Will In-House Legal Departments Really Benefit from Refusing to Use First- and Second-Years?

October 31, 2011

By Alexandre Montagu, Esq. and Thomas Walsh, Esq.

Recently a major financial newspaper reported on an apparently new trend in some in-house legal departments to refuse payment for legal work performed by first- or second-year attorneys at law firms. The in-house legal departments are ostensibly adopting this policy because they do not want to subsidize the training of these attorneys. However, it was not clear from the article exactly how these companies intend to implement the policy or the amount of savings the companies expect to achieve. While the article did provide a few examples of companies putting the policy to action (e.g. by barring young attorneys from working on any matters with “complexity”, outsourcing litigation document review projects to contract attorneys, and performing menial tasks in-house), it did not provide any figures concerning the amount of matters that are likely to come within the policy or how much time and effort is required on the part of in-house counsel to make those decisions and oversee the process. 

In our opinion, it does not appear likely that companies will achieve significant long-term cost savings from adopting a formal policy barring the use of first- and second- year attorneys.

  • First, any savings that are achieved must be balanced against the additional costs that will result from having more senior attorneys handle some of the matters that were previously performed by first- and second-years. While certain tasks can be isolated and set aside for cheaper alternatives rather easily (e.g. large scale document reviews), many tasks cannot (e.g. researching and preparing memos), and these tasks will likely be taken up by more senior (and more expensive) attorneys.
  • In addition, in the long run, the policy may require in-house legal departments to spend more on internal resources. If in-house counsel are required to devote significant time to micro-managing outside counsel, and to take on additional “menial” tasks that were previously handled by outside counsel, it likely will not be long before the in-house legal departments will need to bring in additional staff.
  • Furthermore, from an intangible perspective, the policy could harm relationships because it would put some in-house counsel in an adversarial relationship with outside counsel.

The article also touched on the impact this policy could have on young attorneys.  The article noted that firms may begin to explore alternative “training programs” for young attorneys, similar to the existing system in the UK. However, what the article did not mention is that there is a major difference between the young attorneys’ educational experiences and associated cost burden in the two countries. In the UK, law is an undergraduate degree (which until now has been free of charge), and then graduates can “article” for a solicitor or “pupil” in a barrister’s chambers. While they only receive a nominal stipend during this time, on average, they will have far less debt than recent law school graduates in the US, who must go through three years of law school (with an average debt at graduation of $106,249 for private schools and $68,827 for public schools) after college, which can also be costly.

All of this is not to say that companies should not look for ways to reduce legal costs, just that a policy against using first- and second-year attorneys might not be the best way to do so. 

  • One option that may be more effective in achieving this goal is having a wider network of boutique or specialist firms.  These firms typically have experienced subject matter practitioners who can advise without the need to reinvent the wheel by conducting legal research (a task often undertaken by first or second year associates at non-specialist firms). 
  • Secondly, many of these boutique firms offer rates and billing arrangements that are very competitive. 
  • Thirdly, and perhaps most importantly, in an increasingly global economy, local firms need to leverage their foreign contacts.   Managing the work of foreign counsel and understanding and controlling the billings of foreign counsel, may be one of the most effective, yet overlooked, ways to keep costs under control.   

 

[Full disclosure: The authors of this post are attorneys at a boutique firm]