Hiring temporary legal contractors: Brexit – a sea change in the market?
James Cole of Route1 discusses the impact of Brexit on alternative legal staffing providers in the UK.
Many of the implications of Brexit remain, to put it mildly, unclear. Following the vote to leave the EU, commentators initially observed that consequent legislative change would lead to an increased demand for legal advice. However, what has followed, so far, is a legal advisory environment that is in statis: characterised by contingency planning, as clients and legal advisers await the outcome of the Brexit negotiations.One thing that has resulted from the uncertainty following the Brexit vote however, is an acceleration of the use of alternative legal staffing providers, or contract platforms, in particular by law firms. Since the Brexit vote, as law firms have significantly slowed lateral hiring, they have increased their use of alternative staffing providers for contract staff, to manage staffing and headcount.
Legal contractor platforms
Contract platforms in the UK legal market are currently operated by:
– Law firms, such as Eversheds Sutherland’s Agile and Allen & Overy’s Peerpoint.
– Recruiters, such as Law Absolute and Venn Group.
– Full-time contractor platforms, such as Axiom and Halebury.
These platforms generally split their businesses into interim divisions, which provide staff for short-term personnel-specific roles, such as maternity cover, and contract divisions, which provide staff for for project-specific tasks. Contract platforms initially provided interim and temporary contract cover for the in-house market, but over the past few years have gradually expanded to provide cover for private practice, initially on the interim side of the business but increasingly for contract placements as well.
A gradual adoption of contract staffing (or insourcing) by law firms is due to a number of factors stemming from cost reduction and labour arbitrage in the legal services market. In addition, mounting fee pressure from clients, generation Y/millennial working practices and technological change are all resulting in greater increased flexible working practices. Contract staffing is often used by firms to obtain junior lawyers for project-specific roles, or paralegals for large litigation exercises or insolvencies. Large project-specific roles of this nature provide important opportunities for contractor platforms, who now increasingly bid on a competitive basis to obtain them.
The uncertainty of Brexit’s impact has had a significant chilling effect on larger cross-border and market-related transactions, and lawyers across all sectors report a slowdown in high-end transactional business. Many firms that focus on these types of transactions, particularly in the City of London, have put informal hiring freezes in place, using Brexit as an excuse to lay off under-utilised staff. Recruiters report that volumes for full-time lateral hires are down by up to 50% year-on-year in London and the South East of the UK, and that most legal firms are currently only looking for outstanding candidates as they pause staffing at a lower ratio of partner-to-associate leverage. The exception to this trend is where firms need to replace more senior specialists.
Rather than invest for growth in this environment, firms that are shedding staff are not replacing them and are turning to legal staffing contractors to satisfy their short-term staffing needs. Brexit, or rather the perceived threat of Brexit, is accelerating the use of contract staff by law firms. The interesting question will be whether firms will return to a traditionally staffed leverage model once Brexit uncertainty is over, or whether the increased use of legal contractors by law firms is here to stay. This would mean a shift from the traditional PEP driven leverage model that has stood the profession in such good stead for so long. Once a law firm has reaped the benefits to its operating margin that contract staffing can provide, it may prove hard to return to a traditionally staffed leverage model, especially once technology acts to further enhance the cost efficiencies inherent in the legal contracting market. More sophisticated clients are becoming wise to this trend though, with many insisting on pricing transparency to ensure that marking up of contract rates is not introduced to their final bills and thus ensure cost savings are passed on to them. Despite this, it seems that broader use of contract lawyers is here to stay as part of law firms’ staffing resources, in a world of increasing “more for less” client expectations.
Brexit will lead to increased overall demand fo legal services as its significant legislative implications become clearer. The nature of this increased demand is tailor made for contract lawyers, at least in the short term. This may offset the downturn in big ticket transactional business for law firms, but will require a change in their skillsets. It was the rapid adoption of widespread regulation in the wake of the the financial crisis, especially in regulated industries like banking, that originally helped to drive in-house demand for legal contractor platforms in the City of London. Similarly, the adoption of new regulatory, internal governance and contractual operating frameworks and documents by businesses once Brexit terms become more certain are likely to lead to further major review exercises, and enhanced demand for locum staff.
