The year of the free-agent lawyer

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Thomson’s acquisition of Pangea3 last November capped off what I think we can fairly call the year of law firm outsourcing. Among 2010′s LPO highlights, in chronological order, were:

What’s clear by now is that law firms are sending increasing amounts of work outside the firm, in two streams: (1) back-office tasks (administration, financial support, etc.) and middle-office tasks (research, document review, etc.) to LPOs in lower-cost locations overseas; and (2) routine lawyer work to law firms in lower-cost nearshore locations (expect more of that, and soon). We don’t hear much about clients’ direct LPO activities, but like icebergs, those are 90% hidden from view. And Thomson’s Pangea3 acquisition promises intriguing new developments to come on this front.

So we’ve just come off the year of law firm outsourcing: traditional firms contracting with distant corporate entities in lower-cost jurisdictions to carry out basic or routine work. I think 2011 will see the further development of a related but more important trend: the shift of lawyer work away from full-time associates and towards independent, unaffiliated, networked and mobile practitioners. The corporate outsourcing stream is branching out into an individual outsourcing stream. 2011 should be the year of the free-agent lawyer.

Almost two years ago, John Flood and Peter Rouse pointed out that law firms’ historic tendency towards full employment — maintaining platoons of full-time lawyers on the immediate premises — might have run its course, in light of both the recession and new service models at “dispersed” law firms such as Axiom, Rimon and Lawyers Direct. “Although legal work has become more commoditised and an increasing proportion of it shipped offshore,” they wrote, “it is perhaps lawyers themselves, both associates and partners, who are the commodities, traded and marketed by recruiters and head-hunters.” The new law firm model will be based on “contract lawyers” — attorneys retained for a specific project or a limited time, then released back into the market.

Law firms themselves soon caught on to the fact that many of the associates they had cut during the financial crisis could be brought back into the fold at lower costs, with fewer benefits, at the firm’s sole discretion. Last summer, an Altman Weil survey reported that “a majority of responding firms expect that contract lawyers will become a permanent part of their firm’s structure.” Altman’s Tom Clay added: “As firms become more comfortable with contract lawyers, AFAs, fewer partners, and whatnot, they’ll see it as a way to deliver services more efficiently to their clients.”

This past December, contract lawyer hub The Posse List noted that temporary lawyers were becoming a permanent solution. “[D]uring the recession, in order to keep the troops busy, law firms gave their associates work that would have normally gone to contract attorneys,” TPL wrote. “But now, even as the economy continues to improve, the ranks of ‘other’ attorneys continue to swell due to their lower cost and often more targeted experience. We have seen that as many contract attorneys with specialized experience move out of the document review rooms and into more substantive work.”

CEOs in all industries, not just law, have concuded that their labour costs have been too “fixed” and insufficiently “variable” in the recent past — the shift towards contract employees addresses that perceived imbalance. This chart from a recent issue of The Economist starkly illustrates that although current unemployment rates remain very high, there’s one notable exception: temporary or contract workers:

It’s not just in North America — the Posse List reports a steep rise in European and foreign-language document review work for contract lawyers. It’s not just “temporary” or “contract” lawyers, either: the last few years have seen a steady growth in the percentage of part-time lawyers (including partners) in law firms. And even within the ranks of law firm associates, a two-tier reality is emerging, notes Jerome Kowalski: a small elite segment of associates paid top dollar and expected to slide smoothly into partnership, and a “vast underbelly” of staff lawyers who are paid much less and worked just as hard, but are not held to strict billing or business development expectations.

Law firms, for once, appear to be near the front of a business trend: the lawyer employment model is shifting away from full-time work in law firms towards temporary, contract, part-time, dispersed, and/or remote free-agent lawyers. And this should be no surprise, because legal work itself is making the same transition: from a model in which every task was performed (and billed) by full-time lawyers inside the law firm, to a model in which legal work is carried out by the most appropriate, efficient and cost-effective performer, regardless of status or location. Associate leverage ratios have declined from their historic mid-’00s highs and figure to stay lower for the foreseeable future; formerly bottom-heavy pyramid-shaped law firms have become and should remain noticeably slimmer.

