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Pay your law firm employees properly or risk falling into a financial snakepit

Can I review my boss?

The virtual practice: The what and why

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Pay your law firm employees properly or risk falling into a financial snakepit

By James B. Zouras

As wage-and-hour practitioners who have represented thousands of employees in actions against employers of every size, from multi-billion-dollar corporations to small businesses, our firm is well-versed on the ways employers violate the labor laws.1 Many do so through calculated design, others through sheer ignorance or neglect. Unfortunately for the employer, the FLSA is a strict liability statute and the legal consequences are essentially the same. And they can be serious. The preeminent federal labor statute, the Fair Labor Standards Act (FLSA), is among the most rigid on the books. In almost all instances, a prevailing plaintiff is entitled not only to every dime in unpaid compensation, but liquidated (double) damages along with attorney fees and costs.2

Law firm employers, particularly small-to-midsized ones, often give only passing thought, if any, to whether their pay practices comply with the strict letter of the law. Surely lawyers have an inherent understanding of whether a pay practice, like those relating to the payment of overtime, is legal or not? Think again. Lawyers are hardly immune from the potential pitfalls of wage and hour compliance. In fact, when it comes to paying their paralegals, legal assistants, office managers, administrative assistants, interns and other employees, law firms ironically end up violating the law as much, if not more, than other employers. In the past few years, FLSA actions against lawyers and law firms have become one of the “causes du jour” in the field. The recent proliferation of layoffs in these down economic times will likely do little to slow the trend.

Trust me, the last thing you want is to find yourself defending one of these cases. But friends, there is no need to fret. This article will provide insight into the basics of the FLSA, the most common ways it is violated by law firms and how to protect yourself while keeping your employees economically happy.3

You, yes YOU, are personally responsible for violations of the FLSA

Let’s begin with a few words of wisdom and warning. The FLSA is a remedial statute which contains one of the broadest definitions of “employer” known to the law. Unlike other employment laws, the FLSA applies to all employers without regard to the number of employees. The Act defines “employ” to mean “suffer or permit to work,”4 which covers persons who might not qualify under traditional agency law principles and are not even considered employees by the Internal Revenue Service.5 Thus, you should assume you, your firm and your employees are subject to the broad umbrella of FLSA coverage regardless of how large or small your law firm is, solo practitioners included.

There is no “corporate shield” for violations of the FLSA, something many individuals, much to their dismay, learn only after they are sued. FLSA actions have been successfully brought against the presidents, executives and board members of a number of Fortune 500 companies. Partners, even those of the largest law firms, are no less vulnerable. Under the FLSA, all persons “acting directly or indirectly in the interest of an employer in relation to an employee” are subject to its requirements.6 Any individual with sufficient authority to control the workers in question can qualify as an “employer” under the FLSA’s expansive definition and held jointly and severally liable for violations.7

Under the “economic reality” test, courts consider a number of non-exhaustive factors including whether the alleged employer had the authority to: 1) directly or indirectly hire and fire employees; 2) supervise, control or modify employee work schedules or conditions of employment; 3) determine the rate and method of payment; and, 4) prepared or maintained payroll or employment records.8 No single factor is dispositive and employer status under the FLSA does not require continuous monitoring or absolute control over the employee. Thus, you can face liability even if you have no direct involvement in the hiring process and only have the authority to oversee an employee.

Ignorance of the FLSA’s requirements is no defense, especially if you are a lawyer. The FLSA is quite unforgiving even where the employer had the best of intentions. Even if the employer carries the heavy burden of proving their failure to pay was in good faith—which is rarely successful in practice—the court must award the full amount of unpaid wages along with attorneys’ fees and costs, and retains the discretion to award liquidated (double) damages.9 In the far more likely event that the employer fails to prove an honest intention to comply and that they had objectively “reasonable grounds” for believing the failure did not violate the FLSA, liquidated damages are mandatory.10

To have even a snowball’s chance of proving good faith, an employer must prove they made significant inquiries and took other affirmative steps to ensure FLSA compliance. Even under the most favorable circumstances, this is an exceedingly difficult task.11 But it is nearly impossible when it comes to lawyers paying their paralegals, administrative assistants and other employees. Think about it. You are a lawyer. You have easy access to judicial opinions, legal periodicals and fellow attorneys who practice in the field; resources above and beyond those available to the typical employer.

In sum, what this means to you as a legal employer is: (1) most, if not all, of your support staff are likely covered by the FLSA; (2) you will likely be deemed to have knowledge of its requirements; and, (3) you, your partners and perhaps even your supervisory employees may be personally on the hook for violations. If violations are found, it is a virtual certainty you will incur liability for all unpaid wages, liquidated damages and attorney fees. And it is unlikely that any of your insurance policies provide coverage. Now that I have your attention …

Your paralegal is not exempt

Do not waste your time, energy or credibility trying to challenge the non-exempt status of your paralegal. Arguments that paralegals and other legal assistants are exempt based upon the “professional,” “administrative” and “executive” exemptions have been repeatedly been made and just as consistently rejected by the U.S. Department of Labor (DOL) and the courts. The DOL has issued an impressive seven Opinion Letters in the last 15 years which reaffirm this fact as does a specific regulation.12 Do not allow your paralegal’s sense of professionalism in being paid a salary stop you from paying more for work beyond 40 hours in a week

Your paralegal may have an advanced degree, perform many critical duties and be smarter than you. But if you ask her to stay late to clean up those jury instructions or finalize the appendix on your appellate brief over the weekend, you should pay her time and a half for every minute she works in excess of 40 hours a week. While there are always exceptions, she is in all likelihood subject to the protections of the FLSA.

