Hello everyone and welcome to 2023! Here we are well into year nine of the “Ten Things” blog. I checked recently and see that there are over 12,000 followers of the blog. Holy #$^%! I never in my wildest dreams imagined that would happen. So, thank you all for reading and sharing my posts. I truly appreciate it. And, as we start a new year, many of you know that my first post of the year is typically a list of issues I believe in-house lawyers should pay attention to over the coming 12 months. This is something I started doing when I first became a general counsel way back when and something I kept doing over the course of my in-house career. I still do it now as CEO of the Hilgers Graben law firm. In short, I spend time thinking about developments, trends, issues that may have a material impact on the legal department/business over the course of the new year. It starts with simply gathering information. As general counsel, that meant speaking with in-house lawyers and outside counsel, reading newspapers, blogs, industry reports, attending conferences, sitting in on meetings within the business, asking business leaders at the company, asking my team what they were seeing, and just generally paying attention to what was going on around me (see Ten Things In-House Lawyers Should Read Every Day). If you didn’t know already, information is gold to in-house lawyers, the currency of the realm. Stock up when you can! Once I spotted a potential issue, I looked at it from multiple angles and asked this question: How might this affect the company and the legal department? Answering this question meant I had to understand the company’s goals and strategy so I could spot and manage risks (see Ten Things – Spotting, Managing, and Reporting Risk) and I had to be a strategic thinker, looking beyond just the legal issues that might be at stake (see Ten Things – The Strategic In-House Lawyer). From there, I made a list of the most critical issues and worked them into the goals and activities of the legal department.
To assist me with this process, I created checklists to help quickly analyze the potential risk and strategic implications of the items on my list. Here is a version of one checklist, and it’s a helpful filter when you look at things coming across your desk day in and day out:
- Is this something that can create or destroy value?
- How does this fit into my company’s strategic goals?
- Could this be a game-changer and how so?
- Is this something a regulator might care about/criminal?
- Who is impacted by this: company, competitors, vendors, customers?
- What happens if I apply game theory to this?
- What is the regulatory regime around this?
- How can we create a competitive advantage from this?
- Have others had problems or success with this before/lessons already learned?
How you answer these questions tells you a lot about the issue you are analyzing and whether it matters or not. You do not need a checklist, but it’s a tool that can help you quickly sort through a lot of information quickly. You could also use an Eisenhower Matrix (2×2) to plot issues, focusing on the ones in the upper right quadrant. It’s really all about providing a consistent framework to consider whatever is in front of you. All right, enough yapping and background. Time to get on with another year of Ten Things You Need to Know as In-House Counsel. Here is my list of critical issues in-house lawyers should pay attention to and plan against for 2023:
1. The Attorney-Client privilege. There are few tools more valuable to in-house lawyers than the attorney-client privilege. Yet, and to quote my grandfather from the days when I would “help” him around the house, “You’re doing it wrong, goddamit!” That encouraging nugget of Nebraska grandfatherly love aside, it is a fact that most in-house lawyers do not truly understand how the privilege works, fail to educate the business on how it works/how to use it, and squander opportunities to harden the silo around it by being lazy. So, yeah, you’re doing it wrong – myself often included. To add to the fun, the privilege is under attack from many sides, but especially when courts are reviewing work product of in-house lawyers, often finding some type of overarching “business purpose” to the communication and overruling claims of privilege. Unfortunately, the U.S. Supreme Court recently passed on an opportunity to clarify the law around attorney-client privilege in the context of dual communications, i.e., a mix of privileged and non-privileged advice from counsel leaving a set of different standards in place. Regardless, here is what all in-house legal departments should commit to in 2023:
- Ensuring each lawyer in the department understands how the privilege works, e.g., a lawyer’s notes are not privileged unless they are communicated to a client or they are litigation-related work product. This requires that the department know the law in each applicable state, federal circuit, or country where it operates.
- Teaching the business what is and is not an attorney-client communication and how to properly ask for legal advice.
- Properly labeling emails, documents, and attachments as privileged so it is clear to the reader that the document (arguably) contains privileged communications.
- Learning to separate legal advice from business advice in communications, e.g., different sections, an appendix, etc. Anything that makes it easier for a court to allow you to redact or otherwise protect communications truly protected by the attorney-client privilege.
