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Practicing in a virtual law firm - whether you are working from home with a laptop or creating a firm with others working remotely - has growing appeal for small firm and solo lawyers.

But along with the convenience, flexibility and cost-cutting benefits of a virtual practice comes a host of ethical pitfalls that lawyers should not ignore.

Although the definition of a “virtual” law practice varies, it generally entails one or more attorneys operating remotely where communication with clients and each other is primarily electronic, often with no bricks-and-mortar law office at all.

Some lawyers run into trouble because they forget that while the Internet doesn’t recognize state boundaries, disciplinary authorities do.

For example, if a lawyer licensed in one state but living across the border decides to practice from home, he will be practicing law where he’s not licensed.

“Lawyers don’t always realize the risks. Even though you can close your office and open your laptop, there are rules,” said Eric T. Cooperstein, a legal ethics attorney in Minneapolis.

He added that some states are aggressively going after lawyers who hold themselves out as an attorney in a state where they are not licensed.

Do you know who your client is?

Many lawyers who practice virtual law never meet their clients face to face.

This raises a number of concerns, including confirming your client’s identity, assessing his or her credibility and verifying documents.

“When you’re doing things virtually, problems are magnified because you’re not physically seeing someone,” said James Bolan, a legal ethics attorney with Brecher Wyner Simons Fox & Bolan in Newton Centre, Mass.

He suggests implementing a verification process, such as requesting a copy of a client’s identification and Social Security number “on a real piece of paper,” and requiring that any critical documents be sent by snail mail.

Screening for conflicts

One of the benefits of a virtual law practice is the ability to look bigger than you are by working with other lawyers.

However this can raise issues of confidentiality and conflicts of interest.

Unlike a traditional firm where a retainer agreement would disclose that other people in the firm may work on a client matter, a virtual firm should tread carefully where using lawyers who are not members of the firm.

In general, you cannot sub-contract work without a client’s permission, said Bolan.

“Unless a client has given written permission in the agreement, you can’t do it. A client needs to know if I’ve got someone outside as an affiliated, independent contractor or of-counsel,” he said, noting that lawyers must make sure the subcontracting attorneys don’t pose a conflict of interest.

Malpractice coverage

Lawyers operating in a virtual firm should not skip over a discussion about malpractice coverage.

This is especially true where members of the virtual firm maintain their own practice on the side.

For example, if a virtual firm brings on a lawyer who keeps his own solo practice, the firm should make sure the solo entity is covered, said Todd Scott, vice president of risk management for Minnesota Lawyers Mutual, which insures solo and small law firms.

“If he drops the ball on a matter, we [the virtual firm] may assume he’s handling it as part of his own entity. You can bet that a client is going to point to our entity as the firm he belongs to. That’s why we want to make sure everyone has appropriate insurance,” Scott said.

Lawyers sharing a virtual firm should also address issues like how business will be tracked and a method for deciding whether a client belongs to the virtual firm or to an individual lawyer, so that if a dispute arises it’s clear who keeps the client.

“The more precise these lawyers can be when putting together an operating agreement, the better,” said Scott.

Security in the clouds

Because of their heavy reliance on the Internet and a paperless office, virtual law firms should ask themselves what they would do if the Internet went down for a week, said Cooperstein.

He advised lawyers who purchase server space to make sure they are with a reliable company that won’t go bankrupt.

“Don’t be the first one on your block to upload to a brand new service that hasn’t been tested,” he said.

Adam Heaton, a Minneapolis attorney with a three-lawyer virtual firm where each lawyer works from home, invested $10,000 in a server for his home that maintains back-up files in other locations. He also has an external hard drive in his home.

“I have belts and suspenders. A year and half ago, a tornado passed 30 yards from my house. If it had taken out my house and server, we’re backed up to three locations around the country,” he said.

Questions or comments can be directed to the writer at: sylvia.hsieh@lawyersusaonline.com

*CORRECTION*

The original story stated that Adam Heaton practices in Minneapolis. Mr. Heaton practices in a suburb of St. Paul, Minn.

In addition, the article stated that Heaton & Associates is a three-lawyer firm. In fact, the firm has three attorneys working remotely and exclusively for the firm who are not traditional “employees.” The firm also hires attorneys as independent contractors as needed.

Finally, the article states that Mr. Heaton paid $10,000 for his firm’s server. Over the last 10 months, the firm has invested nearly $15,000 for hardware, software, labor costs, services fees and equipment for its server, which is backed up each night to an external hard drive as well as to three off-site locations.

Lawyers USA regrets the errors.