Research Trends and Conclusions: Management Labour & Employment 2010
Jessica Harvey -
"People buy the individual as much as they buy the firm.” This is how several of the leading experts we spoke to summarised the market for management-side labour and employment legal advice.
From full-service corporate firms to niche boutique practices – in an environment of widespread redundancies and increasing litigation and pressure from trade unions and government – clients are turning to lawyers that they can trust to deploy “battle tested” guidance. Here, we examine the challenges that pervade the market and uncover the changes still in store.
Recovery From the Recession
The fall-out from the financial crisis was bitter-sweet for many lawyers in the industry. Previously tasked with negotiating contracts and implementing and enforcing anti-competitive procedures, legal work took a decidedly more solemn turn with widespread restructurings and reductions in the workforce. Unlike their corporate contemporaries, employment lawyers on the whole experienced a busier time sheet and a rise in complex litigation work. The crisis has affected all levels of personnel and senior figures faced increasing scrutiny and found no immunity from the cull, resulting in more collective dismissal and litigation files for management labour lawyers. Also the effects of the crisis are proving to be drawn out. In Germany, for example, sutures put in place to stem the bleed 12 months ago have left their mark, bringing further work for legal practitioners. With the extension of the short-term working provisions that cushioned unemployment rates due to expire at the end of the year, many anticipate that the restructuring trend will continue as companies look to reorganise their business models in line with prevailing low demand.
Trade Union Activity
It is anticipated that naturally, a secondary wave of restructuring will have a significant effect on the negotiations with European Works Councils, particularly following the recast of the governing EU Directive (2009/38/EC) entering into force on 5 June 2011, the revised directive’s application is potentially broad; catching companies located in more than one EU/EEA member state with over 1,000 employees in total, only 150 of those employed need to be located in each of the two member states to qualify. Under the changes, a union must demonstrate that they have obtained at least 10 per cent of the ballot at the election of the former works council before they can delegate negotiators to sign a collective bargaining agreement. Coupled with the requirement that more than one union should represent 30 per cent of the workforce, the 50 per cent required to invalidate a collective bargaining agreement is not an insurmountable threshold to meet, adding an additional level of complexity to negotiation proceedings for lawyers. The most significant change however, comes with the requirement for the union to fully demonstrate that they are proportionally representative of the workforce - simply having a representative in place to bargain on the workers’ behalf will no longer suffice. This has resulted in more lawyers being required to litigate on matters concerning the representative constituency of the unions.
The impact of trade union activity runs deep. In Belgium, Chris Engels at Claeys & Engels notes that lawyers are being increasingly called to the negotiating table with clients as a result of unions adopting a legal approach and an aggressive stance. In the context of widespread restructuring activity, there has been an increased focus from both sides on the information and consultation process, regarding severance packages. In France, Deborah Sankowicz at Paul, Hastings, Janofsky & Walker LLP describes challenges with “fraught severance pay-bargaining leading in several instances over the last months to the sequestration of management figures or violence.” In this context, there is a growing need to retain qualified human resources managers on site to deal with labour issues at all times. With collective class actions taking place in the civil rather than the traditional industrial courts, some firms have seized the opportunity to use their size and commercial experience in the civil courts to gain a competitive edge. As Pascale Lagesse at Bredin Prat explains, “the French system is such that having a strong litigation expertise is central to being a good employment lawyer”. As such, firms that are able to deliver a highly specialised employment practice within a larger corporate setting stand out.
Globalisation
The growing international focus of local economies continues to bring significant change to the industry. With a general rise in cross-border activity, employers are looking for multinational solutions to streamline their employment issues. But this is no easy feat, as James Davies at Lewis Silkin LLP says: “Local employment laws haven’t been designed to fit in with frontierless world in which we live.” With employment contracts governed by national labour laws, large companies face a significant task coordinating and regulating an international workforce. To reduce costs and maintain a degree of uniformity, clients are focusing on handling a greater amount of employment matters internally. Many of the lawyers that our researchers spoke to identified a shift in client demands, which is likely to alter the shape of the corporate legal community.
In such a highly competitive legal marketplace the challenge for the modern law firm is in emphasising the added value that they can bring to the table. Expertise is, as one would expect, a significant factor but even this is far from straightforward. Firms that are able to offer a single point of contact to multi-national companies will find a competitive edge in securing and maintaining lucrative long-standing client relationships. But a strategic approach is also necessary to succeed, especially when it comes to considering whether to establish new offices and alliances abroad – Asia is a particular focus for outward looking firms. Just as law firms mirror their clients’ international models, they face the challenge of consistency inherent in managing a network of global offices. With so many international players in the market, firms that benefit from a strong brand identity may be able to rely upon their reputation in other jurisdictions to support their entry into the market, but, as our research uncovers, this will only propel a firm so far. Cross-selling expertise will be a vital consideration. The implications of this is that full-service practices will find further advantage in being able to offer a “seamless service” to clients. This becomes particularly true for a firm that is able to benefit from the employment issues arising out of M&A and restructuring activity handled by other departments. For many, this has proved a successful means of both securing a busy time sheet across a range of legal practice areas and avoiding the risks of clients being poached by competitors.