2. Non-Competes. Non-compete agreements are now Public Enemy No. 1 according to the FTC and it has recently proposed a rule to ban them. Since most businesses use non-competes as part of a group of documents designed to protect trade secrets and confidential information, this is a development that in-house lawyers should be watching closely. To start, I think non-competes should be in place with key employees who have access to certain highly confidential and proprietary information. I believe they should be reasonable in scope and duration (see Ten Things – Drafting an Enforceable Non-Compete Agreement). That said, I struggle to see why companies push non-competes on front-line retail and food workers or other employees whose access to critical information is limited. Looking ahead, a few things jump out at me for 2023. First, it’s highly debatable whether the FTC has the authority to ban all non-competes. Historically, the law around non-competes arises from the states. I think the FTC effort is likely to fail (and if it doesn’t, what does this mean for virtually all of the U.S. Government contractor agreements that contain non-competes – and it’s a shitload). That said, the FTC may be able to make life difficult for companies using them regardless. Likewise, States Attorneys General can get in on the fun and many states do, in fact, limit or ban the use of non-compete agreements to some extent (and more are considering some type of legislation). What this means for in-house lawyers is the following:
- Determine the smallest group of employees the company truly needs to cover with non-competes.
- Ensure that your non-compete agreements follow the applicable state law and are reasonable in scope and duration, i.e., do not rely on cookie-cutter agreements to blanket the work force.
- Work with the HR department to update all employee agreements and policies regarding protecting trade secrets, IP, inventions, and confidentiality. In the event your non-compete does fail (or the FTC wins what is sure to be a lengthy court battle), you will need to fall back on non-solicitation agreements, confidentiality agreements, and so on.
- Bone up on state and federal trade secret protections, e.g., the federal Defend Trade Secrets Act and ensure the company is taking the steps necessary to fall under the protections offered.
- See that there is a rigorous exit process in place so that when employees leave, company documents and information do not go out the door, there are reminders about contractual obligations, and access to company systems is immediately terminated.
3. Ukraine. I have some pretty strong feelings about Russia’s attack on the Ukraine but since I try really hard to make the “Ten Things” blog politically agnostic, I will keep them to myself. I would just say to Mr. Putin that what I am thinking rhymes with “war criminal.” That was neutral, right? Regardless of your feelings, if you are an in-house lawyer you must think about the situation in Ukraine and understand that it is likely impacting (or will impact) your company in 2023. As of today, there is no endgame in sight and things continue to escalate. These are the core impacts I see:
- Sanctions compliance (more than 30 countries have sanctions in place).
- Supply chain disruption, especially on food (and the implications of that).
- Inflation driving by the economic impact of the war.
- Stock market impact.
- Safety of operations and persons in the affected areas.
- Relations with Russian allies, like China and Iran.
- Relations with countries that claim neutrality, like India.
- Impact on businesses that make weapons.
- Political disruption (in the USA, in Russia, in EU, elsewhere).
- There are more and, of course, but it is impossible in my opinion to sit back and think that the situation in the Ukraine is something far away and not of importance to companies and legal departments around the world. It is.
4. Practical artificial intelligence. A few years back, I wrote about the potential impact of artificial intelligence on in-house legal departments. I think it is safe to say the impact to date is fairly limited. That is finally changing and 2023 may be the tipping point. Let’s start with the “It Girl” of 2023 so far, ChatGPT, which is bringing a level of practicality to AI that was almost unheard of just six months ago. Basically, ChatGPT is a natural language tool that allows (unsophisticated users like me) to have surprisingly “human” conversations, married with the ability to ask it questions or give it tasks, like drafting an email and getting high quality, usable results. The implications of this technology in the legal sector are pretty clear, starting with legal research and drafting, preparing first drafts of presentations and email messages, legal operations (e.g., invoice review), and even responding to client’s request for legal advice. But before we all get too excited and welcome our new robot overlords to the stage, let’s think about the downsides: a) ChatGPT must be managed by lawyers and cannot practice law, b) it’s only as good as the data it has access to, c) it struggles with nuance and cannot reason, d) it doesn’t understand context, e) it’s often just wrong, f) its responses often violate copyrights or involve outright plagiarism, and g) there are a number of ethical issues to sort out, including confidentiality and privilege issues. Still, I don’t mean to rain on the ChatGPT parade because I think it has an incredible amount of potential for in-house lawyers, especially around contract drafting and redlining and with respect to responding to everyday emails. The latter is true simply because Microsoft has invested $10 billion in OpenAI (the owner of ChatGPT) and you can see it integrated the technology into the Office suite and Outlook. Regardless, there are a number of things in-house lawyers can do with the technology right now to improve productivity, for example translate or summarize documents, and that alone makes this tool worth watching in 2023.
