It’s the best-kept secret in HR. Four years ago this month the first Alternative Business Structure licence was granted for legal services. One year earlier the Legal Services Act 2007 had come into effect, opening up the market for legal provision, including employment law, to competitors outside traditional law firms, such as supermarkets and banks. It became known as ‘Tesco Law’. But few in HR appear to have grasped the significance.
“For years I was looking for a commercially driven, expedient and efficient legal service that put my business first,” says Karen Lewis, HR director at housing and construction group Keepmoat.
“I wanted something that would give the right type of advice, with the right professionalism that was really commercial, enabling us to do what was needed in the business as opposed to a lot of lawyers saying ‘No you can’t do that’, or sitting on the fence. And I wanted something that gave me certainty and told me exactly what the budget would be. A few years ago that type of structure didn’t exist.”
But today this type of structure does exist. The arrival of the Legal Services Act, and subsequent Alternative Business Structures (or ABSs) have given Lewis what she was looking for. In the somewhat staid legal market these two changes are tantamount to a revolution. So how can HR directors and employee relations teams benefit from these changes?
First some context. The Legal Services Act was designed to shake up a profession largely unchanged for hundreds of years. The thinking was to drive new competition into the market and place the customer at the heart of this change, resulting in an innovative, customer-focused and commercially-minded legal offering.
Alternative Business Structures, or ABSs, enable both solicitors and non-solicitors to share management and ownership of the business. Prior to this, only solicitors were allowed to run law firms.
The main benefits HR directors will hone in on are the chance to gain significant cost savings, better customer service, a more joined-up service and the ability to interface with more innovative technology. You could even say that ABSs are ‘Uber’-ising employment law provision.
For example, up to now the majority of law firms have preferred the hourly rate model. As soon as an HR professional picks up the phone that clock starts ticking. However, many ABSs are rejecting the pay-as-you-go model in favour of fixed-fee subscription packages for specialist, unlimited legal advice.
With HR directors trying to deliver more for less and wanting greater transparency and control over budget, the fixed-fee model is appealing.
“I have always worked in thin margin businesses, with my last two jobs in private equity organisations,” says Lewis. “Anyone who works in this type of environment knows you don’t start with a budget, everything has to have a return on investment. So if you buy a service in, you have to ensure it gives return.”
Two years ago in a previous role Lewis moved to HR magazine’s HR Legal Service, which is provided by one of the first employment law and HR consultancy businesses to be granted ABS status, ESP Law. She has continued to use the service at Keepmoat.
“It enables me to manage the budget, to know what the cost is going to be, and to know that if you have something complex to deal with you’re not sitting here with a headache thinking ‘when the legal bill comes in it’s going to be a real stretch’. In my last role I was able to pull back the legal bill from more than a quarter of a million pounds to £120,000. My shareholders and investors were very pleased.”
Another key advantage to opening up the legal services market is a greater focus on customer service and experience. Bringing commercially-minded business expertise into a law firm enables ABSs to offer the same standard of service and levels of customer care that other service industries, such as retail, have offered customers for years.
Big four consultancy EY is one commercial company taking advantage of the new opportunity. It has brought together some top-name solicitors to form a legal team, with the employment law element being led by former Olswang employment head Daniel Aherne. The business received its ABS licence in December 2015.
Aherne was attracted to this new platform as it enables EY to bring all its experience to bear in one joined-up service.
“The employment law market is very crowded and HR director and HR departments’ knowledge of employment law is so much better than 10 to 15 years ago. They are much more sophisticated and confident in dealing with employment law issues,” he explains.
“Traditional law firms have tended to offer training services and communications on issues such as the latest employment tribunal ruling. But there is a limit to how many emails you want to pop into your inbox updating you. The ABS structure enables us to offer something novel that is more innovative and flexible.
“The advantage is we have a deep relationship with clients already, generally deeper than a law firm. We also have a direct line to financial directors or HR directors.”
In EY’s case, the employment law service can sit alongside service lines that complement it, for example the reward consultancy, global mobility offer, human capital advisory service and immigration.
In other words, instead of an HR director needing to get on the phone to three different services on an issue, he or she is presented with one joined-up solution.
“We’ve just been instructed by a FTSE 100 company that has been blown away by what we can bring to the table,” Aherne reveals. “Previously it had to use three channels to get all the advice needed on global mobility, tax and law. Now it’s in one place.”
ABSs are also disrupting the market by embracing technology and innovation in a way that could be considered alien to many traditional law firms. Peppermint Technology’s What Clients Really Want from a Legal Service Provider report in 2013/14 found that more than half (51%) of law firms had no plans to introduce online legal services.
According to a 2015 report by the Solicitors Regulation Authority on innovation in legal services, ABS firms are 13% to 15% more likely to introduce new legal services, while 40% have put in place business procedures to support innovation and the development of new ideas. The report also found that innovation extends service range, improves quality, and attracts new clients.
