Deena Fryman doesn’t think her business will ever need a full-time attorney, so she hired part of one.
To be precise, she gets five hours of Plano, Texas, attorney Richard Armstrong’s time every month for her 20-employee business, Superior Striping Service Inc.
“It’s been perfect for us,” said Fryman, vice president of the Garland, Texas-based firm run by her and her husband. “It’s definitely a savings,” she said. “Plus, it’s so nice to know that you can just pick up the phone. It’s like he’s our own attorney.”
Armstrong said he came up with his “fractional general counsel” program to offer small businesses a way to handle occasional legal needs.
The “fractional” term borrows from the aviation world, where a number of companies sell customers part of a jet. Fractional jet companies let participants pay for the use of one-fourth of a jet or one-third of a jet, for example, plus maintenance fees and hourly costs for using the jet.
More Top Picks Prada Luna Rossa Black For Men
The idea of fractional professionals–top-level executives who work part time at smaller companies–is not new. It has been done for years in accounting, technology and human resources, among other fields.
Pay set fee
But it is a relatively new idea for lawyers–and some attorneys see potential pitfalls in the arrangement. The closest parallel is prepaid legal programs that offer a certain amount of legal help in exchange for a monthly fee.
Armstrong, who has operated his own law office since 1983, has signed up a handful of clients interested in having a fractional attorney.
They commit to using him a few hours a month–from two or three hours to as many as six hours–for a set fee.
In exchange, they can throw him any legal issue or problem that they want.
If they go over the maximum number of hours they have paid for, they pay his usual hourly rate, which is 20 percent to 30 percent higher than the fractional general counsel rate.
When should a company hire its own general counsel rather than rely on outside help? Legal experts say that each company is unique.
“That depends so much on the circumstances and the nature of the industry,” said Henry Hu, a University of Texas law professor.
“It also involves the trade-off in terms of the need for expensive expertise versus a kind of muddling through,” he said.
Even small companies may need their own general counsels if they are in heavily regulated industries, such as financial institutions, he said.
“There’s so much stuff that’s legal in nature,” he said.
By comparison, “if you’re in a lightly regulated industry, say some kind of industrial company that doesn’t pollute very much or only pollutes in states that don’t care, then, everything else held equal, you’re less likely to have in-house general counsel,” Hu said.
But the costs can often swing the decision toward hiring a staff attorney, he added.
“Outside law firms–even in today’s legal market–charge an awful lot,” Hu said. “It’s much cheaper to have your in-house people.”
Fees charged by lawyers can range widely, depending on the firm’s reputation, areas of expertise, eagerness to pick up an account and the general business climate.
Dallas attorney David Washburn, who has many small businesses as clients, says his rate is $350 an hour.
Some lawyers may charge as little as $150, he said, while others set their rates at more than $400 an hour–with discounts “widely given.”
Washburn said he can see little advantage to the fractional general counsel idea, particularly when it is offered by a small firm without a broad range of experts to call upon.
A large law firm can negotiate lower fees, set a ceiling on costs, offer broader expertise and keep a close eye on the issues and developments affecting a company–and do it better than single lawyers or small law firms, said Washburn, a partner in Arter & Hadden.
“It’s a twist,” he said of the fractional concept. “There’s nothing–to be quite honest–that unique about it. I do find it an interesting twist.”
And Southern Methodist University law professor Marc Steinberg warned that an outside attorney who takes on the role of a part-time general counsel could find the honor a double-edged sword.
On one hand, it’s nice to have the general counsel title to put on the attorney’s or law firm’s resume, he said.
“The downside is there may be additional legal obligations that go with the role `general counsel.’ The name `general counsel’ to some degree connotes the duty or obligation to monitor the client’s affairs,” he said.
Difficult decision
For a small business, the decision to hire legal help is often difficult, whether it is an outside counsel or an in-house attorney.
Most bridge the gap by retaining attorneys when they need them and avoiding them when they don’t.
More Top Picks Best Wearable Migraine Devices For Relief
Armstrong, who declined to state his hourly fees, says he has seen too many clients who did not seek out a lawyer until they had gotten into pretty deep water, with complications that could have been avoided if they had received legal advice much sooner.
In many cases, avoiding legal help is like avoiding medical help–the cure can be much more expensive and less effective if the patient delays too long.
“You can’t blame business- people for being afraid of attorneys because they’ve had a bad experience or two,” Armstrong said.
“What they do is what we all do when we don’t want to go to the dentist because of the pain–we ignore it and hope that it goes away.”
“Instead of going away, it gets worse,” he said.
“Like they say,” Armstrong said, “you can pay me now or pay me later.”
To some small businesses, the downside to signing up for a fractional general counsel may be that they face a legal bill every month.
But that also increases the predictability of the expense, something that can be built into the budget.
“I know what I’m going to spend every month,” said Murray Schwartz, owner of Chef’s Choice Fine Foods Inc. “I’ve got it allocated. It’s worked out perfectly.”
Hu said such a deal can also help an attorney, particularly in a down period for the law profession.
“It can be mutually beneficial by making the relationship less risky from both sides, and the two sharing in the lower risk,” he said. “From the point of view of the company, they get a lower rate. From the attorneys’ viewpoint, they can be assured they can pay the rent.”