Uncategorized

by Jonathan Hustis

What you need to know about the 2009 Cincom case

The software user was liable for damages of $459,530, the same amount it already had paid to license the software.

In Cincom Systems, Inc. v. Novelis Corp., a federal Court of Appeals ruled that the software user Novelis was liable to pay the software vendor Cincom $459,530.00, effectively paying the vendor twice for the same software. Novelis thought that the licenses had been fully paid when it bought them in 1989. But the software vendor Cincom sued Novelis anyway.

Cincom claimed that restructuring several commonly owned Novelis companies triggered a new license fee requirement. The federal Court of Appeals agreed with Cincom, that Novelis would have to pay the license fees again, because of the internal restructuring.

Here are some key facts, and some ideas about what to think about as a result of the Cincom case.

Facts

1989 License Installation and Terms

In 1989, the vendor Cincom licensed its software to Alcan Ohio, who installed it in a New York plant. The agreement prohibited a transfer of the license without Cincom’s prior approval.

On April 9, 2010, the Texas Supreme Court granted review in the case of Marsh USA Inc. v. Cook (discussed below). The Marsh case involves a covenant not to compete and may once again alter the legal landscape for Texas employers and employees for so-called “nocompete” covenants.

Much has changed recently and many existing and long-standing non-competition covenants or agreements, once thought to be unenforceable and/or vulnerable to attack, may (or may not) be valid and enforceable under these new Court cases.

This Newsletter will briefly review the current state of the law, how we got here and, what may be coming that will impact Texas employers and employees, with a focus on how to best protect your business and yourself through the proper use and deployment of covenants not to compete.

1. What is a Covenant Not to Compete?

A covenant not to compete or non-competition agreement or provision, seeks to prevent an executive or employee from performing similar work for other companies and/or working for competitors after leaving their current employer. Covenants not to compete are usually found in formal agreements such as a business sales contract, an employment contract, or a stock option grant. Covenants not to compete are often coupled with language seeking to protect trade secrets, confidential and proprietary business information and/or with non-solicitation obligations seeking to prohibit or limit a departing employee from soliciting their current employer’s customers, suppliers, vendor base and/or workforce. Some employers also include such provisions in employee handbooks and policies.

2. Texas Statutory Requirements for Covenants Not to Compete

A stand alone covenant not to compete is not enforceable in Texas. For a covenant not to compete be valid and enforceable in Texas, at a minimum (1) it must be connected to or part of another enforceable contract (i.e. employment contract, sales agreement, etc.); (2) it must have limitations as to time/duration, geographical area, and scope of activity to be restrained; and (3) the limitations must be reasonable and not impose a greater restraint than necessary to protect the employer’s goodwill or other business interest, (Texas Covenant Not to Compete Act, Tex. Bus. & Com. Code Section 15.50 (the “Act”)).

Non-competition agreements that meet the Act’s requirements may be enforceable even in “at-will” employment situations. However, it is important that the non-competition agreement be properly targeted and limited and carefully and artfully drafted; otherwise the effectiveness and enforceability of the covenant not to compete may be lost. (If the covenant not to compete pertains to Texas-licensed physicians, additional requirements must be met.)

3. Recent Texas Supreme Court Case Provides Some Relief to Employers Regarding Covenants Not to Compete

To satisfy the Act’s first requirement that a non-competition clause or agreement be part of an enforceable contract, Texas courts have long held that there must be “consideration” (i.e., an exchange of something of value between the parties) that gives rise to the employer’s interest in restraining competition. Prior to the 2009 Texas Supreme Court case of Mann Frankfort v. Fielding, the “consideration” requirement was met if, in exchange for the employee’s express promise not to compete or not to disclose the employer’s confidential information, the employer made an express (or explicit) promise (in return) to provide the employee with something of value, such as the promise to disclose the employer’s confidential information (i.e., trade secrets on products, marketing, strategic plans, sales data and forecasts, customer lists, etc.) or the promise to provide specialized training.

In April 2009, the Texas Supreme Court in the Mann case upheld a covenant not to compete where the employee expressly promised not to disclose the employer’s confidential information but the employer made no express promise in return to disclose its confidential information to the employee. The Court reasoned that “if the nature of the employment for which the employee is hired will reasonably require the employer to provide confidential information to the employee to accomplish the contemplated job duties, then the employer impliedly promises to provide confidential information.”

