Becoming a virtual firm: challenges and opportunities

Since the start of the coronavirus (COVID-19) pandemic, most law firms have had to adopt a remote working model.

All firms have faced challenges in that process, but most seem to have quickly overcome them.

According to recent research, nearly 70% of businesses in the UK were able to switch to remote working within a week, and over 30% of businesses had seen an improvement in productivity.

Many law firm leaders may think the next step is to become a fully virtual or dispersed firm.

(I use ‘virtual’ to describe the business model, but some people prefer ‘dispersed’, so you'll see both if you decide to research the field.)

My firm, to the best of my knowledge, was the first virtual law firm anywhere in the world, and we didn’t miss a beat when lockdown arrived.

We’ve worked like this for over 30 years now, and have learnt a lot from our successes and failures, so I hope I can help you to think about the various options and issues if you’re planning to make a change.

In this article, I look at three options.

1. Keep your firm’s structure but make remote working permanent
2. Set up a virtual/dispersed firm
3. Join an existing virtual firm

1. Keep your firm’s structure but make remote working permanent

If your firm has been working remotely during the pandemic, you may feel that carrying on in this way, but getting rid of the office, with its attendant overheads, has the virtue of simplicity.

And simplicity is attractive when you’re having to make changes in hard times, while still providing a service to clients.

However, even if remote working has been going well, with everyone rising to the occasion, you’ll need to consider the following if you decide to make the change permanent.

Your obligations to employees

Your obligations as an employer, including health and safety obligations, will have to cover the places and circumstances in which your employees are working.

You'll have to:

• fund their equipment or compensate them for using their own
• contribute towards their extra expenses of working from hom
• make arrangements for staff who cannot reasonably be expected to work from home, perhaps because they would not be able to have a securely private place to work

Seeing clients

You'll need to work out how clients can be seen (maybe make an arrangement with a local firm with spare interview space) and how you maintain your presence in your locality without an office (perhaps by increased local advertising).

Office hours

You'll need to decide to what extent your employees will set their own hours.

Does it matter if they are not always available during office hours, so long as the work gets done? How do you ensure good and timely communication within the firm?

How do you monitor and enforce any billable hour targets?

Revising your office manual

You'll need to go through every item in your office manual and revise any that will not be suitable in this new way of working – for instance:

• dealing with post and messages
• maintaining an accurate court and deadline diary
• file opening and reviews
• accounts, billing and disbursements
• supervision
• meetings
• cybersecurity (with people using their own computers at home)
• compliance with sector-specific and other regulatory requirements
• handling complaints
• recruitment, promotion and probationary periods
• managing trainees
• monitoring compliance with all the firm’s policies

All these tasks are do-able, but you may conclude that the financial benefits of getting rid of the office do not compensate for the additional costs and complications of permanent remote working, and it would be best to go to a more typical virtual way of working.

2. Set up a virtual firm

The traditional features of a virtual firm are that its fee-earners are self-employed consultants, and the firm does not provide them with office space.

There are now quite a few firms like this, each with different ways of working, but I can only speak of my firm.

You may want to look at the websites and publicity materials of other such firms to get a broad idea of how they work.

What you need to know about self-employment

Although self-employment is a well understood concept, it’s not very precisely defined, so it can be easy to make mistakes, and very expensive if HM Revenue and Customs (HMRC) decides that your staff, who you thought were self-employed, are really still employees.

In my firm, the consultants:

• are not guaranteed work
• are free to turn down work
• have to take business risks (if they forget to get money on account and the client defaults on payment, they have to take the hit)
• get paid once the money comes in
• are free to work for others, including competitors, so long as any risk of conflict is managed properly

This is not a blueprint, just an example, and I am not giving legal advice!

It’s important that consultants can work without day-to-day supervision (which HMRC considers incompatible with self-employed status), so in my firm, we only offer consultancy to experienced lawyers.

We're careful that our supervision is in the form of monitoring compliance with professional standards, rather than telling consultants how to run a case.

We do this through file reviews in accordance with our Lexcel and Solicitors Regulation Authority (SRA) obligations, and unit meetings where cases and changes in the law are discussed.

The fact that our consultants must be self-employed does not mean that people needing day-to-day supervision, whether fee-earners or support staff, cannot be part of the firm; they can be employed by consultants, who make their own decisions about the support that they need, and who take responsibility for ensuring that their staff comply with the firm’s requirements and standards.

