Salary Hikes Ensure Legal Process Outsourcing Flourishes

The Los Angeles Daily Journal announced in their March 19 issue that pay scales for first-year attorneys rose yet again, with a number of firms hitting a staggering $160,000 starting salary. In the UK, the situation is much the same. The Lawyer.com reported that Linklaters is expected to heat up the pay war with an increase in its associate salaries of around 16 percent, to £69,000. The expected hike would push Linklaters ahead of Clifford Chance in the battle to win over top-flight graduates with lucrative starting salaries. Unsurprisingly, the remaining “magic circle” firms are currently “reviewing their salaries”.

Is it just me or does anyone else have a sense of “keeping up with the Joneses” going on here? Why do firms feel such enormous pressure to match each other in junior associate pay? The reason is because they are all trying to compete for the same pool of top talent. The competition for available talent is only going to become even more intense as 75 million baby boomers will soon give way to around 30 million generation X-ers. Although its seems incredulous right now given the preponderance of law school graduates, various studies indicate that there will be a shortage of around 14 million skilled workers in the US by 2020.

How high can the salaries rise and how long can this go on for before the tide turns? The answers lie with the leading firms’ corporate clients. Although there is no present indication that these clients aren’t willing to pay premium bills for multi-million dollar litigation matters, eyebrows are starting to be raised at first year associates’ over inflated hourly rates for routine, transaction based legal work.

The top law firms are perfectly aware of this and realize that while they will continue on the one hand to pay the ever decreasing pool of US and UK skilled talent ever increasing wages, they are also on the look out for cheaper labor elsewhere. This labor has become available through the opening up of the global legal marketplace and the increasing proliferation of offshore and outsourced legal process support companies. The major law firms on both sides of the Atlantic are now looking towards Asia, and in particular India, to provide them with the extra string to their bow that their clients are beginning to demand.

Think about this: we’re not far from the day where the top firms will be paying their newly qualified associates salaries approaching $200,000 per annum. Do these firms and their clients really want these associates’ time spent on document review and routine transaction based tasks if this work can be done elsewhere? If the US and UK talent pool is shrinking, these associates will increasingly be spending their time on higher-end legal work both out of necessity and because their clients will simply not accept anything else. India’s vast pool of highly qualified legal talent is the obvious choice to provide the outsourced legal support the US and UK firms will require. It is this thirst for talent that has led to the development of the Offshore Legal Process Outsourcing industry. US and UK Law firms have been exploring and developing relationships with offshore legal service providers now for the last 12-24 months and this trend shows no signs of slowing down. Offshore legal process companies such as LawScribe have moved beyond traditional back office legal support services to increasingly more complex core legal work including legal research, patent and trademark searching and drafting, document drafting and due diligence.

It’s also no secret that over the last 12 months a number of the top 100 firms have sent high power delegations to India. In turn the UK Law Society recently invited a 20-strong delegation from the All India Bar Association (AIBA) to the UK in the hope that this may help speed up the process of liberalizing entry into the Indian legal market. Some UK Government sources predict a partial opening of the Indian legal services market within a couple of years. As Indian domestic regulations currently stand, Indian firms are prohibited from advertising or from having more than 20 partners. The 1961 Advocates Act, which forbids foreigners from practicing in India, will also have to be amended.

Until these changes are implemented even the largest firms will continue to explore relationships within the growing legal process outsourcing market. So long as associates’ salaries continue to rise and clients increasingly become more demanding and price sensitive, the offshore legal process outsourcing industry will continue to flourish.

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San Diego Bar Opinion: Legal Outsourcing & Offshoring

I read with interest the recent San Diego Bar Association Opinion on outsourcing and offshoring. Although it hasn’t attracted quite the press attention, or comment within the various legal offshoring and outsourcing blogs as did the 2006 New York State Bar Opinion, it clearly reinforces the same conclusion reached in the New York Opinion: outsourcing legal services is permitted if certain safeguards are ensured.

I have no intention of simply re-hashing the full text of the Opinion here in my blog – but refer you to the following link http://www.sdcba.org/ethics/ethicsopinion07-1.htm for the Opinion in all its glory.

The Opinion considered a hypothetical case where a California attorney was instructed to defend an intellectual property dispute. The attorney had limited experience in intellectual property litigation and contracted with an offshore legal services company in India to provide legal research, correspondence, and other services in connection with the case. The fees charged by the legal offshore service company were significantly lower than American lawyers would have charged for the same work. None of the Indian attorneys were licensed to practice in any US jurisdiction. The California attorney reviewed the work he received from the offshore company, signed all court submissions, and performed all communications with opposing counsel.

The question was raised: “Does an attorney assist in the unauthorized practice of law, in violation of California Rule of Professional Conduct 1-300, when he or she uses the services of an outsourcing firm to perform research and drafting services on behalf of a client?”