In the Mann case, the employee was a CPA originally hired as a staff accountant, and later re-hired as a senior manager, in the employer’s tax department. The Court found evidence that the employee was required to use tax and financial information of the employer’s clients in order to complete their tax returns.

Before the Texas Supreme Court’s decision in the Mann case, it appeared that an employer’s promise to the employee must be “express.”After the Mann case, it appears that an employer’s “implied” promise may be sufficient consideration.

4. A New Development in the Texas Supreme Court — the Marsh case

On April 9, 2010, the Texas Supreme Court announced that it would review the Marsh case (referenced above). It is expected that the Texas Supreme Court will focus on deciding the issue of whether a financial benefit, in the form of stock options given to the employee, is sufficient “consideration” to validly support a non-competion agreement.

Texas courts have long held that the nature of the consideration given to the employee in return for a covenant not to compete must give rise to the employer’s legitimate and reasonable business interest in restraining competition. This has been held by some Texas courts to mean that an employer’s confidential information and specialized training given to an employee satisfies the “consideration” requirement, while a financial benefit (i.e., discounted sale of stock, stock options, term of employment, payment of money, promise to compensate employee in economic hardship, etc.) does not. The Marsh case may be a game changer for covenants not to compete in Texas
with regards to the essential requirement of adequate “consideration.”

5. What Should You Do Given the Mann Decision and the Pending Marsh Case?

If an employer has non-compete agreements or provisions that fail to include an express promise by the employer in an otherwise enforceable contract, such agreements may be found to be enforceable under the Mann case. However, even if the Texas courts are becoming more tolerant of inartfully drafted covenants not to compete, the recommended, most prudent and best management practice for drafting, redrafting and/or revising non-competition agreements and provisions to protect an employer’s business interests is to:

(i) Use written non-compete agreements signed by both employee and employer.

Even without a covenant not to compete, an employee has a duty not to use a former employer’s confidential information to compete with that employer. However, as a practical matter, a signed non-compete agreement, defining the limitations on time/duration, geographical area, and scope of activity to be restrained, provides notice to and formalizes the obligations of the employee, and serves as a better deterrent to employees from violating the terms of the covenant not to compete, from using confidential and proprietary information and/or from soliciting the employer’s customer, suppliers, vendors or workforce.

(ii) Continue to include an express promise by employer.

An express or explicit promise or statement of consideration by the employer will avoid or minimize an employer’s burden of proving that an “implied” promise was made by the employer based on the “nature” of the employee’s employment .

(iii) Include reasonable limits on the time/duration, geographical area, and scope of activity to be restrained that do not impose greater restraints than needed to protect the employer’s goodwill or reasonable business interest.

In the Mann case, the Texas Supreme Court held that the Texas Covenant Not to Compete Act’s remaining requirements must be satisfied, including that the restraints on competition be reasonable.

(iv) Potential impact of the Marsh case.

If the Texas Supreme Court decides that financial benefits, such as stock options, are sufficient “consideration” to validly support covenants not to noncompete, such should serve to increase the use, effectiveness and enforceability of non-competition agreements.

6. Conclusion

Regardless of the outcome in the Marshcase, it will remain prudent and should be easier to enforce non-competition obligations, if the restrictions and consideration are clearly provided in writing and signed by the employee and the employer. This recommended practice should also raise a red-flag to any company that considers hiring an employee who is subject to a well-written
covenant not to compete.

The Problem

Your company has a dispute with a customer or perhaps a vendor, and a valuable relationship is at risk, not to mention your money and your reputation. Are you doomed to fight it out down at the courthouse in the public eye? Mediating the dispute may be a better option.

Mediation as the Solution

Mediation is a positive alternative to litigation in which a trained, neutral third party helps parties settle their dispute in a private, informal setting outside of court. A mediator engages in “issue management” and “shuttle diplomacy” to help parties reach an agreed solution and settlement. However, a mediator cannot impose any settlement: the parties themselves decide whether to settle their dispute. The parties can choose to submit their dispute to mediation, or mediation can be ordered by the court.

Mediation provides a lower cost, highly effective way of resolving disputes through mediated and negotiated settlement. A negotiated settlement by definition is a solution that the parties can live with since they create it themselves, while a judgment from a court is a result that the parties must live with whether they like it or not. Mediation is a confidential process protected by statute, an attractive alternative to being forced to divulge business information and perhaps air dirty laundry in a public court proceeding.