Simply paying your paralegal or anyone else a salary does not make her exempt

Do not make the common mistake of assuming that paying a salary somehow transforms your non-exempt paralegal into an exempt one. While it is true that all hourly-paid employees are entitled to overtime, it is not the case that all salaried employees are exempt. Paying a salary is only one part of the two-part test to determine whether an employee is exempt from overtime. For example, few would claim that paying a receptionist an annual salary of $30,000 means an employer can lawfully make him work 70 hours a week without overtime. And it is no different with your paralegal. Even if you pay her $85,000 a year, understand that you must pay for extra time worked beyond 40 each workweek.

Your office manager and other administrative employees may not be exempt

Your salaried office manager and other members of your staff may (I emphasize may) qualify for one or more exemptions. The burden will fall on you as the employer to prove a particular employee “plainly and unmistakably” falls within the terms and spirit of one of the exemptions, which are narrowly construed.13 That will prove much harder than you think.

A comprehensive analysis of the administrative,14 executive15 and professional16 exemptions as applied to your other support staff could consume a lengthy treatise. Suffice it to say, do not think that merely giving these employees a little additional authority or responsibilities will do the trick. The FLSA is complicated, the analysis is heavily fact-driven and the case law is in a constant state of evolution and flux.

Each exemption contains its own specific criteria which may appear deceptively simple at first blush. For example, you might think what constitutes “compensable time” is an easy question. In reality, there have been hundreds of legal death matches over phrases like “primary duty,” “manage” and “regularly and customarily,” and what it means to have “discretion,” “independent judgment” and supervise “the equivalent of two or more other full-time employees.” And even if you meet every requirement for an exemption, a seemingly innocuous pay deduction can nullify it.17

Your interns may not be exempt

Legal employers often assume student interns are automatically exempt from the requirements of the FLSA. Not so. There is no per se FLSA exemption for interns. Instead, the DOL has promulgated stringent requirements an employer must meet before it can lawfully claim student interns are “trainees,” not “employees” entitled to minimum wage, overtime and other protections of federal law:

1. The training is similar to what would be given in an academic setting;

2. The training is for the benefit of the students;

3. The students do not displace regular employees, but work under their close observation;

4. The employer that provides the training derives no immediate advantage from the activities of the students, and on occasion the employer’s operations may actually be impeded;

5. The students are not necessarily entitled to a job at the conclusion of the training period; and,

6. The employer and the students understand that the students are not entitled to wages for the time spent in training.18

Even firms with well-established internship or externship or programs rarely consider whether they could realistically meet all of these factors. If your firm does not have a formal written training program or a specific agreement with the students outlining your relationship, or if your firm allowed students to perform actual productive work (as opposed to “training”), you may have a problem. Unless you have carefully analyzed your program for FLSA compliance, do not assume you are doing the students a favor by taking them under your wing. Do yourself a favor and consider paying them at least the requisite minimum wage and overtime if worked.

The bottom line is that while there may be more room for debate than with your paralegal, properly paying your other legal support staff can still present a potential minefield for the unwary law firm employer. At the very least, the employee can likely raise a host of legal and factual issues which could keep you tied up in costly and protracted litigation for a long time. The remainder of this article will suggest ways your can prevent this from happening.

How can you protect yourself?

Now that you have some familiarity with the FLSA, you should be sufficiently motivated to initiate meaningful measures to comply. Some law firm employers take the drastic step of assuming all their support staff are not exempt. While this may sound a bit extreme, it is not necessarily a bad idea especially in the context of a small firm. Occasionally paying a few hours of overtime and keeping track of time worked by a relatively small number of employees may be less burdensome or costly than obtaining a comprehensive analysis from an experienced professional or the DOL. However, because all jobs typically change over time the analysis should be periodically reviewed and updated.

Once you know to a reasonable certainty how your support staff are properly classified for FLSA purposes, there are a number of ways you stay out of trouble or at the very least, minimize the exposure when it comes to non-exempt employees:

1. Pay for all time worked.

Determining what constitutes compensable “work” under the FLSA was once a relatively simple issue. But no more. For example, if your staff members attend meetings or training, or use e-mail, text, cell phones or other similar devices to perform work-related tasks during off hours or on the weekends, the FLSA likely requires payment for all this time. While the occasional e-mail or phone call may be considered “de minimis” and therefore not compensable, time spent by employees performing such tasks on a more regular and customary basis can add up fast. Because this work is likely performed in addition to a standard 40-hour workweek, this time is compensable at the overtime rate.

