Society needs in-house lawyers’ employment contracts to be regulated

Contract of employment

“The only difference between in-house and out is that they have one client,” said a GC at a recent conference.

I struggle with this. Yes, in-house lawyers focus on one business, but the word “client” doesn’t appear in their employment contracts, nor is it an accurate description of their relationship with “the business”.

In-house lawyers are employees. Their employment contracts enshrine their rights and obligations. They are entitled to holidays, sick pay, pensions, bonuses and Long-Term Incentive Plans (LTIPs). They are hired, appraised, fired or made redundant just like everyone else.

However, their contracts are silent, to my knowledge, on a) their role as Officers of the Court b) any client-type relationship with “the business” and c) that they are regulated by the SRA or a law society.

In private practice no lawyer would or could participate in the equivalent of an LTIP or bonus scheme with a client nor could they be beholden to them in any way save regarding the quality of their work.

Indeed private practice lawyers require their clients to sign carefully crafted engagement letters which protect the law firm and which reflect their arm’s length relationship as regulated professional advisors.

If there’s no difference, other than client volume, between in-house and out, why don’t in-house lawyers have the same protections against unacceptable behaviour towards them as out-of-house do?

Moreover, for the same reason, shouldn’t in-house lawyers be precluded from participating in LTIPs?

To address these issues, an In-House Lawyers Special Terms Schedule could be attached to their Employment Contracts drafted by the regulator and covering three main points:

  • The employer acknowledges that the employee is an Officer of the Court and has an overriding duty to the Court to ensure, in the public interest, that justice is achieved
  • That the employee is precluded from participating in LTIPs or any scheme likely to create a conflict of interest
  • That the employer undertakes to use their best (not reasonable) endeavours to create an environment in which the lawyer employee can discharge their duties without fear of any ethical pressure whatsoever and acknowledges, that breach of this requirement would attract investigation and severe penalties

Dream on, you may say. Well, you would if you are a director disdainful of good corporate governance or a GC very focused on their LTIPs. As one said to me, you ”must have skin in the game.” Who says that you “must”? And it isn’t a game. Or shouldn’t be, at least for lawyers.

There is no current financial incentive for any individual directly involved to change the status quo.

Why would any GC at the top of the in-house profession rock the boat? I don’t blame them. They didn’t create the system, have worked very hard and probably feel they should benefit from it financially like others in “the business”, especially having eschewed higher fees in private practice.

But I suspect that if GCs waived their bonus and LTIP rights, their salary market rate would auto-correct upwards. That said, if lawyers want to make a lot of money, they should stay in private practice.

Private practice lawyers are not going to change anything lest they offend the GCs and ”the business” which writes them large cheques.

And “the business” will not want to cede power to an employee whose role is, in their minds, to ”do more for less”, be “commercial” and not be a “deal preventer”.

Such phrases risk the lawyer-employee participating in decisions which ignore or break their professional obligations or otherwise being castigated for raising legitimate concerns.

The law societies could help, but they need new legislation and funding from in-house lawyers to give them the power to support their members.

This issue is not about lawyers – in, or out of house. Nor is it about “the business”. It’s about society and the basis on which it mandates businesses to trade. We can’t look to individuals in the profession to solve the problem, many of whom don’t see a problem.

But if nothing is done then poor corporate governance leading to the repetition of seriously damaging and dangerous risk events, which we have seen over the last 20 years, will increase as well as ongoing poor treatment of lawyers. Far too often “the business” shoots the messenger.

The solution is that the government reviews of the provision of legal services currently underway or near completion in the UK should include provision for special terms for in-house counsel so that the various law societies can support their implementation.

I drafted this blog on a flight yesterday from Dublin where I spoke, and listened, at The Law Society of Ireland’s In-House and Public Sector Annual Conference. One GC said that in his organisation he and the Finance Director are not on LTIPs. He believes that this makes a noticeable positive difference in their decision-making behaviour on their management board.

Last month I spoke at The Law Society of Scotland’s Annual Conference at which one GC acknowledged that my suggestions are worthy of a debate while another was very concerned about my use of the phrase “stick to beat the business with when it misbehaved”.

I slightly regret using the word stick. But only slightly. My point was that I know enough lawyers who have experienced appalling behaviour at the hands of “the business” to feel that it needs to know there’s a line it shouldn’t cross and the consequences of doing so. The GC role is different from that of a director but too few businesses are willing to accept that.

And earlier this year I chaired a session at The Law Society of England and Wales at which some GCs took a dim view of my comments on LTIPs, but notably, not all in-house lawyer delegates.

So we can’t expect lawyers, as individuals, to defuse this time-bomb, and a time-bomb it is. Society will soon not only ask “where were the lawyers?” – they will hold them accountable.

So what if lawyers came together, confronted this issue, took the long view, “had each other’s backs” and that of society? It takes just a few in-house lawyer-leaders, with credibility amongst their peers, to lead the way and to engage with those appointed to review the provision of legal services to empower law societies to better support in-house counsel with teeth, if not sticks.

Could you be one of those lawyer-leaders?

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