It’s a rational development, and in the end, it will produce a legal labour model more aligned to marketplace reality than to lawyer traditions. But from now on, many lawyer jobs will be much less secure, and significantly lower-paying, than the last few decades have led us to expect. And it will give rise to a number of implications and repercussions:

  • Law schools have not seen this trend coming and they have not adjusted their business model, which still pretends that huge tuition fees can be paid off quickly with a high-paying law job. At least three years’ worth of students have graduated into an entirely different market than the one on which their schools’ economic assumptions were based, and every year that schools fail to adjust adds another year of graduates with misaligned expectations. The long-term impact: a winnowing of the number of law schools and a general (although not universal) slump in revenue among the schools that survive.
  • Professional responsibility rules and practices will prove equally unready for the new model. As a friend who operates professional development in a large firm asks: to which lawyers should PD be applied? The future stars, certainly. But what about the staff, temporary and contract lawyers who produce work for the firm’s clients but are not expected to stay long enough to be considered a good educational investment? If firms don’t provide associate PD, where will it come from?
  • And what about conflict of interest rules? The same friend points out that contract lawyers who work for multiple employers on numerous matters will accumulate many more conflicts at a much faster rate. If the current rules on conflicts of interest are maintained and enforced, these lawyers will rapidly find themselves ethically obliged to turn down work, eventually becoming effectively unemployable. If we consider that to be a perverse and impractical outcome — and I think we should — are we looking at a two-tier ethics system? Or the collapse of an already unwieldy conflicts regime in the face of market pressure?

Despite all of that, however, I do think that this trend will eventually prove to be advantageous for this new generation of lawyers. I prefer to think of them not as “contract” lawyers or “temps” — terms that, in both reputation and reality, often aren’t so great — but as “free-agent” lawyers: agile, versatile, flexible, low-cost and high-quality sources of legal expertise. I think this new model will end up a net positive for the current and coming generation of lawyers. The advantages of free-agent lawyering should include:

  • a wider range of work,
  • more flexible work schedules,
  • a greater ability to respond to changing market needs,
  • more time for family and personal priorities,
  • better and more efficient work habits,
  • less attention paid to timesheets,
  • more opportunities for niche careers,
  • greater freedom to chart your own developmental path, rather than one shaped by the firm’s immediate needs, and
  • the ability to carve out your own independent professional brand.

Interestingly enough, free-agent lawyers could ultimately make law firms less important in the legal services market. In sufficient numbers, they will effectively constitute a new set of competitors: armies of independent lawyers who operate without the overhead costs and institutional inertia of law firms.

Free-agent lawyers might work for Axiom-style dispersed firms for as long as it suits them. They might ply their trade as independents with the assistance of Posse List-like organizations. They might come together to form emerging legal business networks of their own and use them to build brands and careers. They won’t be “solos” in the traditional sense — they ultimately work for other businesses, not their own — but they will constitute a valuable option for clients who want legal work done quickly, cheaply and well. LPOs will have to keep an eye on free-agent lawyers, too: they could be each other’s primary competition. Equally, though, the two entities could form alliances and pose an even stronger challenge to law firms.

Make no mistake, free-agent lawyers have a steep hill ahead of them: it’s a legal career on the edge, providing little leverage or security and demanding an entrepreneurial spirit. They could use some organizational help. But it does seem like a career path custom-designed for millennial lawyers, who were raised to multi-task their way through numerous serial careers with maximum flexibility and personal fulfillment opportunities. They represent, if not the future of the legal profession, one of a growing number of available futures for a legal marketplace increasingly in flux.

Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

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7 Responses to “The year of the free-agent lawyer”

  1. Julian Summerhayes

    Jordan

    Thank you (again) for another thought-provoking post.

    I am not sure the trend that you highlight is going to be that significant for the majority of law firms in the UK (outside say of the top 100), at least for the next 12-18 months.

    The reason: the partnership model is based on the profit base being fuelled by and supported by a cohort of ‘junior’ lawyers who can be utilised – even if that is not in a wholly effiicient way.

    I am aware of at least one firm who proceeded down the “eat what you kill” model but fairly swiftly reverted back to the classic model of partnership.

    The thing is that lower down clients are not that discerning and therefore the pressure to change is not so great. Yes, they want things done as cheaply/efficiently as possible but most firms will cut their cloth and try to cling on to the work for as long as possible.

    They will also be disinclined to outsource the legal work on the basis that to do so would mean that their lawyers would simply not have enough work to do or the stream of work was not sufficiently technical or high value to warrant such intervention. Undoubtedly, the larger firms will look to make themselves leaner and more efficient and I don’t see that trend abating but I am just not convinced that you will begin to see lots of self-employed lawyers.

    If nothing else they don’t possess the entrepreneurial spirit to make it happen.

    Julian.

  2. Merrilyn Astin Tarlt

    It’s getting a lot of attention from the new generation of lawyers, as well. It’s agreat way to take back control of your life. Although there are downsides, as well. See http://www.Attorneyatwork.com for today’s post from Donna Seyle. She takes a look at what it takes to survive as a freelance lawyer.