With domestic laws defining employment issues, strong local knowledge is absolutely essential. Many firms have turned to informal alliances and mergers as a more commercially viable, flexible and ad hoc alternative.
Indeed, one size does not fit all. In a difficult economic climate, clients are also adopting a sophisticated approach to legal services. As one prominent lawyer says: “Cost and efficiency is key. More and more clients instruct law firms on a project by project basis. They know what kind of quality they require for what project.” Clients are consequently becoming increasingly specific in their requests, looking for a catalogue of experience of transactions structured along the same lines. This creates a split in the market between those that are able to offer a commoditised product for the bulk of employment issues and those that retain their specialised, technical expertise at the top end. Here, boutique practices fare particularly well, notably in continental Europe where spin-offs from larger firms increasingly feature. Such firms hold on to key clients with their specialised expertise while providing the agility of a smaller practice and are carving a strong foothold in region.
In mature legal markets, another trend emerges. Many clients are looking to their law firms to provide knowledge management services. The request, however, goes further than generic e-briefings. Clients prefer tailored legal updates and online information portals that are directly relevant to their business needs and available at their convenience. Allowing firms to demonstrate a thorough understanding of their commercial operations, this has become “part of the service for several clients”. Client briefings and seminars feature prominently, and indeed, as Andrew Lilley at Travers Smith LLP testifies, are becoming “an increasingly important part of the picture”. In this sphere in particular, clients require ongoing guidance from their law firms, providing the opportunity to establish key long-standing relationships.
Areas of Activity
With the first half of 2010 now complete, many of the lawyers that our researchers spoke to identified a positive turn in the market, encountering more recruitment and non-compete work. After widespread redundancies, clients are looking to retain and recruit highly skilled individuals that can take their business forward. New issues such as data protection are generating significant legal activity. Erika Collins at Paul Hastings Janofsky & Walker LLP explains: “Data protection comes up in every context, from litigation and discovery requests to TARP regulations governing private employment contracts. This conflict of laws is particularly challenging to reconcile.” Many lawyers in the industry have experienced an uptick in compliance work as a result.
The compliance trend continues with government activity driving further need. In the UK, the Equality Act 2010 has brought significant change with many lawyers unsure of how the justification defence will play out. In the US, the Lilly Ledbetter Fair Pay Act 2009 highlights an increase in legislation at federal level. With the Obama administration allocating more money towards addressing employment discrimination, several lawyers in the US describe increased government activity in this field. As employers face growing scrutiny from government anti-discrimination agencies (the EEOC and OFCCP) and private practitioners alike, their response must be an increasingly vigilant examination of positive personnel practices and a concentration on ensuring that workplace problems are speedily addressed. Failure to do so carries heavy consequences: a recent jury verdict against the US subsidiary of Novartis for $250 million for gender-based discrimination in promotions and pay demonstrates the soaring financial risks that few can afford to run.
Turning to class action issues, the stakes are even higher. With many lawyers observing that this too has experienced an overall greater focus concerning gender discrimination within the financial services industry, clients in the region expect legal teams to be fully conversant with class action and ERISA issues. Many lawyers highlighted to our researchers that they are spending more time on the class aspect of cases rather than the specific employment issues as a result.
One of the most prominent and inescapable features in the North American legal market is the surge in wage and hour litigation. All of the lawyers that our researchers spoke to identified a substantial rise in this area. With more federal investigations and tougher enforcement anticipated, this growth shows little sign of slowing down. Gary Siniscalco at Orrick Herrington & Sutcliffe LLP points out that the trend which began in California is now a pandemic, creating activity on a national scale. Recent changes announced by the US Department of Labor to its guidance procedure sees the previous fact-specific opinion letters replaced with “administrative interpretations” aimed at entire categories of employees. As employers struggle to obtain clear guidance on wage and hour issues that carry considerable financial exposure, strong legal advice and further compliance counselling is likely to become more important than ever. Indeed, early compliance and internal review mechanisms are growing in status – steps taken in advance of any threat of litigation can aid in reducing the impact of enforcement action by the Department of Labor and private causes of action, and are often far less burdensome than those compelled as a condition of settlement or judicial decision. Lawyers in Canada too, have seen an increase in this area where similar definitional difficulties and a general lack of legislative guidance pervades.
How Much?
It is well-documented that cost pressure is mounting in the legal industry as a whole. Requests for alternative fee arrangements are nothing new. What is changing, however, is the way that law firms are responding to the requirement to work to budget. One significant change comes with the advent of legal process outsourcing, which has received a particular boost from the economic slowdown. With multinational giants such as Rio Tinto electing to outsource some of their legal work overseas, law firms too are beginning to adopt the same model. While this is likely to meet with some institutional resistance, the figures are hard to contest, with large portions of work being undertaken by skilled employees for a fraction of the cost. Many firms may come under increasing pressure from savvy clients to consider the advantages of outsourcing. The impact that this is likely to have on new associates remains unclear but many in the profession anticipate that training models will have to change as a result. Mid-sized firms in particular may find particular advantage from LPO activity, being able to contract out admin-heavy time-consuming aspects of legal work on an as needs basis, delivering the potential to undertake larger transactions. With competition between firms and client demands increasing, opinion across the international legal market is clear: “Lawyers will have to adapt to stay ahead of the curve.”