In-house practice: regulatory requirements

1 Introduction

1.1 Who should read this practice note?

In-house lawyers.

1.2 What is the issue?

The Legal Services Act 2007 (the 'Act') amended the statutory powers of existing regulators so that they could develop firm-based regulation. While this is unlikely to affect in-house lawyers providing legal services mainly to their employer, it may affect those in-house lawyers providing services to the public. The Act has allowed for new kinds of practice, in the form of legal disciplinary practices (LDPs) and alternative business structures (ABSs), and it may be that some entities in which in-house lawyers are providing services to the public need to seek a licence and be regulated as an ABS.

The Solicitors Regulation Authority (SRA) implemented outcomes-focused regulation (OFR) on 6 October 2011 and this is an approach focusing on high-level outcomes. An overview of OFR can be found on the Law Society's website. The SRA Handbook sets out all of the SRA's regulatory requirements and the ethical standards that the SRA expects of practices and practitioners.

There are a number of regulatory requirements that apply to in-house practice and the purpose of this practice note is to help in-house lawyers navigate the requirements of the SRA Handbook.

It should be noted that there may be other codes of conduct that you may need to be aware of, depending on the nature of your business.. 

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1.3 Status of this practice note

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note, contact the Law Society's Practice Advice Service.

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1.4 Terminology

Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.

Should -

• Outside of a regulatory context, good practice for most situations in the Law Society's view.
• In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).

These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.

May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.

SRA Code - SRA Code of Conduct 2011

2007 Code - Solicitors' Code of Conduct 2007

OFR - Outcomes-focused regulation

SRA - Solicitors Regulation Authority

IB- indicative behaviour

A glossary of other terms used throughout this practice note is available on the SRA website.

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2 Definition of in-house practice

Solicitors who practice in-house do so in a variety of different organisations, including working as in-house counsel for commercial organisations, working for a law centre, Citizen’s Advice Bureau or other non-commercial organisations.

In-house practice is defined in the glossary of the SRA Handbook as:

practice as a solicitor, REL or RFL (as appropriate) in accordance with Rules 1.1(c)(ii), 1.1(d)(ii), 1.1(e), 1.2(f), 2.1(c)(ii), 2.1(d)(ii), 2.1(e), 2.2(f), 3.1(b)(ii) or 3.1(c)(ii) of the SRA Practice Framework Rules and ’in-house‘ shall be construed accordingly.

This definition is clearer in the context of the explanation of the Practice Framework Rules (see section 6 below).

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3 SRA Code of Conduct

3.1 Outcomes and IBs

The SRA Code outlines outcomes-focused conduct requirements.

The outcomes in the SRA Code are mandatory requirements. Not all of the outcomes apply to in-house practice and different outcomes may apply depending on whether in-house lawyers are acting for their employer or another client (as permitted by the Practice Framework Rules). Whether or not the outcomes apply to in-house practice or whether there are outcomes specific only to in-house practice is included at the end of each chapter in the SRA Code.

Outcomes are supplemented by indicative behaviours (IBs), which are non-mandatory. The IBs are not an exhaustive list of how to comply and, depending upon the circumstances, it is envisaged that it will be possible to achieve outcomes in other ways.

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3.2 In-house requirements

3.2.1 Chapters that apply in their entirety to in-house practice

Chapter 4 – Confidentiality and disclosure: This chapter is about the protection of clients' confidential information and the disclosure of material information to clients.

Chapter 5 – Your client and the court: This chapter is about duties to clients and to the court, if exercising a right to conduct litigation or acting as an advocate.

Chapter 6 – Your client and introductions to third parties: This chapter describes the conduct duties which arise in respect of such introductions.

Chapter 10 – You and your regulator: This chapter is about co-operation, primarily with the SRA and the Legal Ombudsman.

Chapter 11 – Relations with third parties: This chapter is about ensuring practitioners do not take unfair advantage of those they are dealing with and acting in a manner which promotes the proper operation of the legal system.