Roughly 85% of commercial lawsuits filed in the courts are resolved through settlement before trial, whether through mediation or otherwise. With this in mind, company management, with assistance from counsel, should make early and aggressive use of mediation as a tool to avoid needless costs, business disruptions and wasted time as well as damage to reputation and other undesirable consequences of protracted litigation.

Mediation that occurs early in a dispute is especially sensible in that it minimizes the cost of litigating the dispute, minimizes the disruption to business operations, and minimizes the damage to the relationship between the parties. Given that the vast majority of lawsuits settle at or before trial, seeking to settle early through mediation can save substantial amounts of time, energy and money. Generally, the only persons that are sure to profit from protracted litigation… are the lawyers.

Mediation in Texas

Texas has been a leader in providing parties with options beyond traditional litigation in the courts. The state adopted a comprehensive statute providing for mediation in 1987, and since then the courts of the state have embraced mediation to the point that referral of cases to mediators has become standard operating procedure in major population centers.

Most large cities in Texas have a local cadre of trained and experienced mediators available for hire. Publicly and privately funded Dispute Resolution Centers in many of the most populous areas provide low-cost mediation services to parties who cannot afford to pay the costs of private mediation. A list of Dispute Resolution Centers can be found at http://www.texasadr.org/links. Texas does not regulate mediators, so there is no state certification or licensing process. Legal education and training, although helpful, is not required, and accordingly some mediators are not lawyers. A Texas mediator must meet the minimum training requirements set out by statute (in order to receive court referrals, a mediator must have at least 40 hours of basic mediation training, and for family law matters an additional 30 hours of subject-specific training is required), but that’s only the beginning. Most active mediators participate in advanced training and many have years of experience specific to particular legal subjects.

A number of organizations in Texas can provide valuable assistance to parties seeking trained mediators qualified by experience to help them resolve their disputes. These include the Texas Mediator Credentialing Association (http://www.txmca.org), the Texas Association of Mediators (http://www.txmediator.org), and the Association of Attorney-Mediators (http://www.attorney-mediators.org).

If your dispute is of a commercial nature, select a mediator who has relevant commercial experience. Many mediators are lawyers with extensive commercial backgrounds: some mediators have even served as in-house general counsels in the trenches with business people and thus are well-equipped to offer a pragmatic approach to help you resolve your dispute.

Mediation by Contract

Mandatory binding arbitration can be and often is provided for in contracts. If you do not want a binding arbitration provision in your contracts for any reason, consider including a mandatory mediation provision instead, particularly in consumer oriented businesses.

While mandatory binding arbitration is increasingly held in disfavor by many, including state and federal legislators, mediation is broadly favored precisely because it is highly effective yet voluntary, meaning that parties cannot be forced to settle a dispute against their will.

By Jonathan K. Hustis

With a challenging economy resulting in high unemployment and corporate consolidation, many business leaders consider now the perfect time to launch a new venture.

DBJ: What are some of the most important legal issues entrepreneurs need to tackle when starting a business?

Determining who owns the business is important when more than one person is involved in the startup. Business ownership issues arise when there is no structured discussion and documentation of ownership interests. One person may contribute cash, while another brings in a revenue-producing consulting project. Others may contribute labor, expertise, new ideas, industry contacts, etc. What are these things worth? What do these people get in return? Disagreements even occur about whether someone has any ownership at all. The solution is to sit down and document a legal ownership structure. This helps entrepreneurs focus on business success when they need to, and avoids unnecessary squabbling.

Who owns assets used in the business also raises issues. Independent contractors may perform development and creative services, providing critically important intellectual property to the business. Without appropriate written agreements, ownership of these works remains with the independent contractor, not with the business. This can be catastrophic when investigation by a potential investor, strategic alliance or merger partner uncovers defects in ownership. Avoid this problem by using standard and customized written agreements with contractors to place ownership of intellectual property with the hiring business.

“Who has what authority?” is also an important issue. The authority to hire and fire, to buy and sell, to borrow and lend — all of these should be discussed early and can be established legally in business formation documents such as bylaws, ownership agreements and employment contracts.

by Jonathan K. Hustis

Your client wants to look at confidential information from a prospective business partner or acquisition target and has been asked to sign a nondisclosure agreement. Before you sign and receive any confidential information, why should you consider using a “residuals clause” and other measures to protect your client?