2. Keep accurate time records.

Under the FLSA, you as an employer have an affirmative duty to maintain detailed and accurate records of all time worked by your employees for at least three years. If time records incomplete or inadequate, the employee need only set forth a reasonable estimate of time worked to support their claim for damages. Employers who fail to maintain adequate records face serious challenges attempting to refute the employee’s estimates and “cannot be heard to complain” that there is no evidence of the exact amount of time worked.19

3. Don’t get cute.

You are well-advised to leave your “advocate” hat in the closet and resist the temptation to seek creative ways to skirt the requirements of the FLSA. Any maneuvers you might come up with will likely backfire. So do not give your paralegal or legal secretary important-sounding titles like “litigation manager” or “legal analyst.” Such efforts are frowned upon by the DOL and the courts, which ignore titles and look to the nature of the actual job duties to determine exempt status.20

Similarly, do not try to classify your legal staff as “independent contractors.” Even a seemingly concrete written agreement between an employer and employee which purports to set forth an “independent contract” arrangement is essentially meaningless when it comes to the FLSA. As is true when determining whether someone is an “employer” for purposes of compliance, courts apply a multi-factor test to capture the “economic realities” of the relationship in deciding whether the worker in question legitimately is independent enough to relieve the employer from FLSA compliance.21 More often than not, the employer’s efforts are not only unsuccessful, but actually make matters worse by giving ammunition the employee’s “willfulness” arguments; i.e., you were fully aware of the FLSA’s requirements and deliberately tried to dodge them.

4. Don’t pretend you are a charity.

For God’s sake, don’t ever ask your employees to “volunteer” or “donate” their time or otherwise waive their right to minimum wage, overtime or the other protections of the FLSA. It is legally impossible for an employee to waive FLSA rights by contract or otherwise.22 Thus, if your paralegal comes in over the weekend to complete a project, you are obligated to compensate her even if you did not request, desire or authorize the work.23

5. Treat Your Employees Well.

The DOL estimates that as many as 70 percent of employers are not in compliance with the FLSA. Yet only a small fraction are ever sued. The reason is because happy employees rarely take legal action against their employer even if their compensation plan would not pass muster under the FLSA. Oftentimes these cases come about because an employee is upset about something unrelated to an FLSA claim which causes them to seek legal advice. For example, a client may walk in to a lawyer’s office with a perceived wrongful termination or discrimination case, and walk out with a slam dunk and potentially far more viable FLSA action. So what may begin as a simple misunderstanding, a poorly-handled layoff or even a workers’ compensation matter can turn into an unexpected and costly nightmare for the employer. As is often the case, a small nugget of prevention can equal a goldmine of cure.

One final word of advice

Even the best lawyers make mistakes. Finding out you may have made one with respect to the manner in which you compensated (or did not compensate) one of your current or former staff members can add fuel to what is probably already a volatile relationship. Although private releases of FLSA rights are invalid,24 there are ways to minimize the damage. If a concern is raised, it makes sense to obtain an early, informed and objective assessment of the situation. With a complex statute like the FLSA, which carries serious consequences for its violation, emotions can run high. It is vital that decisions are made based on logic and careful consideration of all the facts. ■

__________

James B. Zouras, along with his partner Ryan F. Stephan, are the principals of Stephan Zouras, LLP, a Chicago-based law firm concentrating in individual, class and collective action litigation. Together they have recovered tens of millions of dollars in unpaid wages on behalf of aggrieved employees throughout the United States.

1. In addition to the outright failure to pay overtime and minimum wage, these methods include failing to pay for compensable work away from the office, “floating” employee time from one week to the next to avoid overtime hours, “shaving” employee time off submitted time records, and refusing to pay for rest breaks.

2. 29 U.S.C. §216(b). There are compelling policy considerations behind the FLSA. Congress enacted the Act in 1938 to provide a “minimum” level of acceptable employment conditions and “protect all covered workers from substandard wages and oppressive working hours.” Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981).

3. While this article focuses on the FLSA, Illinois and other states have enacted their own statutes which provide similar, and sometimes greater, protections than federal law. See Illinois Minimum Wage Law, 820 ILCS 105/1, et seq., and the Illinois Wage Payment and Collection Act, 820 ILCS §§115, et seq.

4. 29 U.S.C. §203(g).

5. United States v. Rosenwasser, 323 U.S. 360, 363 n. 3 (1945); Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 326 (1992); Ling Nan Zheng v. Liberty Apparel Co., 355 F.3d 61, 67 (2d Cir.2003).

6. 29 U.S.C. §203(d).

7. Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961)

8. Villarreal v. Woodham, 113 F.3d 202, 205 (11th Cir.1997); Torres-Lopez v. May, 111 F3d 633, 640 (9th Cir1997); Carter v. Dutchess Comm’y Coll., 735 F.2d 8, 12 (2d Cir.1984); Watson v. Graves, 909 F.2d 1549, 1553 (5th Cir.1990).