The Opinion then goes on to provide an overkill of analysis as to whether the work performed by the offshore legal service provider came within the definition of “the unauthorized practice of law”. I see no reason to delve into this any further other than to say that the unanimous conclusion was, “NO, the service provided by the offshore provider did not fall within the ‘practice of law’ as defined by the Rules of Professional Conduct”. If the offshore company had been providing legal services directly to the client then it would have been engaged in the unauthorized practice of law; but this was not the issue presented by this particular example. Here, the California attorney consistently exercised his own professional judgment and never allowed the work-product to reach the client without passing through his own review.

It is clear from the New York and San Diego Opinions that an attorney does not aid in the unauthorized practice of law if he retains both supervisory control and full responsibility for tasks that constitute the “practice of law”.

From a practical point of view, a much more valid issue for debate is whether an attorney is ethically obligated to inform his or her client of an arrangement with an outsourcing company. The Opinion indicates that the duty to inform the client is determined by the client's reasonable expectation as to who will perform those services.

If the work to be performed by the outside service is within the client's "reasonable expectation under the circumstances" that it will be performed by the attorney, the client must be informed when the service is "outsourced". Conversely, if the work is not such that it is within the client's reasonable expectation that it will be performed by the attorney, the attorney is not necessarily required to inform the client of the arrangement.

Unfortunately this seems to be an overly simplistic and static view of the attorney/client relationship and the ever changing world of legal support services. I concur that the drafting of motions and pleadings on a particular case comes within the current definition of what a client would have “reasonable expectations” would be performed by their instructed attorney. However, in the technologically advanced world we now live in, I doubt that most clients would be surprised to learn that their transcription, document coding, and other litigation support services were being outsourced. If this is true, then surely “reasonable expectation” that the work should be performed by the attorney becomes a moot point.

Also, the Opinion only really considers the here and the now. A client’s “reasonable expectations” are not static, immovable, and unchanging over time. The legal industry now operates in a global marketplace and clients are evermore sophisticated and accepting of the concept of globalization. A client’s reasonable expectations today will be vastly different tomorrow. Within a very short period of time I believe that this argument will become redundant. Soon, a client’s only “reasonable expectation” will be that the quality and confidentiality of the work-product is maintained by whoever completes it, wherever he or she may be. In fact, I would go as far to say that we are not far from the day when a client’s reasonable expectations will be that work-product should be outsourced to the most efficient and cost-effective provider!

The Opinion went on to consider, from a practical standpoint, the checks and balances that an attorney should bring into play before contracting with an offshore legal service provider. These points make for some informative reading, although they are of course really only basic common sense.

The general duty of competence requires attorneys to evaluate the quality and reliability of the company providing offshore/outsourced legal services. The extent of that evaluation depends on the facts of each case. This is where the Opinion provides a practical insight into what attorneys should be looking at before blindly offshoring their legal work. The following is a non-exhaustive checklist you should follow to ensure compliance with the duty of competence.

(a) Due diligence: Investigate pertinent background information about the offshore legal service provider company;

(b) Be aware of the qualifications of the individuals who will perform the work;

(c) Obtain references of the company or individuals assigned to perform the work;

(d) Always interview the company in advance;

(e) Request a sample of the work product that is comparable to your project;

(f) Communicate with the non-lawyer during the assignment to ensure that the non-lawyer understands the assignment and is executing it to your expectations;

(g) Review ethical standards with the individuals who will perform the work and incorporate the ethical standards into the terms of the contract with the company.

An additional duty of an attorney who outsources work is to “maintain inviolate the confidence, and at every peril to himself or herself, to preserve the secrets, of his or her client.” See Business & Professions Code section 6068(e). This is especially important as the legal and ethical standards applicable to foreign lawyers may differ from those applicable to domestic lawyers, particularly with respect to client confidentiality, the attorney-client privilege, and conflicts of interests.

The Opinion comments on one unfortunate example of a breach of confidentiality involving an outsourced project subcontracted to India. There, the subcontractor threatened to post confidential patient records on the Internet unless the UC San Francisco Medical Center retrieved money owed to the subcontractor from a middleman. (David Lazarus, Looking Offshore: Outsourced UCSF notes highlight privacy risk. How one offshore worker sent tremor through medical system, S.F. Chron., March 28, 2004.)

Attorneys need to carry out their own research into the confidentiality and security safeguards that the legal services offshoring company they are contemplating contracting with, has in place. See here for details on how LawScribe deals with these crucial concerns.

The Opinion concludes that although permitted outsourcing in no way dilutes the attorney’s professional responsibilities to his or her client. California attorneys may satisfy their obligations to their clients in contracting with offshore legal service providers, but only if they have sufficient knowledge to supervise the outsourced work properly. It is crucial that they also make sure outsourcing does not compromise their other duties to their clients.

The legal outsourcing phenomenon shows no signs of slowing down and I’m sure we can expect to receive more of the same from other State Bar Associations over the coming months.

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