Green Cash key on a computer keyboard with clipping pathBartering for goods and services seems old-fashioned, even primitive — after all, that’s why money was invented, right?  But bartering might be viewed as a component of today’s “sharing economy,” which involves more-direct, Internet-facilitated interactions between consumers and providers.

A recent informal opinion of the Connecticut Bar Association Standing Committee on Professional Ethics advised that lawyers may participate in a barter exchange program and provide legal services to clients in exchange for receiving barter currency, which lawyers would then use to buy goods from other members of the barter exchange, rather than being paid for the services in cash by the client.

How barter exchanges work

Although there are many different models, a retail barter exchange is often a fee-for-membership organization in which the exchange basically acts as a clearinghouse for members, who use barter currency — fictional cash or credits issued by the organization — to exchange goods and services among themselves.

Legal services and the barter system

The Connecticut ethics committee identified several issues for lawyers participating in barter exchanges.  But in sum, the committee said, the state’s Rules of Professional Conduct do not bar participating.

The committee offered the following specifics:

  • Lawyers don’t have to be paid in money.  Comment [4] to Model Rule 1.5 says that “a lawyer may accept property in payment for services,” suggesting that even a straight goods-for-legal-services exchange would not be impermissible.  But in any event, committee said, the barter exchange it was considering really was simply “substituting a different type of currency,” i.e., “barter currency instead of traditional dollars.”  That fact apparently made the analysis more straightforward for the committee.  Additionally, unlike in some jurisdictions, Connecticut lawyers are required to put all fee agreements in writing; the Connecticut ethics committee advised that lawyers must comply by explaining the special basis of the fee in the barter exchange context.
  • Fees paid to the barter exchange do not constitute sharing legal fees with non-lawyers.  The organization under consideration charged participating lawyers (and everyone else) an annual membership fee and a percentage-based transaction fee.  The committee said the annual fee was not  fee-sharing proscribed by Rule 5.4, because it was not related to the lawyer’s fee at all.  And the committee said “because the [percentage] fee is a surcharge on the transaction … as long as the fee is imposed uniformly on all Member transactions, it is permissible” under Rule 5.4.
  • So long as a barter exchange does not suggest or recommend the lawyer to members, it does not violate Rule 7.2’s prohibition against giving anything of value to a person for such a recommendation.  The committee noted that the exchange didn’t push lawyer services to its members, and that there was no limit on the number of lawyers who could participate.
  • Lawyers must retain sole discretion to accept or decline matters from exchange members.  Rule 5.4 bars a lawyer from allowing any third party to interfere with the lawyer’s professional judgment, and no barter exchange rules or regulations may impinge on that judgment.
  • Lawyers must maintain confidentiality.  The duty of confidentiality under Rule 1.6 would preclude lawyers from sharing any client information with a barter exchange, including for example, detailed invoices (which should be conveyed directly to the client, the committee advised).
  • Advance fee payments may raise issues.  The committee noted that “because barter money is fictional currency … and could not be held in an attorney’s trust fund,” as required by the state’s version of Model Rule 1.15, such barter money would only be permitted as advance payment under Connecticut’s Rule 1.15(d), which — unlike Model Rule 1.15 — says that “[a]bsent a written agreement with the client,” advance fees must be deposited into a client trust account and withdrawn only as earned.

Bartering legal services in the modern age

The Connecticut ethics committee acknowledged that “early ethics opinions addressing barter exchange arrangements were undeniably hostile” to the idea, including the ABA’s 1979 Informal Op. 1430 (Jan. 8, 1979), which found membership in a “trade exchange” to be an improper division of fees.  But, said the Connecticut committee, more recent opinions have been “more amenable” to barter, citing opinions from the New York State Bar Association (1994), the Utah State Bar (1997) and, most recently, the North Carolina State Bar (2010).   See also Alabama State Bar Office of General Counsel (2001); Florida Bar (1984, rev. 2011).

Some open issues

The Connecticut opinion doesn’t discuss tax issues, which could introduce some complications for lawyers participating in barter exchanges.  As the North Carolina State Bar’s 2010 opinion notes, federal tax law recognizes revenue from “trade” or “barter” dollars as taxable income, which must be reported using Form 1099-B.  And ethics rules on the treatment of legal fees paid in advance vary considerably across jurisdictions.  In jurisdictions with different rules than Connecticut’s there might be issues in a barter transaction where a lawyer receives plumbing services immediately, but “pays” with legal services that will stretch out over an extended period of time:  are the plumbing services advance fees, and how will they be “withdrawn” only as earned?

Proceed with caution

As always, check your jurisdiction’s rules and ethics opinions, and seek advice as necessary.  If you are in a jurisdiction that expressly approves participation in a barter exchange, it can be a neat way to get a different type of fee for your services — provided you adhere to the applicable ethics (and other) rules and limitations. And, as always, if you are not in such a jurisdiction, stay tuned — ethics rules and opinions are always evolving.