9. 29 U.S.C. §§216(b) & 260.

10. Alvarez v. IPB, Inc., 339 F.3d 894, 909 (9th Cir.2003); Herman v. RSR Servs. Ltd., 172 F.3d 132, 142 (2d Cir.1999).

11. Chao v. Barbeque Ventures, LLC, 547 F.3d 938, 941-42 (8th Cir. 2008).

12. 29 C.F.R. §541.301(e)(7). The DOL Opinion Letters are available online free of charge at <www.dol.gov/esa/whd/opinion/flsa.htm>.

13. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960); Piscione v. Ernst and Young, LLP, 171 F.3d 527, 533 (7th Cir.1999); Klein v. Rush-Presbyterian St. Luke’s Med. Ctr., 990 F.2d 279, 282 (7th Cir.1993).

14. 29 C.F.R. §541.2.

15. 29 C.F.R. §541.1.

16. 29 C.F.R. §541.300.

17. 29 C.F.R. § 541.118(a).

18. See Wage and Hour Opinion Letter May 17, 2004.

19. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 688 (1946).

20. 29 C.F.R. §541.2.

21. Schultz v. Capital Intern. Sec., Inc., 466 F.3d 298, 304-05 (4th Cir. 2006).

22. Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 740-41 (1981).

23. 29 C.F.R. §785.13; Chao v. Gotham Registry, Inc., 514 F.3d 280, 288 (2nd Cir. 2008).

24. Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945).

Can I review my boss?

By Melissa Schroeder and Toby Paulose; Freedman, Anselmo, Lindberg & Rappe LLC

The answer to that question is, YES!

Performance evaluations are a tool most law firms and organizations use in order to provide feedback to employees. More and more employers are realizing that it is also important to seek feedback from multiple sources such as vendors, subordinates and peers. This wide array of sources can provide the law firm with information it may not have received otherwise. One tool of the multi-source feedback is an upward review. In an upward review, support staff and associates provide anonymous feedback to their direct report(s) (attorney, manager, partner, etc.) regarding the manager’s leadership abilities and supervisory performance. This process is usually undertaken by firms and organizations that actively want to improve the work environment and become an “Employer of Choice.”

Support staff and associates, as opposed to upper levels, are typically in a better position to evaluate their direct report’s supervisory performance; staff and associates are directly affected by their supervisor’s behavior. As the “subordinates” are the ones who have daily interaction with their “supervisor,” their perspective and viewpoint are integral in potentially improving management’s leadership abilities.

As we are all too busy to spend time on projects which later produce lack-luster results or invalid data, there are several items firms should keep in mind when implementing upward reviews. Incorporating these ideas into your process will help ensure the respondents will provide honest feedback. The results will be worthless if the responses are not truthful.

Before beginning an upward review process, you should ensure you have the support of top-level management. Without their buy-in, the process will be unsuccessful and lead to frustration on all levels due to a potential lack of change implementation. Better to not perform the process at all than to do it without top-level support.

Respondents must understand the upward review process—the benefits, the rationale, the purpose of—in order to provide honest feedback. If respondents don’t understand why they are providing feedback or what it will be used for, chances are they either won’t play an active role or will not provide candid responses (Smith, 2008). Due to this, the organization must be prepared to explain, in advance, why the upward review process is being performed, what the organization hopes to gain from the results, and how valuable honest feedback is needed for the process. It is suggested that law firms spend a good amount of time on communicating the rationale and purpose of the upward review process so that valid results are achieved. More time spent up front will lead to better results in the end.

Support staff and associates will be more apt to be involved in the process and provide accurate ratings if they believe the results will be used for developmental purposes as opposed to administrative purposes (Smith, 2008). Make it clear that the results of the upward review will be used to set individual goals and ultimately work to improve the performance of the supervisor.

It is essential for the support staff and associates to be as honest as possible when completing the survey. If respondents believe their answers could be traced back to them and should they feel their manager has “areas of development,” they will fear being subject to retaliation. The potential for retaliation is present as the manager is responsible for delegating work assignments and performing hiring, disciplinary and termination decisions (Smith, 2008). The respondents may be hesitant to provide honest feedback in order to avoid any possibility of a demotion, termination, or an undesirable work assignment.

To curb respondents’ fear of retaliation, it is recommended that an objective third-party administer the process and tabulate the results. Third-party administrators have the ability to tailor the survey to reflect the skill sets a law firm requires of its supervisors. The third-party administrator will evaluate and highlight the special areas of concern that the supervisor should improve. The manager or partner should review the results, looking for major themes. This would be where the focus areas for development are identified.

If the option of going through a third-party administrator is not available there are other alternatives. Law firms have the option of creating their own survey using tools such as “survey monkey” (www.surveymonkey.com) where firms have the ability to structure the survey responses anonymously. Creating a survey using this process will give law firms the same control over a survey that would be created by a third-party administrator.

There are additional resources available through organizations such as the Society for Human Resources Management (www.shrm.org) and the Association for Legal Administrators (www.alanet.org) that you can use in creating your upward review. Sample surveys can be viewed and you can request assistance through both organizations for additional help.