Click here to read this Dallas Bar Association Article written by Jonathan K. Hustis

By Gregory L. Phillips

The concept behind “general counsel outsourcing” is that a business organization may not need to hire a full time in-house lawyer to perform the services and functions performed by a general counsel.  Some business organizations may be able to contract outside the organization, resulting in improved efficiencies and profit.

The concept of outsourcing certain business and services functions is not new.  It has been used for years.  For example, most companies do not maintain their own payroll function, they outsource it – there are specialists outside contractors who can manage the function more cost-effectively.  For the same reason, many companies outsource most non-strategic functions – the annual report preparation; staff recruitment; insurance; public relations; advertising; internal audit; staff training; and information services.

When considering a task or job function, a two-question test can be applied as follows:

• Strategic: Should this be done in-house?
• Cost Benefit: If not, can it be done outside as well, or better, and as cheaply?

 So what is new about outsourcing?

What is new is that outsourcing has become a major response to the profit pressures on many businesses.  Using a medical analogy, many companies are going through major surgery.  There are several favored surgical procedures that have new titles but are familiar in reality.  There is “reengineering” (going back to basics); “restructuring” (re-allocating resources); and “down-sizing” (shedding surplus operations and staff).  Outsourcing, on the other hand, seems to be the favorite post-surgical procedure.

In the past, companies have outsourced mostly functions considered non-strategic to the company, such as some of those listed above (e.g., staff recruitment and training; public relations; advertising; and internal audit).  However, due to increased pressures on profits and accountability issues with respect to corporate governance, there is a trend towards outsourcing “strategic” functions of business organizations, such as the general counsel and corporate development/strategy.

The potential application of outsourcing is now such that one has to assume that no aspect of the company is safe from outsourcing.  We may come to see a company outsourcing entire departments and functions such as accounting, sales and distribution, human resources, corporate affairs, and even manufacturing.

In each case, the directors and senior management will need to be satisfied that the essence of the business remains intact, even if most of the functions are contracted out.   Come to think of it, why not also contract out the directors and senior management? We may then be left with shareholders owning a company whose only non-cash asset is a brand name and whose only staff and functions are those which are required by law to remain in-house; and, of course, those required to stay around to manage the outsourced contractors and suppliers (or, could that function also be outsourced?).Outsourcing the general counsel legal function.

Where does the outsourcing of the general counsel legal services sit in the outsourcing question?

It is important to understand that for some business organizations not all functions should be outsourced.  The strategic and cost-efficiency test provided above should be applied in each case.  Modified to apply to the general counsel legal services function, the test may be posed as follows:

• Are there strategic reasons why the general counsel legal services function should be delivered in-house?
• If not, can general counsel legal services be delivered from outside as cost-effectively?

There is not space in this article to go through the detailed analysis that may be required to arrive at final answers to these questions.  It generally comes down to the following principles.

Due to business reasons and company culture, some companies may not want to entirely entrust certain functions to outside contractors – strategic planning, operational planning and control.  However, the legal services typically performed by a general counsel that includes the legal analysis, planning and other input, that needs to go into such strategic planning process, and the operational planning and review process could be outsourced to a lawyer who understands the company’s business and culture who, in essence, becomes a part-time extension of the company’s senior management team.

On the other hand, once a company has made a strategic decision, the legal services involved in the implementation of such decision may need to be handled by a legal specialist in an outside firm.  As a general rule, these transactions that implement the strategic decisions may include the buying and selling of businesses and other assets, financing arrangements, applications for regulatory consents and licenses of all kinds, and litigation and dispute resolutions in all forms.  It simply may not be cost-effective for an outsourced general counsel to duplicate such specialized legal services, unless they are strategic to the company; but, the outsourced general counsel can manage the services to be performed on behalf of the company by outside counsel to ensure cost efficiency and quality of work.

Most companies recognize that they need legal resources at a senior level to perform this strategic legal function to ensure that the company’s major assets and rights are suitably protected and its major exposures and obligations are suitably managed.  In practical terms, this involves an on-going legal risk and opportunities audit, and an ongoing legal compliance program.   Small to middle market companies must make tough decisions when addressing such strategic legal resources.  Such companies are constantly seeking ways to obtain the strategic legal resources that their business requires while at the same time trying to save money and increase efficiency.  Many such companies find that traditional methods of retaining counsel are not cost effective because traditional law firm overhead costs, for office space and support staff, limit a firm’s flexibility in fee-setting.  When outside counsel fees climb, emerging companies consider hiring an inside counsel as an employee.  With all the benefits that employee status entails, hiring someone to be an inside counsel can also be costly; such companies simply may not have the justification or the resources to hire a full-time in-house general counsel.

