The Economics of Big Law vs. Boutique Law

Big Firms practice Big Law on behalf of Big Corporations in their own special way.  Those of us who have left these firms to start smaller boutique practices know this only too well.  But for those who haven't had the experience, the flavor is conveyed by an excellent article at Slate.com by Jill Priluck, Leaving Big Law Behind: The many frustrations that cause well-paid lawyers to hang out their own shingles.     

The article accurately highlights some of the problems with the classic Big Firm business model, which generates big profits only by combining sky-high billing rates with a highly leveraged ratio of partner to associate billable hours.         

Certain clients, already spooked by the size of their legal bills, balk at being billed $1,000 an hour, especially when a partner is redoing the work of an associate who bills at half that rate (or more), but does not offer half the value.  Another reason partners want to move on is that Big Law makes big bucks—up to $1.3 million per year for a sixth-year associate who bills $650 an hour at one firm that shall remain nameless—on the inexperience of young lawyers. "Some make a point of objecting to junior associates on the bill," said Joshua Stein, a former real estate partner at Latham & Watkins who left last month to start his own practice. "In the context of [my practice], those issues won't exist and, so far, what I've seen is that it's appealing to clients."

The surprising thing is that so many institutional clients are willing to stick with the traditional model.  

Seemingly Neutral "Rounding" Rules May Systematically Shortchange Workers

Many companies use time keeping systems (such as the market-leading Kronos software) that "round" employee time entries to the nearest quarter-hour.  For example, if an employee clocks in at 8:53 a.m., the system will credit him as starting work at 9:00 a.m.  On the other hand, if he had started work at 8:52 a.m., the system will typically round the other direction giving him credit as having started work at 8:45 a.m.

Most employers assume that the rounding works in both directions and will just average out over time.  But when other workplace rules are in effect, the rounding can be systematically skewed.  

For example, employers who follow rigid scheduling regimes often set their timekeeping software so that employees are "locked out" and cannot clock in more than seven minutes before their scheduled start time.  This ensures that the rounding will inevitably operate in one direction only.  This effect may be further compounded by policies requiring employees to arrive at work at least ten minutes before their shift begins.      

These minutes can add up, especially as they will often be compensable at time-and-a-half overtime rates when added back into the total hours worked.  By losing just seven minutes per day to rounding a full time worker could be owed nearly 30 hours of overtime by the end of the year.  Over a four-year statute of limitations this is nearly a month of uncompensated work.

The bottom line is that workers and employers should pay close attention to these small timekeeping details, which are too often ignored on the theory that they involve only negligible amounts of time.        

Ninth Circuit Defines Limits of Labor Law Antitrust Exemption -- State of California v. Safeway, Inc.

Unions exist for the purpose of aggregating individual employees into a united front in order to bargain collectively for higher wages.  This is a classic price-fixing agreement which would generally be illegal under the Sherman Act.  Indeed, the only reason collective bargaining can exist is because unions were (for the most part) explicitly exempted from the anti-trust rules during the New Deal.

Congress has never enacted such an explicit statutory antitrust exemption for employers.  Nevertheless, the Supreme Court has found that such a parallel exemption is implicit in the collective bargaining regime established by the National Labor Relations Act.  In State of California v.  Safeway, Inc., however, the Ninth Circuit has now clarified that this implicit employer exemption has a fairly limited scope.  

The case arose out of the bitter 2003-2004 Southern California grocery workers strike against Safeway, Albertson's, and Ralph's/Kroger.  In order to prevent the UFCW from employing a "divide and conquer" bargaining strategy, the employers not only agreed to bargain as a group, but also to "share profits" during the strike.  The Ninth Circuit held, however, that such a "profit sharing" arrangement stretched the NLRA's antitrust exemption too far. 

In reaching this result, the Court held that the implied anti-trust exemption for employers only extends to agreements "needed to make the collective-bargaining process work."  Thus, agreements among employers that directly pertain to the "bargaining process," such as coordinating their bargaining positions and implementing these offers in the event of impasse, are immunized from anti-trust scrutiny.  But agreements to split profits, allocate market shares, or engage in other conduct that is not directly related to bargaining itself will fall outside the exemption. 

 

Discriminatory "Stray Remarks" May Defeat Summary Judgment -- Reid v. Google

In age discrimination cases, plaintiffs frequently support their claims with evidence of comments by managers such as "you can't teach an old dog new tricks,"  that the company needs "young blood," or referring to some employees as "old timers."  When comments like these are made by those who not involved in the termination decision, or in a context unrelated to the decision, courts have tended to brand them as mere "stray remarks" which are not evidence of discrimination.

In Reid v. Google, Inc., the California Supreme Court held that such "stray remarks" cannot be "categorically" dismissed from consideration, however.   Instead, the Court explained that while such remarks may not be persuasive by themselves, they can tip the scale when combined with other evidence.  Thus when deciding whether to grant or deny summary judgment Courts must analyze the "totality of circumstances." 

In reality, this may not be much of a change in the law as courts were always really applying the "stray remarks" doctrine on a case-by-case, fact-specific basis anyway.  But the lesson for employers is to make all reasonable efforts expunge "politically incorrect" references from official communications.                 

Employers May be Liable for Honoring An Unenforceable Noncompete Agreement With Prior Employer -- Silguero v. Creteguard, Inc.

California takes a dim view of employee non-competion agreements, which are generally unenforceable and against public policy under Business and Professions Code sec. 16600.  Nevertheless, employers (and especially out-of-state employers) persist in including them in employment contracts under the theory that "it can't hurt" to have them as a deterrent and a potential source of leverage. 

When an employee leaves for a competitor these former employers will often send a sternly worded "cease and desist" letter to the new employer.  It has been widely accepted that this type of letter can carry certain risks for the old employer, such as a claim for intentional interference with contract.  But the recent Second District Court of Appeal decision in Silguero v. Creteguard illustrates that the new employer is also exposed to liability if it responds to the threat by terminating the employee.

The Silguero court began with the substantial body of case law holding that, in California, "the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers."  Based on this strong public policy the Court determined that any explicit no-hire agreement between the two companies would have been illegal and unenforceable.  The Court further concluded that terminating Silguero "out of respect for" the non-compete agreement with his prior employer was merely achieving the same result in an indirect manner.  As a result, the Court found that if Silguero could prove his allegations, his new employer would be liable for the common law tort of Wrongful Termination in Violation of Public Policy.

The bottom line is that employers should not automatically terminate a new employee merely because he has executed a (presumably unenforceable) non-compete agreement.