As explained earlier, to curb the fear of retaliation and wanting the support staff to provide honest feedback, law firms need to consider who is going to administer the survey and tabulate the results, if it is not going to be a third-party administrator. The ones responsible for tabulating the results must be individuals that are objective, not one of the ones being surveyed and have the ability to evaluate and highlight the areas of concern. If you have an HR department or legal administrator, this can be handled through them. Again, creating and communicating the objective, anonymous process is key.

Typically, the first step of an upward review process is for the manager or partner to complete a self-assessment of his or her own leadership skills. The self-assessment is the same survey that the support staff and associates will complete. Management should be honest and realistic in their self-assessment as these results will be compared to the respondents’ results. Comparison of the two sets of results will provide the individual with the ability to analyze his/her perceptions of his/her own performance in comparison of others perceptions.

Criteria for the survey should involve skill sets that a firm requires of its partners and managers. The survey, for example, should include topics such as: Communication, Coaching, Leadership, Judgment, and Team Development. By evaluating responses related to these topics, the firm, along with the manager, will have a better understanding on the areas of improvement. Below is a sample format of what a survey (both the self-assessment and upward review) can include:

Communication:

Expresses ideas and information concisely and accurately, both verbally and in writing. Listens, understands, and responds in an effective and professional manner. Manager shares pertinent information to staff in a timely manner.

Rating: Poor Fair Average Good Excellent

1 2 3 4 5

Team Development:

Hires, develops, and promotes best talent. Builds effective cross-functional team. Promotes a team environment/atmosphere.

Rating: Poor Fair Average Good Excellent

1 2 3 4 5

Under each skill set, a definition is given relating to that specific skill. The definitions should reflect the views of the firm—what it feels a manager should posses in order to be an effective leader. After reading the definition and thinking about their personal interactions with the manager or partner, the support staff and associate, as well as the partner or manager in the self-assessment process, can then rate each skill set according to their own personal experiences. A comment section can also be added for respondents to provide specific feedback and examples to support the rating. This is not necessary on the self-assessment, however, would be very beneficial on the upward review survey in order to assist with development areas and recognize areas of success.

After all the self-assessments have been completed and submitted, the next step is to have the support staff and associates complete the upward review survey. Each person should complete a survey for every manager or partner with whom they have a substantial working relationship. In some situations, a staff person or associate might report to more than one person. Due to this, several surveys may need to be filled out. As stated previously, it is best to use a third party to administer and compile the results. This will help ensure the comments and ratings are untraceable and the person filling out the survey can provide candid feedback without fear of retaliation.

Once the results are in and tabulated, time must be spent working individually with the partners and managers to go over the results and create action plans for the purposes of development. Depending on your firm’s organizational set-up, this can be completed through the human resources department, with an office manager/legal administrator, or with the manager’s supervisor. One sure way to halt any benefit from an upward review process is for staff and associates to feel that management does not take their comments seriously. Therefore, it is essential that the partners and managers fully take hold of the results for their own professional growth and development and make changes accordingly. This last step is imperative or the entire process was for naught.

Once completed, it is a good idea to make this process an annual event. If the partners and associates have actively worked to improve on their areas of development throughout the year, they should see an increase in the ratings. An increase in the ratings will help to reinforce the new habits. If the results closely match the prior year’s, this is where top-level management will need to step in and reinforce the reasons the reviews were implemented and set expectations for change.

By fully completing the upward review process, law firms will benefit by better retaining valuable staff and associates. If staff sees that their comments are being taken seriously by upper management, it will be apparent that the law firm values feedback. Likewise, managers and partners will benefit from the upward review process when they utilize the feedback for their own growth in professional development. Overall, an upward review process is a win-win situation for all parties. ■

___________

Reference:

Smith, A., & Fortunato, V.. (2008). Factors Influencing Employee Intentions to Provide Honest Upward Feedback Ratings. Journal of Business and Psychology, 22(3), 191-207. Retrieved August 19, 2009, from ABI/INFORM Research.

Copyright © 2009 Freedman, Anselmo, Lindberg & Rappe LLC

The virtual practice: The what and why

By R. Andrew Smith

The virtual office concept has been around for some time; however, it has not typically been used in the context of practicing law. Recently, the advent of better services for virtual offices has led to the expansion of law practice management structures that incorporate virtual offices, remote employees, and leveraging technology to cut costs, increase revenue, and promote healthier lifestyles. What, though, does “going virtual” entail, in what circumstances is a virtual office type structure beneficial, and what are the benefits? In order to evaluate the feasibility, the first task is to define what, exactly, is a virtual office and the virtual practice of law.

I. The “what” of the virtual law practice

In its most essential elements, a virtual law practice is a practice that exists in form and substance but not in space. Typically, these businesses are home based, offering a variety of services with a variety of ways that clients may interact with them. There are several operational structures for the virtual law practice. The simplest form is the solo attorney who rents shared office space or has a mail box at a “virtual” office. Other forms of virtual practices incorporate the use of the Internet to communicate and transact business with its clients; home-based attorneys and support staff to review and/or draft contracts and pleadings; and law practices that concentrate in providing legal documents and limited services via interactive Web sites.