3.2.1 Chapters that apply to in-house practice with variation

Chapter 1 – Client Care: This chapter is about providing a proper standard of service, taking into account the individual needs and circumstances of each client.

• Outcomes (1.1) to (1.5), (1.7) and (1.16) apply to in-house practice without variation.
• Outcomes (1.6) and (1.9) to (1.14) apply to in-house practice if a practitioner is acting for someone other than their employer unless it is clear that the outcome is not relevant to the particular circumstances.
• An outcome specific to in-house practice (IHP1.1) is included in this chapter and instead of adhering to outcome (1.8) in-house solicitors must comply with the SRA Practice Framework Rules in relation to professional indemnity insurance.

Chapter 2 – Equality and diversity: This chapter is about encouraging equality of opportunity and respect for diversity, and preventing unlawful discrimination.

• Outcomes (2.1), not discriminating unlawfully, and (2.2), providing services to clients in a way that respects diversity, apply to in-house practice without variation.
• Outcomes (2.3) to (2.5) are replaced by an outcome specific to in-house practice (IHP2.1) which states that an in-house solicitor with management responsibilities must take all reasonable steps to encourage equality of opportunity and respect for diversity in the workplace.

Chapter 3 – Conflicts of interest: This chapter is about handling conflicts of interests and having systems in place to identify and deal with conflicts.

• Outcomes (3.1) to (3.3), on systems and controls for identifying conflicts, apply to in-house solicitors with management responsibilities.
• Outcomes (3.4) to (3.7) apply to in-house practice without variation.

Chapter 7 – You and your business: This chapter is about the management and supervision of firms or in-house practices.

• Outcomes (7.5) and (7.7) apply to in-house practice without variation.
• Outcomes (7.1) to (7.3), (7.6) and (7.8) to (7.10) apply to in-house solicitors with management responsibilities.

Chapter 8 – Publicity: This chapter is about the manner in which practitioners publicise their firms or in-house practice or any other businesses.

• Outcomes (8.1) to (8.4) apply to in-house practice unless it is clear from the context that the outcome is not relevant in the particular circumstances.

Chapter 9 – Fee sharing and referrals: This chapter is about protecting clients' interests where there are arrangements with third parties who introduce business to you and/or with whom fees are shared.

• Outcomes (9.1) and (9.3) apply to in-house practice without variation.
• Outcomes (9.4) to (9.7) apply to in-house practice unless it is clear from the context that the outcome is not relevant in the particular circumstances.

Chapter 12 – Separate businesses: The purpose of this chapter is to ensure clients are protected when they obtain mainstream legal services from a firm regulated by the SRA.

The outcomes in this chapter apply to in-house practice apart from (12.2) which only applies to a firm.

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4 Accounts Rules

In-house solicitors are subject to the SRA Accounts Rules where they hold or receive client money.

4.1 Exemptions

Rule 5 of the Accounts Rules exempts certain persons from adherence to the rules, where their employment is with a non-solicitor employer and this includes practising as an employee of a local authority or statutory undertaker.

4.2 Requirements

Rule 10.5 on 'Operation of a client's own account' only applies to private practice so the Accounts Rules only apply to in-house solicitors who:

1. open an account in their name, and
2. receive or hold money in that account.

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5 Practice Framework Rules

5.1 The limitations on in-house practice

Under the Legal Services Act 2007 (the 'Act'), a person must be authorised in order to carry out 'reserved legal activities'. Those practising in-house are authorised to advise on reserved legal activities but only within the permitted framework set out in the SRA Practice Framework Rules.

The rules prevent in-house solicitors acting for clients other than their employer except in certain circumstances (rule1.1(e)).

The only circumstances in which in-house solicitors can act for clients other than their employer are set out in rule 4 of the Practice Framework Rules (rules 4.4 to 4.26). Depending on these circumstances, you may need to have PII in place.

You may only act for clients other than your employer where you are able to act without compromising the principles or your obligations under the SRA Code(rule 4.1(a)).