  3. Jordan Furlong

    Julian, I completely agree about the pressures that the traditional law firm business model will exert against this trend (in North America just as much as in the UK, maybe more). The fact that this new model, which makes far more sense than the incumbent approach when viewed from any rational or client-focused perspective, isn’t already widespread speaks to the effectiveness of that pressure.

    But whether firms go there sooner or later, go there they will. Firms will try, as you say, to cling on for as long as possible; but it won’t be as long as they hope, because they’re not the only players in the market anymore. The free-agent, dispersed and virtual lawyer models have only just gotten underway, as have the LPOs, and they’ve already made inroads with significant clients; think of where they’ll be in ten years, with venture capital or LSA-based funding.

    Lawyers might not yet appreciate that the approach I’ve described is how *the work itself* is evolving, and lawyers simply don’t control the work; they’re supply, not demand. It’s out of their hands. The law firm business model is premised on clients remaining as unsophisticated and pliable as they were 20 years ago, and that is not a premise on which I’d want to wager my organization’s future.

    As for the lawyers themselves, I suspect that entrepreneurial spirit will emerge pretty quickly from the ranks of the unemployed and the hopelessly overworked. Merrilyn has already pointed to Donna’s article, which arrived in my inbox right after this post went up; there’ll be more like this to come.

  4. Lisa Solomon

    As a longtime freelance lawyer, as well as an advocate for the freelance lawyer community, I’m excited that the pace of outsourcing is picking up among firms of all sizes.

    I’d like to add some observations about, and information for, true free-agent lawyers (i.e., those who don’t rely on staffing agencies like Axiom – and, yes, Axiom is a staffing agency, not a law firm).

    First, I disagree with your statement that free-agent lawyers won’t be “solos” in the traditional sense because they work for other businesses, not their own. Make no mistake about it: from a business perspective, working as a free-agent lawyer is little different than working as a “traditional” sole practitioner. As I noted in the comment I submitted jointly with the National Association of Freelance Legal Professionals in response to the ABA Ethics 20/20 Committee’s call for comments about legal process outsourcing:

    [f]reelance lawyers are entrepreneurs: they maintain their own offices, pay their own taxes, arrange for their own insurance and benefits, set their own schedules and fees, establish their own working conditions, pursue their own professional development and market their services directly to law firms and in-house legal departments.

    (You can read the full comment at http://tinyurl.com/25jld6e.)

    In this regard, in response to your suggestion that free-agent lawyers could use organizational help, I highly recommend the resources provided by the National Association of Freelance Legal Professionals created to assist freelancers in optimizing the financial and personal success of their businesses, as well as to raise the profile of freelancing as a career choice that can optimize job satisfaction, business success, and work-life balance. The organization’s website is at http://NAFLP.org.

    Second, I don’t think that free-agent lawyers and LPOs will be each others’ primary competition. Most high-quality LPOs are focused on “process”: repeatable, commoditized tasks. Indeed, when I spoke with Pangea3′s Director of Litigation Services at LegalTech last week, he told me flat-out that his company doesn’t have plans to expand into providing more “bespoke” services like legal research and writing.

    Good free-agent lawyers bring value to the outsourcing relationship in ways that LPO companies don’t. For example, free-agent lawyers often offer insight into the issues in each case (based on prior experience in the practice area; familiarity with local practice rules and customs; and/or research conducted in connection with the engagement) and draft high-quality briefs and other non-commoditized documents. Some free-agent lawyers (often called “per diems” in New York) also make court appearances, take depositions, or even second-chair trials.

  5. Ida Abbott

    Jordan, I’m glad you raise the questions asked by your PD friend about what kind of training and development will be needed for lawyers graduating into this new work world, who will provide it and how. Yes, for new lawyers who opt for more specialized and limited jobs, whether in a firm or as free agents, law schools, LPOs or law firms can provide sufficient training for a particular legal function.

    But for lawyers who want to do the strategizing, advocacy and deal-making, to have their own clients, and to develop the judgment it takes to be a client’s trusted advisor, broader learning and experience are necessary. That is as true for solo and small firm practitioners and for lawyers at entities like Axiom as it is for those in global law firms.

    Where will those lawyers come from? Who will prepare them and how? How will law firms identify the “stars” who get a full PD investment? If a new lawyer chooses to start (or is labeled) as a “non-star” and later has renewed ambitions, will that late bloomer be able to get back on partnership track? What about women and men who take time out or work reduced hours? Will they be foreclosed from partnership?

    There are many questions to sort out from a PD standpoint as the profession goes through what is a fundamental restructuring of legal work and career paths. As you say, there will be many new categories and combinations of lawyers in the future, and their post-law school development needs will undoubtedly take many shapes. This is an area where some creative thinking is sorely needed, and where budding entrepreneurs may find ripe opportunities.