Outsourced general counsel services offer an attractive option to such companies.  For a specified fee, the company contracts with an experienced and well qualified attorney to provide strategic in-house counsel legal services.  The outsourced general counsel is an independent contractor, not an employee.  He, or she, works at the company’s site and uses company offices and services for typing and copying.  Thus, the attorney reduces his or her overhead, while providing the same high quality, high level of service of law firms or employee counsel.  The outsourced general counsel becomes an extension of the company’s senior management team.

In no event, should any company buy the idea that the outsourcing of general counsel legal services decision is an all or nothing choice.  Certainly, some legal services are best delivered externally, from law firms that offer specialized legal services.  However, other legal services such as certain legal day-to-day corporate governance issues and strategic functions, can be performed effectively by the company with the help of an outsourced general counsel who understands the company’s business.

As in most things, it is a matter of balance and the result of informed and objective analyses.  The key issue of determining whether outsourced general counsel services are proper for a company is a question of balancing the delivery of the company’s needs for legal services between inside and outside legal providers to ensure an ultimate advantage for the company.

The important thing is to have resources of the correct caliber in the right place to deliver each aspect of the company’s legal requirements.Standards of legal services.

What qualities are required of the lawyer who performs the strategic legal services provider role for the company in an effective way?  Most companies who have addressed this question would agree with many of the following:

• the ability to operate at a senior level in the company’s organization;
• a close understanding of the company’s policies, strategies and objectives;
• a close understanding of the company’s operating methods, processes, products, suppliers and customers;
• the ability to manage legal risk, to analyze the company’s strategies and in order to identify legal issues, and to develop plans and programs to manage and, if possible, to avoid legal problems that arise;
• the timely delivery of work of high technical quality that also provides practical solutions which meet the company’s business goals;
• the ability to work closely and co-operatively with company personnel, suppliers and customers as may be required;
• the ability to add value to the efforts of internal clients, whether this is by saving money, avoiding losses, solving problems, achieving their business objectives, by using knowledge and skills to improve the way the company manages its legal risks and pursues its legal rights and opportunities; and
• the ability to manage external legal services for extraordinary legal issues that arise (e.g., litigation; public/private securities offerings; bankruptcy) in a cost-effective way that achieves optimum benefits for the company

Almost by definition, these qualities can only be performed by someone inside the company, who has absorbed the company’s culture and become part of the way the company does business.  An outsourced general counsel can provide this level of service and resources for the company.

A classic example of this is the legal compliance area.  In recent years and with the recent corporate scandals, there has been a proliferation of laws directed against businesses.  Higher standards of compliance are required and stiff penalties threatened.  As a result, businesses are coming to see the need to introduce formal legal compliance programs.  However, many limit their efforts to the issuing of a manual, which does little more than recite, at great length, the relevant laws affecting the company.  The typical manual is usually thick, and while it looks handsome on a shelf, it is seldom consulted by employees. The manual represents a raising of awareness about compliance but is not, of itself, compliance.  Compliance only occurs when the relevant legal compliance obligations are reflected in company culture, policies and procedures, agendas, minutes, reports, guidelines, price lists, terms of trade, and so on.  Compliance must be embedded into the way the company does business externally and in the way it operates internally.

The only way such compliance will be achieved and maintained is through the disciplined, determined and unglamorous efforts of lawyers and managers.  This is a very detailed and time-consuming job.  Experience has shown that this work can only be done effectively by lawyers who understand the company’s culture and business strategy.  Even if outside lawyers tried to do the same job, they could not provide the same quality program as an outsourced general counsel, and their fees would be beyond what most companies would be willing to pay.

By following the approach as set forth in this article, a company will ensure that it has the correct mix of internal and external legal resources to meet its legal services requirements, and the outsourcing of general counsel services may be one avenue to provide the company with confidence that they have arranged their legal resources accordingly.