Ironically, a major new compliance challenge is a wide-ranging EU regulatory change that will still need to be implemented despite Brexit. The General Data Protection Regulation (679/2016/EU), or “GDPR”, to be implemented in May 2018, is a major cross sector compliance issue, in this case for all users of personal data (see feature article “General Data Protection Regulation: a game-changer”, www.practicallaw.com/2-632-5285). The GDPR is a classic regulatory driven opportunity for legal contractors, requiring in this case a blend of legal, IT and compliance skills, and firms are beginning to partner with database providers to provide a one-stop shop GDPR solution to clients, using data protection specialist legal contract staff in the process.
Shift in platform selection
The increased demand from law firms for legal contractors following the Brexit vote has highlighted some important distinctions between the different types of providers in the market. Arguably, law firms may be less willing to use providers based within their competitors rather than those from recruiter platforms. This could be due to perceived conflict issues, both legal and commercial, or simply for strategic reasons.
Law firms who set up contract platforms did so originally to enable alumni, and staff who wanted flexible working profiles, to remain with the firm and to strengthen existing client relationships, often as client secondees. This model is limited in terms of its ability to grow beyond existing in-house clients due to conflict issues, and consequently the expansion of law firm platforms is naturally constrained. This has led some of the original law firm contract platforms, to spin off from their founding law firms in order to facilitate growth. Growth in private practice demand for legal contractors following Brexit could accelerate this trend, and also encourage more firms to set up their own platforms.
While law-firm managed providers may not capture some of this demand, significant other advantages they afford should not be overlooked: sophisticated billing; conflict and client relationship management systems; and deep client knowledge and knowledge management capabilities. These strengths reinforce their offering as a highly compelling alternative to recruiter-led platforms for more sophisticated contract roles.
As the growth for contractor demand accelerates, market participants will have to source new talent to service this demand. Attracting and retaining top talent is therefore the biggest current challenge for this sector.
In a competitive job market for law firm associates, where the promise of equity is now even further away following Brexit, legal contracting provides an opportunity to try out a number of in-house roles. It also enables more proactive career management, rather than simply waiting to climb an ever steeper, longer ladder to partnership. As Daniyal Stanton, who left private practice several years ago to pursue a career in flexible lawyering says: “Working in flexible lawyering has given me a much better work-life balance, enabling me to combine the demands of practicing as a senior corporate commercial lawyer with raising a young family”. He goes on to state, however, that client demands are often no less intense than his previous experience at a leading US firm in the City of London. “Don’t make the error of thinking this is an easy life – I am often travelling across Europe and juggling numerous projects in my current role as European General Counsel of a manufacturing business.” Despite this, however, he mentions that legal contractors have a career path with much more variety, options and control than working in a permanent law firm role. There still remains some resistance to contract working among associates as a career path, but as generation Y practitioners rise through the profession, this is set to change.
With sourcing and retaining talent being the number one challenge for contractor platforms, contractor quality, both regarding experience and substantive knowledge, is a major issue . One way to attract and retain top talent is through the use of technology. Stanton spends most of his time working remotely. While remote working is generally not an option in the interim market, where an existing full-time role is being temporarily filled, it is becoming an increasing feature for contract staff. This feature is part of a broader trend of technology-driven flexible and remote working not only in the legal services sector, but also in consulting and professional services. Technology will enable contractor providers to build functionally enhanced contractor databases, to make their offering more compelling, and enable them to monitor and use contractor location, activity, availability and work preference data, in order to bid for contracts on a more transparent and efficient basis. (see Know how article “Disrupting legal recruitment: a tech-tonic shift”, www.practicallaw.com/2-636-2819).
In conclusion, the legal staffing contractor that leverages technology to acquire, retain and manage a non-exclusive pool of talent on a scalable, secure basis, will become the platform that captures increased post Brexit demand, positioned to be a market leader in a rapidly growing, and increasingly competitive marketplace.
James Cole is the founder of Route1 International Limited.