In reviewing the virtual law practice concept, it is best to first consider the simplest form of this office structure. The solo attorney with a P.O. Box mailing address usually conjures thoughts of fly-by-night lawyers, though in practice this pejorative stereotype fails to represent the majority of these practitioners. This has been tempered by the low rent office sharing arrangement between more established sole practitioners or small firms and new solos that pay rent to have their mail delivered to the landlord attorney’s office. Now, though, with the advent of a service known as the virtual office, what used to be a practice of questionable merit and reputation has become a way for a sole practitioner to appear larger and more reputable than the P.O. Box counterpart. Virtual offices are typically businesses run out of buildings with notable addresses, which offer their “tenants” a variety of services, including telephone reception, voice mail, conference room access, and mail service. Some offices offer special services for forwarding regular mail via e-mail in PDF, and the use of administrative staff retained by the virtual office service provider.

The virtual office concept originated from the serviced office rental format developed by Servcorp in 1973. While serviced offices are typically managed suites, the virtual office was the next step in the evolution of managed space. The most basic conceptualization of a virtual office is a serviced office without physical space. Many virtual office service providers also have a serviced office component to their business, and the virtual office tenants then have access to the available conference rooms, day offices, and other amenities also utilized by those renting executive suites. The result is a sole practitioner operating out of a recognizable address in a well-known office building without the expense of dedicated physical space at that location.

The virtual law practice, then, is the law practice which utilizes services, like virtual office space, to practice law but without having a physical location in the traditional sense. In addition, many practitioners who operate “virtual” practices maintain home offices and utilize mobile technology to communicate with clients and transact day to day business. While the managed office version of the virtual office is the most basic form of virtual law practice management, the concept also includes a number of other practice management solutions. This includes the Internet based service provider and the virtual law firm.

The Internet based service provider utilizes an interactive Web page to render services to their clients. Though most conducive to transactional practice, the Internet based service provider focuses their interaction with their clients ordering services through a Web site where the client has a unique and secure log-in and client account. Much like purchasing other products over the Internet, these practices can, where appropriately licensed, provide documents to clients throughout the country based on the predefined needs of the client. Good examples of these kinds of practices include services that provide legal forms or the preparation of documents including wills, trusts, contracts, bills of sale, and, to some degree, court documents for certain kinds of cases like divorces.

The virtual law firm is an entirely different entity and management structure. Rather than operating out of a virtual office or providing services through the Internet, the virtual law firm is typically an umbrella organization made up of solo attorneys and small law firms from a wide geographic area that perform specific types of services. The marketing for this particular business organization is largely Web-based, but the individual office management of the attorneys in the field performing services adopts a traditional or virtual office structure.

Communication for in-firm matters occurs largely via e-mail and/or instant messaging. This hybrid concept permits a law firm to offer a wide array of services, but only truly fits the mold of the virtual practice in that the law firm itself exists in form and organization, but lacking a centrally located physical office.

With this definition of the virtual law office and virtual law practice, it is vitally necessary to understand why this particular management structure is beneficial to a law practice as a management structure.

II. The “why” of the virtual law practice

There are two substantial benefits of leveraging the virtual office management structure: the first is cost, the second is flexibility. Rent for office space can constitute the largest expense for law practices. The virtual office structure does away with this expense. Rents for virtual office space can range from one quarter to one fifth of the expense of physical office space. For a new sole practitioner with a limited budget, this could easily provide the resources for additional marketing, financing of legal representation on a contingency basis, or providing flexibility in finances for start-up costs and restricted cash flow. Long term, the financial benefits continue to grow because the sole practitioner is able to reduce overhead and maximize the return of profit to the business. In addition to the financial benefits, the virtual law office structure incorporates a large amount of flexibility in the operation of the virtual law practice.

Lawyers in virtual law practices could work just about anywhere at just about any time. Imagine being able to sit in a deck chair on a balcony at home working on a pleading, being at home taking care of the kids over the summer while preparing a contract, or in a coffee shop preparing a will. Not being tied to a physical location gives the virtual law practitioner the ability to adapt his or her work schedule to their particular needs. This form reduces the stress of the practice of law, and provides the quality of life many in the profession lack.

Another benefit to this style of management is an increase in value of the services provided to the client. This could include a decrease in response time to client inquiries, an increase in overall productivity and a stronger personal relationship with clients to insure repeat and return business.

However, while this is a great concept for the sole practitioner, it can be difficult to envision how this structure would benefit large law practices with more than one attorney. In addition, the solo with support staff may be wondering how this concept may apply to their business structure. For the solo with administrative staff, this structure could include physical space for administrative staff with an attorney who works remotely, or administrative personnel who are home based and communicate within the business via e-mail, instant messenger, or telephone. The conceptual problem arises, though, when dealing with larger law practices and implementing the virtual practice framework.