5. Nuclear verdicts. Yeah, I know. No in-house lawyer wants to hear, let alone think about nuclear verdicts. Nuclear verdicts are jury verdicts that wildly exceed any rational idea of what might be considered reasonable under the circumstances. Insurance broker giant Marsh reports that the average verdict more than tripled from 2015-2019, going from $64M to $214M – far outpacing any inflation in the economy. Nuclear verdicts exceed the average by a good amount, for example a $301 billion verdict against a bar in Texas. Why is this happening? There are a number of factors at play, starting with social pessimism and societal attitudes that most corporations are big and bad and that they have deep pockets which can withstand nuclear verdicts. Face it. We just live in a nastier world these days and people are looking to take it out on someone, so why not big corporations. Additionally, plaintiffs’ counsel are getting better at targeting corporations and playing to jury outrage and penalties vs. reasonable compensation for injuries. Lastly, litigation funding provides some plaintiffs the ability to resist settlement and hold out for the opportunity to score big at trial. As in-house counsel managing litigation, I would look at the following:
- Are we properly insured?
- Do our contracts, including online terms and conditions, limit damages, preclude jury trials and class actions, and/or ensure litigation venues skip judicial hellholes?
- Are we using Early case assessments to ensure we see the risk in litigation as early as possible.
- Are we properly laying out the risk of litigation to the business leaders?
- Do we look to mediate disputes quickly?
- Do we use mock juries on litigation bound for trial?
- Are we taking advantage of programs offered by our insurance company to reduce risk?
- Have we reduced risk by teaching the business to “write smart”?
6. Use of employment-related AI. I know. I just wrote about “AI” and here I am again, shoving AI up your nose. Sorry about that (and your nose), but it’s my checklist and 2023 is the year of AI so just suck it up and read on. Government regulators are looking hard at the downside of AI and considering a whole host of regulations, especially when it comes to employment decisions and AI algorithms. Since most companies likely use some type of artificial intelligence tools when it comes to sorting job applications, promotions, and so forth, in-house counsel (working with HR) should be getting up to speed on what’s out there already and what’s likely to come out over the next several months. The place to start is New York City and its law governing the use of Automated Employment Decision Tools (“AEDTs”). In a nutshell, the NYC AEDT law requires that employers in the city, for employees or applicants living in the city, using an AEDT must a) have the tool audited by an independent party to determine if the AEDT discriminates against certain protect classes, b) post and otherwise give notice about the use of an AEDT and the audit results, and c) give covered employees the ability to request an alternative method of evaluation. It’s more nuanced than this and is current undergoing several rounds of rulemaking to clarify the law, but companies operating in NYC (or that provide AEDTs to such companies) need to be aware of the law. And it’s likely that other cities or states will enhance or adopt similar laws in 2023 (e.g., Illinois, Maryland, Washington D.C., California, etc.). On the federal level, the EEOC has launched an initiative to evaluate artificial intelligence and algorithmic fairness and, in its recently announced Strategic Enforcement Plan for 2023-2027, mentions “screening tools or requirements that disproportionately impact workers based on their protected status, including [hiring bias] facilitated by artificial intelligence or other automated systems, pre-employment tests, and background checks” as a priority. In Europe, Section 22 of the GDPR already regulates the use of AI on data subjects and the proposed Artificial Intelligence Act will also regulate the use of AI in employment decisions.