In-house solicitors usually work within businesses that are not regulated legal practices. As such, rule 4 does not apply to solicitors within licensed bodies or authorised non-SRA firms acting within the scope of their authorisation. These rules do apply, however, to solicitors in a licensed body or an authorised non-SRA firm if they conduct work outside the scope of the firm's own authorisation, either for:

• the firm itself or for work colleagues, in accordance with rules 4.4 to 4.6;
• related bodies, rules 4.7 to 4.9; or
• pro bono work, rules 4.10 to 4.11 (see rule 4.3 and guidance note (i)).

As noted above, reserved legal activities can only be carried out to the public if there is authorisation in place. Section 15 (4) of the Act sets out that employers will need to be authorised if, in your capacity as an employee and as part of your employer's business, you wish to provide reserved legal services 'to the public'.

Nothing in rules 4.4 to 4.26 supplants the need for your employer to obtain authorisation if you are to perform work for someone other than your employer. For example, if you are employed by an association to act for members in accordance with rule 4.12, members of the association may be considered to be 'the public or a section of the public' for the purpose of the LSA and authorisation may be required (see guidance note (ii)).

It is important to remember that your employer's business may develop in such a way that it requires authorisation. You must satisfy yourself that any such authorisation is in place before conducting any reserved legal activity (rule 4.1(b)).

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5.2 Circumstances where working for clients other than your employer is permitted

Work colleagues – rules 4.4-4.6

In-house solicitors may act for current and former work colleagues, subject to certain safeguards, provided the matter relates to and arises out of the person's work for the employer and is not a claim arising as a result of personal injury to that person.

Guidance note (ix) states that this does not permit reserved legal activities to be offered as part of a benefit under an employment package. Those working in-house will need to consider whether they are allowed to act on a case-by-case basis and, in particular, the extent to which there is a direct relationship between the work colleague's employment and the reserved legal activity.

You must be satisfied that the work colleague does not wish to instruct another lawyer and no charge can be made for your work unless those costs are recoverable from another source.

Related bodies - rules 4.7-4.9

In-house solicitors (other than those employed by local governments – rule 4.8) may act for their employer's holding, associated or subsidiary company (rule 4.7(a)) or a partnership, syndicate, LLP or joint venture in which their employer has an interest (rule 4.7(b)).

In-house solicitors may also act for trade associations of which their employer is a member (rule 4.7(c)) or a club, association, pension fund or other scheme operated for the benefit of employees (rule 4.7(d)). You should consider whether any of the other circumstances in rule 4 apply to the work conducted for related bodies, as for the purpose of rule 4.10 to 4.14 references to your 'employer' include related bodies of that employer (rule 4.9).

Pro bono work - rules 4.10-11

In-house solicitors may conduct work on a pro bono basis in the course of their practice for a client other than their employer provided:

• there is PII in place
• no fees are charged (or a conditional fee agreement where costs received are paid to a charity), and
• the work does not involve reserved legal activities, unless the providing these services to the public is not part of your employer's business (with or without a view to profit).

The ability of in-house solicitors to act for clients on a pro bono basis is limited by the Act, which generally requires that the provision of reserved legal services to the public is carried out through an authorised body. Rule 4.10 sets out the requirements, including the prohibition on undertaking reserved legal activities unless the services provided to the public are not part of your employer's business.

Guidance note (x) to rule 4 sets out relevant factors to be considered, taking into account all the circumstances, to help determine whether activities form part of your employer's business. These are:

• relevancy of work to the employer's business
• whether the work is required of the employee by the employer
• how often work is carried out
• where the work is carried out
• when the work is carried out
• whether the work is explicitly carried out on the employer's behalf
• the provision of the necessary PII
• the extent to which the employer relies on or publicises the work
• whether the employer provides management, training or supervision for the work
• whether the employer specifically rewards the employee in any way for the work
• how many employees carry out the work, and the overall proportion of time spent, and
• the extent to which the work complements or enhances the employer's business.

