Bigger Corporate Budgets Could Be Boon for Employment Lawyers

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By Gayle Cinquegrani

Management-side employment lawyers have a decent shot at drumming up new business as the market for legal services heats up.

“The business case” for hiring outside counsel “seems stronger” in the labor and employment law context than for many other types of legal matters, Amar Sarwal, chief legal officer for the Association of Corporate Counsel, told Bloomberg Law Oct. 23.

“The pace of change in employment law at the state and local level is just staggering,” Sarwal said. “Changes in state and local” employment law cause “a lot of anxiety with in-house counsel.” With “the municipalities coming up with different approaches,” he said, “it becomes difficult to keep up with everything.”

Corporations are adding $3 billion to their 2018 budgets for hiring outside law firms, BTI Consulting Group estimates. Top corporate legal officers have decided to stop bringing more legal work in-house and instead will use outside counsel substantially more than they have during the past 10 years, according to a BTI Law Firm Practice Outlook released in October.

“The number of complex matters that corporations face just doesn’t let down,” Michael Rynowecer, president of BTI, told Bloomberg Law Oct. 24. “If you’re a corporate counsel, you get to a point where you need a different mix of skills, so all of a sudden it becomes more effective to go to a law firm” instead of relying on the lawyers in the general counsel’s office.

Furthermore, lawyers’ growing use of alternative fee and fixed fee arrangements enables general counsel offices to “buy better and smarter,” Rynowecer said. “You’ve got more buying power and a fairly compelling need.”

Growth Forecast for Worklaw Market

BTI is projecting that the market for employment law practices will grow by 4.1 percent in 2018 to $6.05 billion. The industries most likely to have increased needs and spending for employment lawyers are consumer goods, health care, manufacturing, professional services, and retail trade, BTI found.

The Wellesley, Mass.-based consulting group based its findings on 350 in-depth telephone interviews with general counsels and senior legal officers at corporations in 15 industries.

Clients who are affected by recent changes in immigration law and those whose operations were disrupted because of recent hurricanes and storms likely will be particularly receptive, according to BTI.

BTI’s report cautioned that lawyers shouldn’t rely on electronic industry alerts and large-scale educational events for client outreach. Those tactics are useful for building a brand, but clients value one-on-one meetings when deciding which lawyer to hire, it said.

The climate for attracting new labor and employment law business is “the best it’s been in almost 10 years,” Rynowecer said. “I’d be out visiting my clients and figuring out how to get that work.” During these site visits, employment lawyers should counsel their clients on what to do if they receive an inquiry from a government agency, he said.

Worklaw Expenses Unpredictable

The Proskauer law firm, which also studied the trend in companies’ legal spending for labor and employment law matters, painted a less rosy picture for business development.

In-house lawyers continue to face pressure to manage labor and employment risk while reducing their spending on law firms, Proskauer reported Oct. 11 in “ Value Insights: Delivering Value in Labor and Employment Law.” Twenty-four percent of corporate respondents expect to increase their legal spending during the coming year, and 24 percent expect to decrease it, Proskauer found.

Corporate legal expenses for employment law matters may be unpredictable because employees drive the litigation, Elise Bloom, the co-chair of Proskauer’s labor and employment department, told Bloomberg Law Oct. 19.

Acritas, a legal marketing and research firm, designed Proskauer’s survey with input from the firm’s advisory board of in-house counsel, Bloom said.

The survey involved more than 300 respondents from several industries and geographical areas. Sixty-four percent of the respondents were in senior legal posts such as chief legal officer. Almost half worked for businesses with annual revenue of at least $1 billion, and half worked for businesses with at least 1,000 employees. The survey was done mostly by telephone, with a few responses from the internet.

The average business uses four law firms for labor and employment matters, and nearly 25 percent fired a law firm during the past 12 months, Proskauer’s survey showed.

Alternative Fees Can Lower Revenue

Even when a law firm snags a company’s business, alternative fee arrangements can depress a firm’s revenue. Thirty-four percent of Proskauer’s respondents used alternative fee arrangements for at least some of their labor and employment work, especially for litigation.

Because “budgeting was very unpredictable in the labor and employment space,” Bloom said she was surprised that more companies didn’t have alternative fee arrangements. “That suggests to me that there’s still a piece that people haven’t figured out yet” in the legal fee puzzle, she said.

The average in‑house legal team consists of 20 lawyers, of whom three handle labor and employment work, according to Proskauer’s survey. Only 11 percent of in‑house legal teams increased their head count during the past year.

Legal Spending Often Exceeds Budgets

On average, the respondents spent $4 million a year on outside legal counsel, Proskauer said. One‑third of the companies didn’t set a budget for legal spending, but 64 percent of those who did exceeded it.

During the past year, Proskauer’s respondents received an average of 12 threats of labor and employment litigation, nine administrative charges, and five individual lawsuits.

During the past 12 months, 20 percent of the businesses faced a labor and employment class action. Discrimination claims were the most common, but the respondents worried more about wage-and-hour claims because these can morph into class actions, the survey showed.

Law firms could use these statistics to remind their corporate clients of the need to train their employees on workplace issues. “We always advocate for live training,” Bloom said. “Very often companies have gotten away from live training in favor of web-based training,” but the survey “suggests that doing some live training might be a big expense-saver overall because it will reduce the number of claims,” she said.

Hourly Fees a Barrier

Nevertheless, because of cost considerations, “overall, the pendulum is still pretty much on the side of insourcing” legal work to be done by the company’s general counsel’s office, Sarwal said.

Hourly fees charged by many law firms are so high that it’s cheaper for a company’s general counsel to enlarge his own staff rather than hiring an outside law firm, Sarwal said. For companies with many employees, “there are so many issues that hiring a lawyer every time just isn’t feasible.”

“I think longer term, we will see the pendulum swing back the other way,” with in-house counsel outsourcing more of their employment matters to law firms, Sarwal said. “There’s been a lot more innovation” by labor and employment law practice groups “that in-house counsel might want to take advantage of.”

To contact the reporter on this story: Gayle Cinquegrani in Washington at gcinquegrani@bna.com

To contact the editors responsible for this story: Tony Harris at tharris@bna.com and Jo-el Meyer at jmeyer@bna.com

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