must adopt and implement an appropriate policy for preventing discrimination and harassment and promoting equality and diversity within your firm. You must take all reasonable steps to ensure that all employees, partners, members and directors are aware of, and act in compliance with, its provisions and that it is made available to clients, the Solicitors Regulation Authority and other relevant third parties where required.”
Thus, you will need to be sure that so far as is possible anyone to whom work is outsourced is complying with the requirements of rule 6 so far as is permitted in the state in which the work is being undertaken.
- Money laundering prevention measures.
- Employment legislation, and in particular the implications for redundancy within the firm. Contingency arrangements to ensure you are able to resource the work being done by the service provider should the agreement with that service provider come to an end.
There are undoubtedly substantial benefits to be derived for many firms in looking to outsource elements of their work and practice.
The caveat to that, however, is that great care needs to be taken in how and to whom the outsourcing is undertaken.
The risks which we have looked at here are only the regulatory ones. We have made no attempt to look at some of the practical risks such as:
- Failing to clarify objectives at the start of the process process;
- Not setting a starting point against which costs, benefits and delivery can be measured;
- Failing to ascertain necessary changes to internal processes and the impact on other work areas;
- Underestimating the impact upon employees and others and not putting in place plans to deal with any morale issues; and
- Failing to undertake a full risk analysis.
All of the risks highlighted in the first part of this article need to be looked at closely and firms must be satisfied that they will be able to control those risks at all stages of the relationship with the organisation to whom the work is outsourced.
Above all else, firms must bear in mind the needs of clients and the requirement for confidentiality, competency of service and trust in the integrity of the legal process.
Do not overlook the need to draw to the attention of the company to whom work is outsourced the importance of confidentiality and that there is an adequate confidentiality agreement in place. Tell the client that your firm outsources work and the type of outsourcing that it does, make sure that if there are confidentiality issues that the client is aware of these and above all else ensure that the client does not object.
Tags: legal process outsourcing, outsourcing, Solicitors Code of Conduct
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