If there is a clear relationship with your employer's business, you will not be permitted to conduct pro bono services. There will be some situations which are likely to be easier to judge. For example, you are likely to be prevented from acting where the employer describes its business as including the provision of pro bono services or where it may boost the employer’s business by providing extra business opportunities or creating contacts.

Rule 4.11 also states that in-house solicitors are not permitted to conduct work on a pro bono basis in conjunction with services provided by their employer under rule 4.12 (associations), 4.13 (insurers), 4.14 (commercial legal advice services) or 4.19-21 (foreign law firms).

Associations – rule 4.12

If employed by an association, in-house solicitors may act for a member of that association provided that:

• membership of the association is limited to those engaged or concerned in trade, occupation or specialist activity
• the association is formed bona fide for members and is not formed for the purpose of securing assistance in legal proceedings
• non-contentious matters are not charged to the member and the association indemnifies the member in relation to costs and disbursements in contentious matters, and
• you act only in matters that relate to or arise out of the particular trade, occupation or specialist activity of the association, for which the association is formed.

Insurers and commercial legal advice services – rule 4.13 and 4.14

In-house solicitors employed by insurers may act on behalf of the insurer using the subrogated rights of the insured and also for others in the limited circumstances outlined in rule 4.13.

If you are employed as a solicitor by an insurer who runs a commercial legal telephone advice service, the restrictions in rule 4.14 do not prevent you acting for an insured in accordance with rule 4.13 (guidance note (xi)).

Commercial legal advice services – rule 4.14

You can be employed by a commercial organisations to provide telephone legal advice services to persons making enquiries provided that the advice is limited to telephone only, with a follow-up letter when necessary. PII cover is required and you must not undertake any reserved legal activities.

Local government – Rule 4.15

Local government in-house solicitors may act for another organisation or person to whom the employer is statutorily empowered to provide legal services provided the conditions in rule 4.15(b) to (g) are met.

Please note that provisions in Rule 4.15 may be subject to change as a result of the SRA's red tape review.

Law centres, charities and other non-commercial advice services – rule 4.16-17

This applies to in-house solicitors employed by a law centre or advice service operated by a charitable or similar non-commercial organisation. It does not apply to associations formed for the benefit of its members as this situation is covered by rule 4.12.

Solicitors may give advice and otherwise act for members of the public provided that the organisation meets the requirements in rule 4.16, which include a requirement to have PII cover for legal activities carried out by in-house solicitors. If your employer obtains authorisation as a licensed body you will not need to rely on the exceptions in rule 4 (guidance note (xii)).

A solicitor who works as a volunteer (as opposed to an employee) for such an advice service must comply with the SRA Indemnity Insurance Rules unless exempted by a waiver (guidance note (xii)).

Foreign law firms – rule 4.19-21

Being employed overseas by a foreign law firm will not usually fall within the definition of in-house practice if your employer is a lawyer or a law firm (guidance note (xiv)). Rule 4 only applies if you are employed by practising lawyers of another jurisdiction that, firstly, are not struck off the register of foreign or European lawyers and, secondly, are not practising in that context as a solicitor or registered European lawyer (REL) (rule 4.19).

As an in-house employee of a foreign law firm under rule 4.19, you may not undertake reserved work for clients or immigration work (unless your employer is separately authorised) (rule 4.20 and guidance note (xiii)). There are also special requirements about informing clients that they are not covered by the SRA's compulsory insurance scheme and that your employer is not regulated by the SRA. There must also be equivalent PII cover in place.

Crown, non-departmental public bodies and LSC – rule 4.18

Employees of the Crown, a non-departmental public body or the LSC may give legal advice and act for persons other than their employer if it is part of carrying out the lawful functions of the employer.

In-house practice overseas – rule 4.22-25

The pro bono rules in 4.10 and 4.11 applies to overseas practice.

In-house lawyers in overseas practices may only act for their employer or companies controlled by their employer (rule 4.24(a)-(d)). They may also act for employees of these bodies in relation to matters arising out of the work of the company or organisation (except an employee's personal injury claim) and only if no charge is made for their work (rule 4.24(e)).

