Malcolm ZoppiSun Oct 15 2023

When Should I Hire an In-House Lawyer? A Cost-Benefit Analysis

Make a Data-Informed Decision As To Whether You Should Stay With Your Law Firm Or Hire In-House.

The Age-Old Question for Businesses

In the modern world, businesses have the option of choosing between an in-house legal lawyer or general counsel, which is one or a few lawyers employed by the businesses who possess a level of expertise in corporate and commercial law, or by engaging an external private law firm.

By understanding both the legal landscape and the business goals of their employer, an in-house legal function can provide insightful and cost-effective recommendations to the rest of the business.

Some of the reasons why you may be reading this blog may include

  • You want to decrease legal costs;
  • You are experiencing head-aching employment-related issues with managing staff;
  • You do not want to spend so much time on reviewing and negotiating painstaking contracts;
  • You want to minimise bad debts and ensure timely payments are made; and
  • You may need help with continuous compliance issues, such as with data protection laws.  

In this article, we analyse the two main options for business: external law firms and in-house lawyers. We then also provide valuable information as to the third, less-know option: outsourcing legal needs to a firm of outsourced ‘in-house’ lawyers.

What is an outsourced in-house legal team?

An outsourced ‘in-house’ legal team is a team of lawyers whose hourly costs are similar to an in-house employee, follow your organisation’s structure and adapt to it, but are nonetheless separate from your business as they are employed by an external company.

Cost-Benefit Analysis

There are three main factors to consider when attempting to decide the type of serivces required: time, money, and risk.

Time

External Law Firm

External law firms (a private practice) could view your business as one of many. Hence, waiting times for replies, legal advice and turnaround of work may be higher. Your task will be added to the applicable to-do list and tackled when other tasks are completed.

On the other hand, an external law firm will have multiple lawyers as part of its staff, who will be able to produce the required work depending on their expertise. This may prove to be more efficient in meeting deadlines.

In-House Lawyer

An in-house lawyer (or in-house general counsel) is employed by the client and is a member of staff. They are often also considered a part of the senior management team. For this, the employer can dictate which are the priorities and what needs to be done and in which order. This affords the client (or employer) greater levels of control and may prove to be more time-efficient than traditional law firms.

On the other hand, an in-house lawyer may be less familiar with different areas of law, which would lead to time inefficiencies and possible issues with the work produced for the client’s company. Additionally, they will need to juggle many responsibilities, which may lead to delays.

Outsourced ‘In-House’ Legal Team

An outsourced ‘in-house’ legal team will prioritise the work of the client as if it was directly delegated by their manager. For example, GZ Legal creates questionnaires that any member of the client’s business can use to submit ‘legal tickets’ (legal requests) which are immediately tackled by the most suitable member of the team. Further, due to there being a team of outsourced lawyers, the same benefits of a law firm’s specialist efficiency apply: immediate access to a full legal department.

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On the other hand, it may be harder to arrange a group meeting when it comes to outsourced in-house lawyers as they are trained to spend their time tackling legal issues continuously.

Money

External Law Firm

Private solicitors charge upwards of £300 an hour, and possibly more from a business that needs the assistance of a lawyer with certain expertise. This would equal to £585K per year if the private solicitor’s firm is engaged for the equivalent amount of hours of a full-time employee.

In-House Lawyer

Bringing in an in-house legal counsel with a level of commercial expertise can set a business back around £62 per hour, totalling £120k in the first year (calculated using the ‘real costs’ of hiring an employee). However, they prove their worth as time goes by. Though an in-house legal counsel will need to be paid a salary and given company benefits, national insurance contributions and pension contributions, it will undoubtedly be a cheaper option long term compared to external law firms, particularly when it comes to the responsibilities accepted and the hours spent.

Further, the client will need to continue spending money on training the in-house general counsel to ensure the service quality is maintained.

Outsourced ‘In-House’ Legal Team

GZ Legal’s services are based on the low hourly rate of £59 (at the time of writing) when making use of the outsourced ‘in-house’ legal team service. We offer flexible plans that are flexible and bespoke to your requirements. You will have the same advantages of engaging a law firm in regards to the lack of an employment status, whilst paying less per hour compared to an in-house employee.

Risks

External Law Firm

The external law firm will have access to a wide variety of lawyers, as would a legal department, who each specialise in different areas of law or a specific industry. This enables the lawyers to provide specialist advice on areas of law with which they are very familiar.