Once a business reaches a certain size, it is necessary to have a central location for the administration and operation of the business. Businesses with 20 or more employees, for example, would struggle to maintain adequate oversight of administrative and professional employees. Moreover, the volume of business would not be conducive to checking a mail box on a daily basis for new correspondence. Nonetheless, these businesses could still implement many of the same concepts utilized by the virtual practitioner to produce a more productive and cost effective management and business operation.

For example, attorneys could work largely off-site with access to a central office and remote access to client files and materials through an Internet-based management system. Administrative staff could be mixed between on-site and off-site employees depending on the nature of their work within the administrative structure of the business. Back office accounting could have its own office space located in lower cost real estate, while the more costly main office is reserved for the revenue generating activities requiring direct client contact. The law firm with 100 employees could decrease their bottom line while increasing productivity and revenue by limiting their physical foot-print and increasing employee satisfaction. In effect, the large law firm can limit ancillary expenditures, reduce the cost of overhead for resources, and still perform above and beyond the expectation of their clients.

Conclusion

The virtual office management structure can provide numerous benefits for law practices of any size. The goal of this structure is to mitigate expenses while maximizing productivity. As a general principle, the flexibility provided by virtual practice management permits its adaptation to a variety of practice management structures, and, at the very least, is worth considering as a means to make existing law practices more efficient, productive and cost effective. ■

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R. Andrew Smith operates his solo practice, R. A. Smith, Ltd., as a virtual law practice in Chicago and incorporates many aspects of virtual office management in the operation of a high volume pro bono legal services program through the Chicago Legal Clinic, Inc. Mr. Smith graduated from Valparaiso University School of Law in 2006, and recently co-presented a program at ABA Techshow 2009 on how to start a virtual law practice.

Ask your editor

By Dr. John W. Olmstead

A successful law firm competitive strategy requires effective law firm management. Managing Partners and Administrators must keep updated on all aspects of law firm management. In order to assist in this effort we are pleased to share our insights and thoughts.

We have been asked the following questions pertaining to a variety of management topics by readers and clients alike.

Some of these questions are posted on our Web site in our Asked and Answered Section—<www.olmsteadassoc.com/Resource/oacforum.asp>.

We encourage our readers to use this section as a resource.

Please contact me via e-mail at jolmstead@olmsteadassoc.com with your question. I will answer your question and share with our readers as well.

Q. I am one of the founding partners in a 25-attorney law firm in the northeast. We have three equity partners, six non-equity partners and 16 associates working in the firm. We focus totally on litigation. Each of us three equity partners have equal ownership percentages and since day one (20 years) have divided firm profits equally along those lines (1/3, 1/3, 1/3). We each put in the same amount of effort and work—but since I am managing partner—my fee collections are much lower than those of the other two equity partners and I am concerned that they may feel that I am not carrying my weight since my fee collections are lower. How should this be handled in our compensation system?

A. This is a common question that we hear often. It sounds like you are still allocating income in the same manner that you did when the firm first started. Often when a firm grows the partner compensation system needs to be reexamined when and if partner roles or contributions change. As the firm has grown I suspect that your time spent on management activities has grown as well. I, as well as many other legal management consultants, believe that firm management (running the business) is as important as generating client fees and should be so considered in partner compensation systems.

We have numerous law firm clients where at least one or more of the equity partners “run the business” and do not provide billable client services at all.

Management time should not be used as a non-billable time category (excuse) to simply “dump” time. Your partners have a right to expect results that improves the bottom line and the size of the pie for all.

Here are a few suggestions:

• Develop a budget for management time and have it approved by the partnership.

• Create a job description for the management partner and have it approved by the partnership.

• Recognize that administrivia (day-to-day office management) and management (higher level concerns) are not the same thing. Hire an office manager or administrator for administrivia—focus your time on the higher level management concerns.

• Insure that you are using your management time wisely and obtaining results for the partnership.

Q. I do a good job of collecting initial retainers before doing work for my family law and criminal clients. But then I fall behind on retainer replenishments. Do you have any thoughts or ideas?

A. This is a common problem I hear from clients in all practice areas. Here are a few suggestions:

• Try to collect a larger retainer initially.

• Actively push the use of credit card.

• If it is capable, set your time and billing system to alert you when you are at, say, 85 percent to 90 percent of time used. Some systems will alert you when entering a time sheet after this level has been reached.

• Have someone assigned to review your Work in Process Report daily to identify any client reaching the 85 percent to 90 percent level and notify you accordingly.

• If more work is to be done insure that the client is promptly billed for additional retainer before work reaches the 100 percent mark.

• Consider billing the client electronically if this is a method that works for the client.

• Postpone work until an additional retainer is received. If this course is chosen insure that this does not violate any ethical guidelines or responsibilities.

• The key here is assigning someone the daily responsibility of monitoring retainers, having a good time and billing system, and using the management reports from the system to stay on top of retainer usage.

Q. We recently completed an informal client survey and were surprised at some of the feedback. Our scores were lower than anticipated. Clients believe that our services took longer than expected and fees were also higher than expected. We work as diligently as we can for our clients and I don’t see how we can improve turnaround or reduce legal fees. Suggestions?

