`Offshoring' May Come, But Growth Slow for Legal Work

by David Ferrara

Karen Mason isn't nervous. She doesn't think she or other paralegals are going to lose their jobs if law firms or
corporate legal departments start to outsource administrative tasks or basic legal work overseas, she said. People are talking about the possibility of some work going overseas, but she has not seen it happening, said Mason, a paralegal at Neal, Gerber & Eisenberg who is president of the Illinois Paralegal Association. The work that could be shipped offshore is basic and routine -- proofreading and narrow research, for instance -- and could be performed by almost any educated person with a grasp of the English language.

Paralegals have a solid knowledge of the law and are up to more intellectual projects, Mason said. ``Frequently people are afraid they're going to lose their jobs,'' she said. ``Then they find that they're able to do more challenging work, while the mundane is handed down to someone else. So if they're not doing one project, they're doing another and still functioning as part of the legal team.'' Others in the legal community said they saw the potential of foreign outsourcing for cutting costs and possibly costing jobs in the United States. ``This is one more step on the way to a global workplace,'' said Joel Henning, senior vice president and general counsel of the consulting firm Hildebrandt International.

``It means lawyers in the U.S. will be able to focus on the higher value of the work. But if you're a clerical worker or paralegal, it could mean there'll be fewer jobs as this movement catches on.'' International outsourcing -- also called ``offshoring'' -- shifts professional work to foreign providers to save labor costs. International outsourcing has created a stir among the technology, manufacturing and accounting industries for years, but few legal jobs have been part of that shift, as concerns over confidentiality, quality of legal work and disclosure to clients have not been fully addressed. But it's time to take heed, said attorneys, law professors and consultants. They see a
rising interest in international outsourcing. The benefits of cheaper labor may start to outweigh the controversy and concern about potential job loss.

Mike Wojcik, director of global legal studies at The John Marshall Law School, has added international outsourcing topics to a class he teaches on international trade law. ``I want them to be aware of it,'' Wojcik said. ``It's likely something they'll encounter when they're in practice.''

Hurdles remain
It can be nearly impossible for firms or companies to supervise legal work performed halfway around the world, Wojcik said. Confidentiality becomes a concern because the work has the potential to pass through so many hands. He also questioned whether firms would be obligated to tell clients that work had been outsourced. ``It's the client's legal work, the client's life, and when they entrust you with it, they think that they're hiring you,'' Wojcik said. ``But if it's a routine matter that the client recognizes can be done cheaply somewhere else and agrees, it would be an interesting application of technology.'' No matter the client's decision, an attorney who outsources any work is ultimately responsible for the final product, said Thomas P. McGarry, a partner in Hinshaw & Culbertson who represents lawyers in professional ethics and risk management. ``The first question is whether the application involves the knowledge of a lawyer or legal advice,'' McGarry said. Rule 1.6 of the Rules of Professional Conduct requires attorneys to obtain a client's consent.

The second concern is maintaining client confidences. ``If you're going to be taking that kind of a risk with confidential information, get clearance from the client and consider the enhanced risk,'' he said. As long as an attorney does not delegate legal work to a non-lawyer, outsourcing research is not restricted, McGarry said, citing Rule 1.1 of the Rules of Professional Conduct. James Grogan, the chief counsel for the state Attorney Registration and Disciplinary Commission, noted that Rule 5.3 requires lawyers or firms to ensure that nonlawyers working on any matter are competent and do not violate any professional rules.

Jobs v. Costs
In 2000, Ganesh Natarajan and George B. Hefferan left their partnerships at McGuireWoods to found Mindcrest Inc., a Chicago-based outsourcing company. At the firm, Natarajan and Hefferan had concentrated on international transactions. The two used their experience with legal work in India, said Hefferan, who noted that
Natarajan also is a native of India. ``Naturally, it occurred to us that tapping the talented labor pool in India for law-related support services made a lot of sense,'' Hefferan said.

Mindcrest now employs about 15 people, including Hefferan, Natarajan and a technology expert in California. Most of the employees are lawyers in Mumbai (formerly Bombay), where they perform legal research at a rate significantly lower than what the work would cost in the United States. The company reviews and processes routine but often complex work. Mindcrest is expanding its services as more companies, many of them on the Fortune 500 list, and law firms nationwide jump on board, Hefferan said.``We view what we do as allowing a company to better utilize the people it has,'' Hefferan said. He declined to name any of the company's clients, the number of clients that use Mindcrest’s services or the company's rates.``A lot of the processing work is basically administrative work,'' Hefferan said. ``So once a person becomes familiar with the rules in the process, it becomes a pretty repetitive task.''

Mindcrest offers a confidentiality agreement for its clients, Hefferan said. ``Because the people in India are our employees, we're very comfortable entering into an agreement,'' Hefferan said. ``I quite frankly don't see the difference between this scenario and entering into a confidentiality agreement with any service provider.'' Steven W. Lundberg, a partner in the Minneapolis, Minn.-based intellectual property firm Schwegman, Lundberg, Woessner & Kluth, got the idea for outsourcing some of his firm's legal work two years ago. He had worked with a software vendor who told him about the cost-cutting opportunities. Lundberg looked to India when the firm wanted someone to proofread patent documents. ``People with high skills didn't want to do it because it was so monotonous,'' Lundberg said.

The 60-lawyer firm has hired about 15 proofreaders, paralegals and patent researchers in New Delhi and Bangalore, he said. The same software vendor through which Lundberg discovered outsourcing helped
him find the firm's first Indian employees, he said. The firm later began to hire help in India on its own, he said.
The toughest obstacle, Lundberg said, was determining whether the potential workers had compiled honest resumes.``You have to be careful about scrutinizing your hires,'' Lundberg said. ``But once you get a good person over there, they're very, very good.'' The firm double checks all the final work, too. ``We found that their quality is pretty high,'' Lundberg said, adding that the law firm invested further in India-based work as it saved more money over time. No job cuts have been made, but the firm has about four fewer paralegals that it would need if it did not use the Indian labor, he said. The firm also has hired engineers in India who help the paralegals in the United States perform legal research on patents. International outsourcing can benefit patent firms more than general practice firms, Lundberg said. Patents usually become public records, eliminating some concerns about confidentiality. The firm has stripped documents of confidential information when necessary before sending them to India, he said.

The firm pays about $8,000 for a proofreader in India, as opposed to paying an American paralegal about $40,000 to do the same work. Total costs to hire, train and pay a patent engineer for a year range between $30,000 and $40,000 in India, compared with between $70,000 and $80,000 in the United States, Lundberg said.
Despite the increase in legal work being sent abroad, Lundberg does not see workers in foreign countries making much headway on the U.S. legal market. Production is slowed because of the language barrier, and the law here is so complex that the workers have to be trained from scratch, making the economics unattractive. ``There's a furor over this right now, but I don't think it's going as far as people think,'' Lundberg said. ``It's much harder to do than people might imagine. -- You're working awful hard to save the $40,000.'' Henning agrees. The clerical workers and paralegals that Henning said could lose their jobs because of outsourcing also could see the trend push them into a more significant position.

``The political debate about outsourcing is grossly distorted and simplified,'' Henning said. ``There are many people arguing that there will be more jobs gained than lost. If paralegals don't have to be doing mindless work like scanning documents, they can be doing sophisticated work more central to litigation management.''
©2004 by Law Bulletin Publishing Company.