The main benefit to the firm of self-employed consultants as opposed to employees is that business overheads are hugely reduced.

Not only do we not have to provide office space for all the consultants and support staff, but we also do not have all the cashflow difficulties caused by paying employees while waiting to be paid for the work they do.

Also, we are not responsible for their working conditions, and we can accept new consultants based on their skills and abilities, rather than on our capacity to take on new employees, and give them enough work to cover their remuneration and share of overheads.

The benefits to the fee-earners of this way of working include the following:

• they should get paid better, as less of the fee income has to go on overheads; in my firm, consultants receive 70% of what they bring in, which means our legal aid lawyers get well above the industry norm, and our privately paid lawyers can comfortably undercut competitors on price and still make a good living. In practical terms, this means that for every £100,000 of fees billed, consultants keep £70,000
• they have the freedom to work when and where they like
• they don’t have to commute to and from work
• they can employ staff without setting up their own firm
• they are free to develop their careers and follow their interests
• their only admin relates to their own cases, and they are not expected to engage in the admin or management of the firm (no more meetings!)

The downside is that they get no paid holiday or sick pay, and do not have the security of a salary.

However, in a time of crisis, as at present, this security probably seems a little fragile, and perhaps the benefits of self-employed consultancy may be a little more attractive, particularly as the consultant has more control over their caseload and the work they choose to do.

Of course, this would be a major change for your fee-earners, so buy-in from them is crucial.

You need to analyse the risks and benefits for your staff in your firm, so that they can make informed decisions. A really well thought-through and evidence-based business plan, with lots of input from, and communication with, staff, will be crucial.

You also need to think about what services you'll provide for your staff (bearing in mind the need to protect their self-employed status), and how you'll ensure that your firm remains compliant with its regulatory and other obligations.

Different firms take different approaches, and all are equally valid, as long as the SRA and HMRC are satisfied with them

In my firm, we:

• settle consultancy invoices promptly
• facilitate joint working and internal referrals
• assist with billing
• monitor client satisfaction through feedback
• deal with complaints
• provide access to specialist online legal resources
• provide professional indemnity insurance
• promote the firm and those who work in it through our website
• help new consultants develop ways of generating work
• have work units to foster collegiality and information sharing, and provide updates on best practice

We give everyone who joins access to our excellent IT and case management systems.

Our cloud-based case management system is very secure and can be accessed from any computer anywhere, and files can be monitored remotely, as everything has to go on the system. We also provide IT support.

We also provide a regularly updated office manual which sets out what consultants need to do to remain compliant with their regulatory and professional obligations, as well as setting out the firm’s processes and standards.

We also keep them up to date with information relating to their practice and their business – for instance, we have made sure that we provided them with all updates from the Law Society and our accountants on issues arising from the pandemic.

Of course, in a traditional firm, many existing formal and informal systems will adapt quite easily to virtual practice, so you don’t need to start from scratch.

Asking staff to identify and tweak existing processes may be an excellent way of getting buy-in, as well as helping formulate the business plan.

And, of course, converting to virtual does not require closing and re-opening the business or client cases (although you should let the SRA and your insurers know what you are doing), so you can provide continuity for clients, as well as staff.

My description of what we do in my firm is not intended to be a suggestion of what you should do, merely a checklist of what you need to consider and decide, to maximise your prospects of success, keep everyone happy, and sleep well at night.

3. The ready-made option: join an existing virtual firm

If going through all this seems too daunting at a time when you are trying to survive the pandemic and all the attendant difficulties, you might want to consider bringing your whole firm, or those members of it who are keen, into an existing virtual firm.

This is just an extension of the possibility, outlined above, of consultants being able to employ their own staff, including fee-earners.

The way this works at my firm is that the firm that wants to join closes down and pays the run-off cover (so we will not be a successor practice).

The members of the firm join us as either consultants or employees of consultants, which allows existing teams and relationships to be preserved and developed in a new setting. Because the firm and its staff move as a whole, clients also get continuity of service, and the firm gets continuity of work coming in.

Of course, our processes, standards and requirements apply, but to the extent that those of the old firm do not conflict with them, there is no reason why they could not have a place in the working of what will be, in effect, an self-sufficient practice within our practice.

Good luck, whichever option you choose.