A. Based upon client surveys that we do for law firms we find that one of the biggest problems is that the attorneys are doing a poor job of managing client expectations. The key is to under promise and over deliver. I suspect that upon the initial client meeting you are under estimating the timeline and low balling the fee range. Increase the promise—timeline and fee range and then shoot to deliver under that range. This will do wonders for improving the client relationship. ■

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John W. Olmstead, MBA, Ph.D, CMC, is a Certified Management Consultant, coach and the president of Olmstead & Associates, Legal Management Consultants and Life On Balance. Both firms are based in St. Louis, Missouri. Dr. Olmstead may be contacted via e-mail at jolmstead@olmsteadassoc.com. Additional articles and information is available at the firm’s web site: <www.olmsteadassoc.com>.

Upcoming CLE programs

To register, go to www.isba.org/cle or call the ISBA registrar at 800-252-8908 or 217-525-1760.

October 2009

Monday - Friday, 10/26/09 – 10/30/09 – Chicago, ISBA Regional Office—40 hour Mediation/Arbitration Training. Master Series Presented by the Illinois State Bar Association and the ISBA Alternative Dispute Resolution Section. 8:30 – 5:45 daily.

Wednesday, 10/28/09 – Webcast—Illinois New Rules of Professional Conduct. Presented by the Illinois State Bar Association. 12-1.

Friday, 10/30/09 – Urbana, United States Federal District Court House—Pre-Trial Practice, Rule Changes, Technology and Federal Civil Practice in the Central District of IL. Presented by the ISBA Federal Civil Practice Section.

November 2009

Tuesday, 11/03/09 – Bloomington, Doubletree Hotel—Real Estate Law Update for the Experienced Practitioner – Fall 2009. Presented by the ISBA Real Estate Law Section.

Wednesday, 11/04/09 – Webcast—Corporate Legal Ethics. Presented by the Illinois State Bar Association.

Thursday, 11/05/09 – Chicago, ISBA Regional Office—The Mediation Process and Child-related Disputes. Presented by the ISBA Child Law Section, Co-sponsored by the ISBA Family Law Section and by the ISBA Alternative Dispute Resolution Section.

Monday - Friday, 11/09/09 - 11/13/09 – Grafton, Pere Marquette Lodge and Conference Center—40 hour Mediation/Arbitration Training. Master Series. Presented by the Illinois State Bar Association and the ISBA Alternative Dispute Resolution Section. 8:30-5:45 each day.

Wednesday, 11/11/09 – Webcast—Illinois New Rules of Professional Conduct. Presented by the Illinois State Bar Association. 12-1.

Thursday, 11/12/09 – Webinar—Advanced Research on FastCase. Presented by the Illinois State Bar Association. *An exclusive member benefit provided by ISBA and ISBA Mutual. Register at: <https://www1.gotomeeting.com/register/938410456. 12-1>.

Friday, 11/13/09 – Chicago, ISBA Regional Office—Insurance Law Update 2009. Presented by the ISBA Civil Practice and Procedure Section and the ISBA Insurance Law Section.

Friday, 11/20/09 – Carbondale, Southern Illinois University School of Law—Illinois New Rules of Professional Conduct. Presented by the Illinois State Bar Association, co- sponsored by SIU school of Law.

Friday, 11/20/09 – Chicago, Northwestern Law School—Avenues to Advancement – Ms. JD’s Third Annual Conference on Women in Law. Presented by the ABA commission on Women in the Profession, co – sponsored by the ISBA Standing Committee on Women and the Law, National Association of Women Lawyers, and the Chicago Bar Association

Wednesday, 11/25/09 – Webcast—Illinois New Rules of Professional Conduct. Presented by the Illinois State Bar Association. 12-1.

December 2009

Wednesday, 12/02/09 – Webcast—Illinois New Rules of Professional Conduct. Presented by the Illinois State Bar Association. 12-1.

Thursday, 12/03/09 – Webcast—Divorce Basics for Pro Bono Attorneys - 2009. Presented by the Illinois State Bar Association. <https://isba.fastcle.com/store/seminar/seminar.php?seminar=2670>.

Thursday, 12/10/09 – Chicago, ARDC Office—What the Government Lawyer Needs to Know about the 2010 Illinois Rules of Professional Conduct. Presented by the ISBA Standing Committee Government Lawyers. 10-12. 50-75. max

Thursday - Friday, 12/10/2009 – 12/11/2009 – Chicago, Sheraton Hotel—Winter CLE Fest. Presented by the Illinois State Bar Association.

Wednesday, 12/16/09 – Webcast—Illinois New Rules of Professional Conduct. Presented by the Illinois State Bar Association. 12-1.

Thursday, 12/17/09 – Webinar—Conducting Legal Research on Fastcase. Presented by the Illinois State Bar Association. *An exclusive member benefit provided by ISBA and ISBA Mutual. Register at: <https://www1.gotomeeting.com/register/265808616>. 12-1. ■