Additionally, law firms tend to all have professional indemnity insurance. This can be used by a client to claim the losses/damages suffered from negligent advice.

In-House Lawyer

In-house lawyers are in a unique position to advise on all three fronts: business, legal, and financial. They have a deep understanding of the business and its operations and can offer creative solutions to legal problems. An in-house counsel often have a better understanding of the company’s financial situation and can provide cost-saving recommendations accordingly. They can also help businesses manage and mitigate legal risks.

On the other hand, by not having a wide variety of legal minds available, the client will be reliant on one main lawyer. Usually, lawyers tend to specialise in different areas of law, which may limit their knowledge of other areas, laws and regulations.

Additionally, it is quite uncommon and difficult for an employer to seek indemnities (seek compensation) from an employee. This means that the ultimate risk for negligent work lies with the employer.

Outsourced ‘In-House’ Legal Team

The level of ‘insider knowledge’ of outsourced ‘in-house’ legal teams is similar to a full-time in-house counsel. To increase familiarity with a client’s business, improve the client-lawyer relationship and have better insights into the client’s business, GZ Legal allocates one to two dedicated GZ Lawyers to each client. By having a maximum of one to two dedicated GZ Lawyers, the relevant lawyer will have a full understanding of all the client’s needs and goals, therefore improving the quality of the service. This will be complimented alongside our continuous training of our professionals.

Further, the dedicated senior GZ Lawyer will have access to a team of colleagues who are each specialised in one or more areas of law. Moreover, GZ Legal holds professional indemnity insurance, which minimises the client’s risks.

On the other hand, by being outsourced, the lawyers will not be able to develop relationships with the client’s staff as well as a full-time in-house counsel, attending the office, would.

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Further considerations

Foreseeing Issues

When businesses can solve problems before they arise, they can save time and money that would otherwise be spent on litigation. Contrarily, a private lawyer from an external law firm may need more time to understand the issues faced by the organisation hiring them as they will have access to less data, and may not have the same understanding of the clients as their corporate lawyer would.

By keeping up to date on changes in the law and providing proactive advice, your in-house counsel can help businesses avoid costly mistakes and litigation. As businesses grow, the importance of an in-house legal team will only increase. Investing in an in-house legal team is an investment in the future of your business.

Technology in law

In the new technology and data-based era, solicitors from external legal firms may possess more insights on intellectual property and data protection which are useful in ehancing the services for the client’s company. GZ Legal uses technology to increase efficiency across the company.

Motivation

An in-house counsel would also have a vested interest in the success of the business, which motivates them to work hard and find creative solutions to legal problems. In the business sector, this motivation to assist the office and dedication can go a long way and can save businesses a lot of time, as well as provide them with a level of protection.

The client may also have wider data on the efficiency of their in-house general counsel compared to external law firms. To combat this, GZ Legal provides in-depth and modern reports that break down the time spent.

Flexibility of plans

External law firms may have retainers in place, but these can be exited as per usual contract laws. An In-house counsel is an employee, hence lengthy and complex processes need to be undertaken before an employee may be laid off. GZ Legal’s outsourced ‘in-house’ legal team offers flexible and cost-proportionate contracts.

Flexibility of plans

External law firms may have retainers in place, but these can be exited as per usual contract laws. An In-house counsel is an employee, hence lengthy and complex processes need to be undertaken before an employee may be laid off. GZ Legal’s outsourced ‘in-house’ legal team offers flexible and cost-proportionate contracts.

Which is the better option for your business?

It’s all preference, but to an extent

The decision of whether to use an external law firm, have an in-house lawyers, or outsource legal services is ultimately a decision that depends on the specific needs of the business. All three options have their own unique advantages and disadvantages that must be considered before making a decision.

External law firms can be expensive and time-consuming to work with, but they may have more expertise in certain areas than an in-house legal team would. In-house legal teams are familiar with the business and its operations, which can save time and money in the long run. Outsourced ‘in-house’ lawyers offer the same benefits as an in-house legal team, but may not have the same level of familiarity with the business.

Want to test out our outsourced ‘in-house’ legal team offering?

Contact us today for a free discovery call to explore what we can do for you.

Disclaimer: This document has been prepared for informational purposes only and should not be construed as legal or financial advice. You should always seek independent professional advice and not rely on the content of this document as every individual circumstance is unique. Additionally, this document is not intended to prejudge the legal, financial or tax position of any person.

Comprehensive provider

Get the specialist support you need

Whether you require specialised knowledge for your business or personal affairs, Gaffney Zoppi can support you.