If you are a solicitor registered in another state under the Establishment Directive, you may practice in-house to the extent that a member of the local legal profession is permitted to do so (rule 4.25).

Regulatory bodies—rule 4.26

Employees of regulatory bodies may in carrying out the function of the employer give legal advice to other persons and, when carrying out statutory functions, may act generally for such persons.

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6 Practising certificates

Solicitors practising in-house must consider whether they need to hold a practising certificate.

Rule 9 of the Practice Framework Rules sets out that if you are practising as a solicitor (including in-house) whether in England and Wales or overseas you must have a practising certificate or be exempt under section 88 of the Solicitors Act 1974 as amended.

If you practise as a solicitor, whether in a firm or in-house, without having a practising certificate, you will commit a criminal offence as well as a breach of the rules (unless you are entitled to rely on the exemption in section 88 of the Solicitors Act 1974).

The scope of section 88 is a matter of law but the SRA has offered a view on this, which is that a solicitor who:

• holds office as the solicitor (ie the principal solicitor) to (inter alia) the Treasury or any other public department
• is a clerk or officer appointed to act for the above will be exempt.

'Public department' is not defined in the Solicitors Act but the SRA's view is that 'any other public department' includes:

• any department of central government in the UK
• the National Assembly of Wales
• any 'non-ministerial department',

but excludes other agencies or 'non-departmental public bodies'. Crown Prosecutors are also excluded (see section 88(1A) of the Act).

The onus is on you to demonstrate to the SRA, if required, that section 88 applies to your employment. If you need to speak to the SRA, the contact centre number is 0870 606 2555.

The SRA strongly advises you to check the classification of the department/agency that employs you, since their status is subject to change.

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7 Professional indemnity insurance (PII) - do I need it?

7.1 In-house solicitors performing work for your employer

If you are performing work in-house for your employer, the SRA does not require you to obtain mandatory professional indemnity insurance (PII) in accordance with the minimum terms and conditions. The SRA Indemnity Insurance Rules only apply to solicitors in 'private practice' and, therefore, do not apply to employees conducting work for their employer.

Liability of in-house solicitors is covered by their employment contract and principles of vicarious liability. As such, it is for your employer to decide whether or not it is necessary to obtain insurance.

7.2 Performing work for other clients - rule 4.2(a) & (b)

PII required:

If you act for a client other than your employer in any of the following situations, you must have PII cover in place:

• pro bono work (rule 4.10),
• commercial legal advice services (rule 4.14)
• law centres, charities and other non-commercial advice services (rule 4.16), and
• foreign law firms (rule 4.19).

The PII cover must be reasonably equivalent to that required under the SRA Indemnity Insurance Rules.

For further information on general PII requirements see the PII practice note.

No PII required:

In the following circumstances, there is no requirement to have PII cover in place. You must, however, consider whether your employer has appropriate indemnity insurance to meet any award for professional negligence against you for which your employer might be vicariously liable. This cover should be reasonably equivalent to that required under the SRA Indemnity Insurance Rules. If not, you must inform your client in writing that you are not covered by the compulsory insurance scheme.

The circumstances where you are permitted to work for a client other than your employer without there being a mandatory requirement for PII cover are:

• work colleagues (rules 4.4-6)
• related bodies (rules 4.7-9)
• associations (rule 4.12)
• insurers (rule 4.13)
• local governments (rule 4.15)
• the Crown, non-departmental public bodies and the Legal Services Commission (rule 4.18)
• in-house practice overseas (rules 4.22-25)
• regulatory bodies (rule 4.26)

For further information on general PII requirements see the PII practice note.

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8 More information

8.1 Practice Advice Service

The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09:00 to 17:00 on weekdays or email practiceadvice@lawsociety.org.uk

8.2 Professional ethics helpline

The Solicitors Regulation Authority's professional ethics helpline provides advice on conduct issues. Call 0870 606 2577, from 09:00 to 17:00, Monday to Friday.

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