7. Dark patterns. When I first heard the term “dark patterns” I instantly thought about the old television show, Dark Shadows, a campy mix of gothic horror and American soap operas. Apparently, and despite my high hopes, dark patterns have nothing to do with vampires, witches, or werewolves rambling about Collinsport, Maine. But, that does not mean in-house lawyers shouldn’t be afraid. Very afraid. Not of dark patterns per se, but that regulation of dark patterns has become a cause celebres amongst regulators and empty-headed talking suits and skirts on cable news programs. This means in-house lawyers should have dark patterns on their radar and be cognizant of whether or not their businesses are using them (or, more likely, could be accused of using them) and end up in hot water with regulators. Dark patterns are, essentially, “tricks” used in website interfaces to push consumers into taking a certain action. Examples include, a free trial for a streaming service that automatically converts into a paid subscription and charges your credit card if you forget to cancel, or those cookie banners where the only option is the “accept” button. It’s fair to debate the laundry list of “horribles” paraded out by regulators and consumer advocates as nefarious dark patterns (vs. consumer laziness), but there is no debating that this issue has the attention of regulators, national governments, and, in the USA, States Attorneys General. That is not a lineup you want to face without having spent some time with the business cleaning up any so-called dark patterns on the company’s websites. For example, Vonage just reached a $100 million settlement with the FTC over dark patterns that allegedly made it difficult to cancel its services. In-house counsel should:
- Educate themselves on dark patterns, including the myriad of examples of the same.
- Meet with the owners of the company’s website (UX, marketing, etc.) to review whether the company engages in any of those practices and, if so, is it possible to make changes before the shit hits the fan?
- Educate the executive team on the issue and the fact that regulators are cracking down on things they consider constitute dark patterns even if you would have to be the stupidest consumer of all time to fall for it (seriously, that seems to be the standard with most regulators). The $100 million dollar fine Vonage is paying may get their attention.
8. Corporate compliance. Here in the U.S., regulators, in particular the DOJ, are cracking down harder on corporate compliance. Every legal department has a very long to-do list, but near the top of that list should be enhancing its role as the company watchdog and ensuring that the compliance function is operating properly. For 2023, there is even more urgency than usual for both tasks. Late last year, the DOJ released a memorandum providing guidance to prosecutors regarding how best to ensure individuals and corporations cooperate properly. Key factors include: a) self-disclosure and cooperation, b) the company’s history of misconduct, and, most importantly, c) the strength of the company’s existing compliance program. Regarding the latter, the memorandum notes that an effective program can bear significantly on how investigations are resolved. The DOJ will look at the resources available for compliance, whether the program is customized for the company (vs. a cookie cutter program), how the company measures compliance risk (and what actions it takes regarding the same), and monitoring payment and vendor systems for suspicious transactions. Areas of focus include antitrust, FCPA/antibribery, and boards of directors where directors sit on the boards of competitors. For 2023, in-house lawyers should:
- Ensure that the compliance function is properly funded and staffed.
- Update compliance training (online and in-person).
- Tailor compliance policies to the business.
- Brush up on antitrust law, both single-firm conduct and illegal agreements.
- Ensure that no directors on the board sit on the board of directors of a competitor.
- Enhance FCPA/Antibribery compliance. The DOJ is looking to increase the value to corporations to self-report violations (whether or not that works remains to be seen and is something in-hosue counsel should discuss with outside counsel if the situation arises).
- Take a fresh look at any trade associations the company belongs to.
9. Hybrid work. For the first time in two years, I do not have Covid-19 on my essential issues list. (Yay!) But that does not mean that businesses are not still feeling the impact of the pandemic. (Boo!) One change that now feels permanent is the hybrid work environment, i.e., a mixture of remote work and in the office work. Most companies have adopted this new reality and that includes the legal department. In fact, many of the in-house jobs available today specifically note that remote work is part of the arrangement if necessary. Consequently, in-house lawyers have two areas of focus for 2023 – managing hybrid work in the legal department and helping the company manage the hybrid work environment overall. This means:
- Recognizing that hybrid work is here to stay. The genie is out of the bottle and there’s no stuffing her back in. So, embrace it and make it work for you and the department. One bit of good news is that remote work saves around 72 minutes per day on average in commuting time – that can add up to more time to get work done or just happier employees generally.
- Having the right policies in place to set clear boundaries and expectations around hybrid work.
- Coaching managers on how best to manage remote employees.
- Finding ways to build cohesion amongst a dispersed workforce/legal team.
- Considering whether tracking software is really worth using and what is the downside.
- Learning how to secure data and confidential information in the hybrid work world.
- Ensuring that the legal team does not engage in the unauthorized practice of law via remote members.
