When Does HR Cross Over into the Practice of Law?

Sometimes common HR practices risk constituting the unlawful practice of law, particularly in unemployment compensation proceedings

By Allen Smith, J.D. Jul 6, 2017
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Human resource professionals sometimes wonder when their activities constitute the unlawful practice of law—holding oneself out to the public as being entitled to practice law—and nowhere is the confluence of the two more apparent than with unemployment compensation. The unlawful practice of law, defined differently from state to state, can result in misdemeanors, criminal prosecution and the invalidation of actions sought by the persons engaged in this activity, even if they engage in it unwittingly.

Even just in the area of unemployment compensation, when HR is unlawfully practicing law is a touchy question—one that sets off turf battles between HR and attorneys. State laws dictate the answer but have been changed on occasion when state legislatures or courts have been overly restrictive about what HR can do.

The tension between HR and attorneys over when HR professionals are unlawfully practicing law goes back at least 15 years to an American Bar Association (ABA) model definition for the unlawful practice of law that didn't adequately account for routine HR practices. More recently, decisions in some states, such as Arkansas, have defined what nonlawyers may do restrictively.

Unemployment Compensation Hearings

Take unemployment compensation hearings. HR has long participated in them by representing employers in proceedings, but that didn't stop a Pennsylvania Commonwealth Court from ruling in February 2005 that nonattorneys were prohibited from appearing as representatives of employers in unemployment compensation proceedings. In June 2005, then-Gov. Ed Rendell signed legislation to restore the prior practice of letting nonattorneys represent employers in unemployment hearings. This was in response partly to concerns raised by the Society for Human Resource Management (SHRM).

Unemployment compensation proceedings are different from judicial proceedings in two significant ways: speed and risk. "The expedited, informal and nonbinding nature of the proceedings does not rise to the level of a judicial hearing, in which attorneys are necessary to guide the court in interpreting the law," said Nancy Hammer, senior government affairs policy counsel for SHRM.

"SHRM argued that unemployment proceedings are typically heard by a referee who is not a lawyer, let alone a judge, with the typical proceeding taking 30 minutes or less." Allowing HR professionals to represent employers helps keep the costs low for employers and affected employees, she added.  

Robert Nichols, an attorney with Bracewell in Houston, said the fact that unemployment compensation hearings "are remedial, informal and factual in nature is key. As the Pennsylvania Supreme Court has instructed, 'unemployment compensation proceedings are not trials.' And the proceedings "do not require complex legal analysis," he said.

But Julie Badel, an attorney with Epstein Becker Green in Chicago, said, "The arguments that nonattorneys representing companies in unemployment hearings do not constitute the unauthorized practice of law are founded in practical considerations, not in legal arguments or any commonly accepted definition of 'practicing law.' " In other words, statutes as written might prohibit nonattorneys from representing businesses in hearings even if hiring lawyers to do so is impractical. She said that one court reached the conclusion that nonlawyers' representation of businesses in unemployment compensation hearings was not practicing law partly because any other conclusion would dissuade employers from pursuing unemployment appeals, taxing the system. "Other considerations that have been mentioned are that unemployment proceedings are often uncomplicated with not a great deal at stake. This, of course, is not always the case."

Abtin Mehdizadegan, an attorney with Cross, Gunter, Witherspoon & Galchus in Little Rock, Ark., said that a popular exception from state statutes prohibiting nonattorneys from practicing law is for representation in unemployment compensation administrative appeals—one level higher than the unemployment compensation hearings themselves. But he noted that the unlawful practice of law ultimately is a question of state law and that while Pennsylvania allows HR to participate in unemployment proceedings, for example, Kentucky prohibits it.

"From a strategic standpoint, I would advise businesses to exercise extreme caution in allowing a nonattorney to represent their interests during an unemployment or other administrative proceeding," he said. "Unemployment claims can be a precursor to litigation. Nonattorneys often fail to appreciate the gamut of legal issues that can spring from an unemployment claim." Moreover, there is no attorney-client privilege between a nonattorney and the corporation, "so any information exchanged between the layperson and employer will not enjoy that critical protection."