Customers have access to interactive online HR resources, where they can download legally-compliant and up-to-date document precedents, such as employment contracts, policies or HR toolkits. Some firms provide legal updates or advice via blogs or social media channels and offer virtual consultations via Skype or Facetime.
Given that these new models put employer needs at the centre of their offer, why have so few in the HR community explored alternative employment law provision? Lawrence Tingey, head of HR at Gala Coral believes: “You don’t hear many people talking about it or read much about these services in the press.”
Aherne agrees there is a lack of familiarity with new employment law structures. However, he adds: “My sense is it’s going to expand. If the service works people will adopt it quickly. It’s all about making people’s lives easier and cheaper through a high-quality offer.”
One reason for this lack of familiarity could be, as an HR magazine feature in April 2014 explained, the fact that many of the early ABSs were not in the area of employment law and they have met with mixed success. Notably, the first supermarket company to jump in was not Tesco but rather The Co-operative Group, which received its licence in the first tranche in 2012. Other big names entering the market included KPMG, PwC, Saga and the AA. Private equity-backed company Paribas Group launched a personal injury firm Plexus Law, which it offloaded last year before the rest of the company lurched into a pre-pack administration in November 2015, followed by a series of business sales.
However, more recently employment lawyers have got in on the act. Research last year by the Solicitors Regulation Authority found employment law was the third most common area that ABSs are looking to work in, after litigation and personal injury. It appears their timing is fortuitous: a survey of HR magazine’s readers in autumn 2015 found 38% said they were planning to make a purchasing decision on employment law in the coming 12 months.
ESP Law managing director Peter Byrne believes that law firms have to adapt and react to the new legislation because customer behaviour is changing across the board, including in the HR profession.
“The purchasers of employment law services – namely HR and finance professionals in larger businesses – are changing in their thinking,” he says. “They want different service innovations; they want online tools and resources as part of a complementary and integrated mix of professional services, and not just a singular advice service.
“They don’t always want to pay an hourly rate, and if they do they certainly don’t want to be paying the prices top law firms are charging. Yet, in the main, this changing consumer need doesn’t fit in with the traditional law firm business model comfortably at all.”
EY’s Aherne agrees. “There is more flexibility in pricing than traditional firms. In our case the pricing is set by the team leader. It could be a price for the whole project or it could still be an hourly rate. We look at the whole project and work back into profitability.”
However, Louise Bloomfield, a partner in the employment and pensions group at DAC Beachcroft, says traditional law firms are reacting to the changes in the employment law provision market.
“I don’t agree that the hourly rate is dead,” she says. “However, we have to be more creative in the way we sell our services.”
DAC Beachcroft has introduced services ranging from fixed fee tribunal claims and manager helpline support to annual retainers, effectively buying legal services upfront.
“We become part of the HR team, offering on the spot advice,” says Bloomfield. “We work in partnership with clients, helping them to keep control over their legal spend while we benefit from a secure relationship with our clients. And our clients can rest assured they are getting legally privileged advice.”
Whichever service works best for you, there is no doubt that these new and emerging models in employment law provision put the HR director firmly in the driving seat. As HR Legal Service’s provider ESP Law says, they offer greater flexibility for HR departments.
“You may just use this new type of model for the operational day-to-day advisory needs, because it can save money and is better equipped to deliver that higher-volume requirement – leaving larger and more strategic ‘transactional work’ (such as large scale T&Cs changes across different countries, employment due diligence in a business purchase or sale) to the traditional incumbent law firm,” says Byrne.
“It may also sometimes be true that on a particularly sensitive matter having a ‘top city name’ undertaking the work is a pre-requisite for keeping the board – especially overseas boards – happy, although from a technical perspective a solicitor employed by an ABS may be more experienced and technically/commercially competent than their traditional law firm equivalent.”
And, as Aherne points out, the advent of ‘Tesco Law’ may actually prove a double-edged sword. If Sainsbury’s or Tesco did offer law services to the individual we could see more employees comfortable with seeking advice on employment law and more confident about taking on their employer.
What is without doubt is that HR personnel are no longer content with reading 20 pages outlining the different options while the law firm sits on the fence. As Bloomfield says, law firms that are not involved in practices that encapsulate some of the benefits of ABSs are behind the times. “We must innovate or die,” she says, starkly.
For HR directors these changes offer an opportunity to more efficiently run their employment law requirements, releasing them to concentrate their efforts – and potential cost savings – on areas of more strategic value.
“Why this service is now available is not important to me as a consumer,” says Keepmoat’s Lewis. “The fact is it now exists, I can tap into it quickly and I can keep control of my budget while working with a provider that speedily got to know my organisation, agenda and strategy.”
Surely that is what all HR directors want from their employment law provider? It could be the writing is on the wall for traditional law firms.