By Gregory L. Phillips

An Independent General Counsel, also known as an “outsourced” or “part-time General Counsel,” is a private practitioner who performs the services of a General Counsel for a number of companies on a contract basis, and not as an employee or law firm. They charge hourly rates that are much lower than those of comparable outside counsel, or a guaranteed monthly retainer, and work on-site at the corporations.  Some of their clients maintain an in-house legal staff; others have no other inside lawyers.

Most startups and growing companies recognize the need to have lawyers represent them in contract reviews, drafting and negotiations, and to provide legal counsel generally; but, many such companies find that traditional methods of retaining counsel are not cost effective because law firm overhead cost, for office space and support staff, limit a firm’s flexibility in fee-setting.

When outside counsel fees climb, emerging companies consider hiring an inside counsel as an employee. With all the benefits that employee status entails, hiring someone to be an inside counsel can also be costly.

Independent general counsel services offer a third option that many companies find attractive. For a specified fee, the company contracts with an experienced and well qualified attorney to provide in-house corporate legal services.

The Independent General Counsel is an independent contractor, not an employee. He or she works at the company’s site and uses company offices and services for typing and copying. Thus, the attorney reduces his or her overhead, while providing the same high quality, high level of service of law firms or employee counsel.The Benefits of an Independent General Counsel are:

• the ability to operate at a senior level in the company’s organization;
• a close understanding of the company’s policies, strategies and objectives;
• a close understanding of the company’s operating methods, processes, products, suppliers and customers;
• the ability to manage legal risk, to analyze the company’s strategies and in order to identify legal issues, and to develop plans and programs to manage and, if possible, to avoid legal problems that arise;
• the timely delivery of work of high technical quality that also provides practical solutions which meet the company’s business goals;
• the ability to work closely and co-operatively with company personnel, suppliers and customers as may be required;
• the ability to add value to the efforts of internal clients, whether this is by saving money, avoiding losses, solving problems, achieving their business objectives, by using knowledge and skills to improve the way the company manages its legal risks and pursues its legal rights and opportunities; and
• the ability to manage external legal services for extraordinary legal issues that arise (e.g., litigation; public/private securities offerings; bankruptcy) in a cost-effective way that achieves optimum benefits for the company.

By Gregory L. Phillips

‘General counsel,’ or “Chief Legal Officer,” is the job title of the lawyer who heads up the legal department in a corporation. As former general counsel of a small oil and gas company, as well as the assistant general counsel of two Fortune 100 corporations with annual sales exceeding a billion dollars per year, my job involved delivering and managing in-house legal services, managing external law firms, and contributing to corporate strategy. However, much of my time was occupied with finding ways to reduce legal costs.

Major corporations need a full-time general counsel, and supporting legal staff made up of other in-house lawyers and supporting administrative staff. However, smaller growth emerging companies may not have the luxury and the resources to hire such legal support. This article will assist you in developing legal management principles that can reduce cost and increase efficiency in your business.

The primary goals of managing legal costs are: reducing the cost per hour of a lawyer’s time, and reducing the number of hours of lawyer time required by the Company for external lawyers.

Reducing The Cost Per Hour for Legal Services.

1. Recognize the ‘in-house’ advantages.

Corporations with in-house lawyers typically generate internal legal services at a cost per unit of time lower than hourly rates of external law firms. When legal services are delivered on-site, the lawyer becomes a familiar face, and can learn a lot about the company and the overall strategy of its management team. This makes it easier for the in-house lawyer to give pro-active advice that is in line with the company’s corporate strategy and business objectives. Having one lawyer responsible for delivery and management of all company legal requirements gives continuity critical to strategy implementation and facilitates cost management of the legal function.

2. Identify legal work critical to the core mission or strategy of the Company. Target doing it on an ‘in-house’ basis.

As in other skill areas, the approach of ‘new economy’ companies is to hire for core mission critical and strategy requirements and outsource the rest.

3. Recognize the requirements of the job, and obtain the skills needed.

The ability to perform legal services at a high performance level is often the primary basis of evaluation for a potential in-house counsel. Just as important are the in-house counsel’s ability to source and manage legal requirements that exceed his or her geographic, skill or time limitations. A third quality that you should desire in an in-house counsel is the ability to design and deliver internal legal liability reduction programs by creating standardized practices, materials, and processes aimed at reducing the Company’s legal costs over time and to reduce any potential legal liability, or risks, as the Company pursues its business goals and objectives.