Signing Petitions for Appeal

In another context, in Bank of Fayetteville NA v. Dep't of Workforce Services, 2016 Ark. App. 96 (2016), the Arkansas Court of Appeals dismissed a bank's appeal of the Arkansas Board of Review's unemployment benefits determination because a nonlawyer bank employee engaged in the unauthorized practice of law by signing the petition for appeal.

"HR clearly needs to be careful about inadvertently violating a state statute regarding the unauthorized practice of law," Hammer said. "At the same time, state legislatures should look carefully at how these statutes are drafted. Allowing HR departments to respond to routine forms and requests, even if they are legal in nature such as garnishments, could save time and money for employers, employees and the court system."

While nonattorneys should not be signing petitions for appeal in unemployment benefit determination cases in Arkansas, "There is no doubt that in many other states that action would not be viewed as the practice of law," Nichols said. "The conclusion reached in that Arkansas case appears to be relatively extreme."

Whether HR is unlawfully practicing law may depend on the stage of the proceeding. "The initial notice to an employer of an unemployment claim often requires the employer to respond with facts—either as to the amount of wages the former employee earned or the reason for separation. This type of request for factual information can be prepared and signed by a human resource representative," Badel said. "But once the claim has moved to the hearing stage, whether before a hearings referee or administrative law judge or to a final appeal at the agency or to a court, petitions for appeal and similar documents should be reviewed and signed by lawyers."

Mehdizadegan took a hard line, stating, "In my view, no layperson should be permitted to represent a corporation in any court proceeding." In Bouland v. Erwin Keith, 2013 Ark. App. 460 (2013), a nonattorney represented an injured worker before the Arkansas Workers' Compensation Commission, which is permissible under the Arkansas Code. The commission denied the workers' claim and the nonattorney representative filed a notice of appeal. The clerk refused to lodge the appeal because the individual was not a licensed attorney. The court of appeals dismissed the case because by filing a motion in the Arkansas Court of Appeals, the nonattorney engaged in the unauthorized practice of law.

"The bright line to avoid is at the steps of the courthouse," Mehdizadegan said. "Courts in Arkansas have also found that representation of a corporation in arbitration proceedings constitutes the unauthorized practice of law."

But at the same time, no statute would prohibit HR from training employees and management on corporate compliance with laws and regulations, drafting handbooks, compiling EEO-1 logs or engaging in the Americans with Disabilities Act's (ADA's) interactive process, he added.

[SHRM members-only toolkit: Accommodating Employees' Disabilities]

Proposed Model Definition Sunk

The tension between HR and attorneys over what constitutes the unlawful practice of law is a longstanding one.

When the ABA sought comments in 2002 on its Model Definition of the Practice of Law, former SHRM president and CEO Susan Meisinger, J.D., SHRM-SCP, criticized the ABA for defining the practice of law in such a way that "would radically alter the human resource profession and ultimately change the way organizations conduct business."

The proposed definition included many functions in which HR professionals engage on a routine basis, she noted, including representing a person before an adjudicative body and negotiating legal rights. "HR professionals represent employers before countless administrative bodies, including unemployment insurance boards, labor boards, human rights agencies and the Department of Labor. They also regularly represent employers in arbitration and mediation proceedings," Meisinger said. "HR professionals negotiate legal agreements, including offer letters, termination packages and independent contractor agreements. HR professionals engage in collective bargaining negotiations. Also, they often are primarily responsible for engaging in the interactive process mandated by the ADA."

The ABA withdrew its proposed definition on the unauthorized practice of law and left it for states to define.

Some routine matters may constitute the unauthorized practice of law if conducted by HR according to state statutes, Hammer noted. State legislatures should consider whether these statutes should be amended to allow HR to handle them routinely, she added. "Enabling employers to receive information from HR consultants who may charge lower fees than an employment attorney should compel policymakers to carefully examine what risks they are attempting to mitigate and whether requiring employers to hire attorneys for some of these matters is the right policy."

 

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