10. The economy. I will end my list with the most volatile issue – the economy. No matter where you sit in the world, it is likely that you are experiencing some impact resulting from the shocks to the system caused by Covid-19, the war in the Ukraine, OPEC, crypto-winter, and inflation (among other factors). For many in-house attorneys, these are the first hard economic times they have encountered in their careers. I have been through several dips and a few big drops, and it’s no picnic in the park. The good news is that while there are signs of weakness in the economy (in the US and globally) we are not yet in a full blown recession. And it’s possible that we will not enter one or, if we do, the landing will be soft. Still, many companies are tightening their belt in anticipation of the boom times being over. Tech is one industry hit particularly hard. Budget cuts and layoffs are announced daily, with cuts ranging from 5% to 30% of the work force. This topic could be it own “Ten Things” post but here is what I think in-house lawyers should be doing in 2023 when it comes to the economy and the legal department:
- Show your value to the department and the company. Finds ways to make yourself “indispensable” – that is the best way to ride out hard times (see Ten Things – Making Yourself Indispensable).
- Show the value of the department to the business. This is best way to minimize or potential avoid the budget cutters coming after your team (see Ten Things – Showing the Value of the Legal Department).
- Think hard about what work goes outside and what stays with the team (see Ten Things – When to Send Work Outside (and When to Bring it In-House)).
- Get on top of outside counsel spend and make sure you are being thoughtful about where each dollar goes and why (see Ten Things – Effectively Managing Outside Counsel Spend). Consider using RFPs and look to hire counsel that can provide the same quality as big law but at a lower price point, perhaps the easiest way to save money (see Ten Things – Running a Legal RFP Process the Right Way).
- Say “no” to annual legal fee increases many big law firms seek to impose unilaterally. Trust me, they’ll work with you if you push back. And keep your outside counsel guidelines up-to-date – and enforce them (see Ten Things – Preparing Outside Counsel Guidelines – The Keys).
- Find ways to increase productivity within the department (see Ten Things – How to be More Productive Every Day and Ten Things You Can Do in Ten Minutes (a Productivity Hack for In-House Lawyers)).
- If you find yourself with the thankless task of having to layoff someone, do it right. Work with the HR team and prepare yourself properly (see Ten Things – How to Fire Someone)
- If you find yourself on the short end of the layoff stick, stay positive and don’t despair, you’ll be okay. Finding another in-house job is much easier than before because of the ability to work remotely (see Ten Things – Looking for Another In-House Job).
The above focuses on the you and the department, but don’t forget that hard times will also require that you focus on the changing needs of the company, including special focus on employment law issues, including bias claims, along with WARN and TUPE, that you make an extra effort to be practical in how the department provides legal services, and that you do everything possible to get more contracts signed, the life blood of any company (even if it means living with more risk than you may otherwise be comfortable with as a lawyer).
All right. I have stuffed a lot into this post and it’s late and my hand is cramping up so it’s time to stop for now. Remember – these are my picks for the most essential issues for 2023 (and hopefully the links will let you go deeper into each issue if you wish). You should create your own list based on the specific needs and circumstances of your company and your legal department (it may be similar, or it may be vastly different than mine). And keep in mind that things will change, i.e., what seems essential today may be a water sandwich in June. The important thing is developing a process to look beyond what needs to get done today and consider things that can otherwise come out of nowhere and catch the company (and the legal department) off guard. If you can anticipate and plan, you are on the path to truly add value to the company and the legal department.
January 31, 2023
My fifth book, Showing the Value of the Legal Department: More Than Just a Cost Center is available now, including as an eBook! As the ABA says, “Reading this book should be on all essential issues lists for 2023.” The ABA knows what it’s talking about. You can buy it HERE.
Two of my books, Ten Things You Need to Know as In-House Counsel – Practical Advice and Successful Strategies and Ten (More) Things You Need to Know as In-House Counsel – Practical Advice and Successful Strategies Volume 2, are on sale now at the ABA website (including as e-books).
I have published two other books: The Evolution of Professional Football, and The Slow-Cooker Savant. I am also available for speaking engagements, webinars/CLEs, coaching, training, and consulting.
Connect with me on Twitter @10ThingsLegal and on LinkedIn where I post articles and stories of interest to in-house counsel frequently.
“Ten Things” is not legal advice nor legal opinion and represents my views only. It is intended to provide practical tips and references to the busy in-house practitioner and other readers.
If you have questions or comments, or ideas for a post, please contact me at firstname.lastname@example.org, or if you would like a CLE for your in-house legal team on this or any topic in the blog, contact me at email@example.com