4. Calculate your Company’s legal costs.

This requires adding up all of your legal bills for the previous year AND estimating the cost of productive executive time lost due to involvement in, concern about, or management of legal issues. Now you have identified the value of managing the Company’s legal environment. Adjust this amount upward or downward to reflect how you expect the current year’s business activity, and legal activity, to compare to the past year for the same activity. You can label the adjusted amount as your Company’s ‘projected legal costs.’

5. Assess the cost of bringing a full-time lawyer on board as an employee (‘in-house’ employee cost) and compare the cost to buying legal services from an external lawyer ‘a la carte.’

Recognize the value of educational, business, legal, ‘in-house’ and management experience and skills necessary to do the legal job for the Company as it is now and as you plan it to be in the future. Remember technical and industry knowledge may be important candidate factors. The fully loaded ‘in-house’ employee cost for an in-house lawyer recognizes lawyer recruitment fees, salary, executive benefits, support staff, allocated office space, office furniture, equipment, law library and electronic legal research costs, law society and practice insurance annual fees, and costs of ongoing legal education courses. If there is a risk that the newly hired in-house lawyer will not work out, an allowance for costs of severance is prudent.

6. Compare the projected legal costs to the fully-loaded ‘in-house’ employee cost.

Make sure that you compare ‘apples to apples.’ Avoid the “pitfall” of hiring an in-house lawyer that is too junior to do the job that you need done due to a lack of experience, skills and knowledge; this could actually increase your Company’s costs due to the need to use external lawyers to supplement the work of your under skilled in-house lawyer. Of course, the more junior a lawyer is in experience level, the lower their salary for employment. But all other costs (which usually exceed salary) are more or less the same regardless of experience level of the lawyer employed.

7. If a new full-time ‘in-house’ employee is not in your Company’s current plans, due to staffing freezes, lack of desired flexibility, or other reasons, consider going for the ‘in-house’ advantages by permanent outsourcing.

Some common benefits identified for outsourcing legal services for your Company include (a) strategic benefits such as an ability to focus company resources on its core business, access to better, and more efficient, technology; (b) operational benefits such as access to legal expertise, and experience, not otherwise available in the marketplace, scalable solutions, increased accountability; and (c) financial benefits such as cost reduction and the “freeing-up” of capital for key projects.

8. If you do not require a ‘full time equivalent’ for your company’s mission-critical and strategic legal work, consider permanent outsourcing as an alternative to buying external legal services on an hourly ‘a la carte’ basis.

Outsourced legal services provide an opportunity to buy the services you need on a flexible, scalable basis. For example, The Phillips Law Group offers experienced in-house lawyers on a flexible schedule based on your Company’s legal requirements; such schedule can include a morning a week to full time. The services for such in-house lawyers can be priced on an hourly fee arrangement, or alternative billing arrangement such as target-fees, monthly retainer, project fees, or other basis. They work on-site at your premises. The pricing model reflects aggressive use of labor-saving technology and a belief that your Company should not pay any more for legal services than that which is absolutely necessary. Reducing The Quantity Of Legal Services Required.

9. Divide your Company’s legal functions into four categories: maintenance-related, avoidable, transaction-related, and crisis-related. Then adopt management plans for each.

Avoidable legal expenses are those that can be reduced through training employees responsible for causing them. An example would be targeting reduction of wrongful dismissal lawsuits by developing standard Company employment contracts and providing related training to the human resources staff.

10. Develop standardized materials and procedures to delegate low-level legal functions to business staff that can then be monitored by a lawyer.

Functions relating to the Company’s compliance status and asset maintenance (e.g. routine procurement contracts, company and securities compliance filings, trademark and patent renewals) may offer a substantial opportunity to save money. Completion and return of standard forms can be delegated to trained staff and then monitored by a lawyer. Your Company can develop a process to review all patents and trademarks to make sure that the Company is exploiting them, or has a potential use or revenue from each, before spending money to renew registrations.

By Joan C. Williams

In this latest flurry of debate about working long hours, some have intimated that overwork is inevitable in highly competitive industries such as law, finance, and high tech.

But that’s just not true.

We’ve all heard by now that productivity decreases with overwork, while attrition and health care costs increase. What you may not have heard is that businesses who drive people relentlessly create competitors who poach top talent by offering a more humane way to work.

Click to Read More

Source: This article has been curated from Harvard Business Review and can be found at https://hbr.org/2015/08/law-firms-grueling-hours-are-turning-defectors-into-competitors