  6. Richard Moorhead

    Interesting.

    Does what can be successfully ‘agented’ boil down to monitoring costs? If monitoring the quality of particular types of work is either a) not that important or b) can be done as well as for conventional employees or c) if the costs/risks of doing so are greater but still cheaper than the savings from having flexible labour costs then agency working makes sense. If not, then not. Presumably both sides of the divide will have to do some work: the agent to persuade the firm they are ‘safe’ or ‘good’ and the firm to assure themselves that they were indeed safe or good. That’s not very different from what should be going on in firms (but may not be, internal quality judgments about personnel seem to be, ahem, very heuristic) but it probably does involve a degree of duplication which means the pressure towards agency working is at some point resisted on efficiency grounds.

  7. Mark H

    Outsourcing and free agent lawyering are immediate solutions to the problem of saving costs without sacrificing quality of service. Being immediate or readily-at-hand, they are not the most innovative solutions, however. The more innovative solutions would be in-house automation of the outsourced functions and commoditization of higher-order functions. These would enable firms to scale back on outsourcing and free agent law services. What is lacking to accomplish these ends is not so much technological but conceptual and normative.

    On the conceptual side, a question is raised by the hypothesis that law service can be ‘de-composed’ into discrete functions: once de-composed, what degree of freedom is there in re-composing the service? Are the de-composed functions like the pieces of a jigsaw puzzle that must have one and only one combination? Or are they more like a combination on a lock that can be changed at will? Or are they like a cake that can be cut into any number of pieces, each with a value not dependent on the others? What we are seeing today is increasing creativity and boldness in the de-composing of law services without a comparable level of experimentation in re-composing, which is to say, there is much innovation left to be explored on the lawyer-client side of things. Lawyers are not comfortable in presenting themselves to the public outside of the traditional markers or legerdemain of the profession.

    This brings to mind the normative obstacles to innovation. I see two that lawyers would be well-advised to confront now. The first is the inclination to keep knowledge under proprietary shields. Information has a life cycle, which is a function of the cost in generating the information, the purpose (or end-use) of the information, and the circumstances or arrangement under which the information was generated. I find this a reliable predictor of the perceived risks and benefits of releasing information into the public domain. The closer information runs to the end of its perceived life cycle, the more likely information will be released into the public domain. The farther information is from the end of its life cycle, the less likely it will be released into the public domain. But the desire to differentiate oneself from competitors and plain old magnanimity are wild cards in that they can spur timely and high-quality information to be released into the public domain sooner in the life cycle than predicted. What makes these wild cards more salient nowadays is (of course) the Internet. The Internet is so vast that it is now likely one can find at least one highly accomplished practitioner who has released into the public domain much of his or her know-how on at least one particular legal problem. Given sufficient time and ability, therefore, one can compile an extensive database of know-how on a wide range of problems to be encountered within a given area of law. Now imagine this database opened to the public in a free, easily searchable format. In areas of administrative law with expedited due process (e.g., tax disputes), self-help could become feasible and effective for the public. The website of the Internal Revenue Service (thanks to tweaks made necessary by numerous FOIA requests) is not terribly far from this hypothetical. Information arbitrage, one of the primary motivators to hoarding information, is not only drifting towards obsolescence—it is damaging to practitioners who want to establish trust with colleagues and prospective clients. There isn’t an obvious, kumbaya answer to how to practice in an environment of freely-available high-quality legal information. A greater degree of information-openness does seem appropriate.

    The second normative obstacle to innovation derives from the customs, habits, and rules that result from the unpredictability of due process. The lawyer can never predict with assurance that fact pattern X applied to law X will always produce decision X. Not only does this make lawyers unduly risk adverse; it makes clients unduly willing to recoup the cost of legal defeats from their attorneys. Liability, and dare I say it, many of the elements of the professional codes of conduct, puts a barrier between the client, hampers the effective and ethical representation of the client, and freezes in place a single model of law practice. Thus, almost by definition, innovations are unethical and require the blessing of disciplinary authorities before they can be implemented (by which time the element of surprise has been diminished). There is no easy solution to this obstacle. Humans are unpredictable, so due process will produce inconsistent and unequal results; the current regulatory regime for law practice at least is based on settled principles and one can ask whether any regime would not sanction a particular model of law practice to the exclusion of others. But what if the regulatory authorities allowed a pilot program in which firms were allowed to develop their own terms and obligations that they would honor in client representation, provided these were disclosed on the Internet and personally to each client prior to representation? I expect several leading models of best practices would emerge. Moreover, to compensate for whatever degree of certainty was lost in giving up a uniform system of rules (not much), the required disclosure allows clients to reward good practices and punish bad practices by how they vote their dollars.

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