As the U.S.economy gradually emerges from recession, the legal job market has been slowly but steadily improving. According to the latest data from the U.S. Bureau of Labor Statistics, the legal services sector added a modest 6,300 jobs in the past year, consistent with the gradual recovery in other professional services sectors.

But while the hiring freezes in place in many departments are thawing out, companies aren’t rushing to add headcount. Rather, they are taking a cautious approach. Some are turning to contract and temporary hires to handle workloads while avoiding the risk of taking on full-time staff. Others are looking to paralegals and support staff to handle work at a lower price point. And all departments are still searching for ways to use their existing staff more efficiently. Nonetheless, legal placement experts see some cause for optimism in the coming year and think that in-house hiring will steadily grow.

“The in-house market is continuing to be hot,” says Michael Sachs, managing director of legal recruiting firm Major, Lindsey andAfrica. “Companies are looking to hire more people in house to save on legal fees paid to outside counsel down the line.”

Litigation Management

For years, companies have debated whether they could save on legal fees by bringing more litigation work in-house. Companies with large litigation dockets have experimented with hiring in-house litigation counsel, partnering with preferred outside firms, or establishing captive law firms to handle litigation more efficiently. In a July 2013 survey of Fortune 500 in-house counsel conducted by AlixPartners, 27 percent of companies reported an increase in the size of their in-house litigation department (see, “Bringing Litigation In House”).

While the idea of hiring in-house litigation counsel has not taken off on a large scale, many companies are taking a creative approach to staffing in this area. Legal departments are increasingly bringing the process and management sides of litigation in house while continuing to leave the actual courtroom aspect to outside law firms. For instance, some legal departments are hiring in-house e-discovery or technology experts to help the company prepare to respond to large-scale document-production requests efficiently and effectively. Having a dedicated expert in-house allows the company to turn to someone who knows where the company’s data is stored, who the relevant record keepers are and the details of the company’s technology. For a company engaged in repetitive litigation, having such a gatekeeper within the department helps streamline discovery by putting workflows and processes in place and eliminates the need to reinvent the wheel with new outside vendors each time a new matter is filed.

“We see departments fine-tuning their litigation preparedness by bringing processes in house,” says Charles Volkert, executive managing director at Robert Half Legal. “Companies are looking at hiring in-house litigation project managers to oversee the third-party providers and outside counsel.”

Likewise, other companies are better managing litigation by deputizing an in-house litigation specialist to manage and monitor services provided by outside law firms. Stuart Blake, founder and president of InnovaCounsel, a provider of outsourced general counsel services and former general counsel of Kinkos, says that businesses can force their outside counsel to work more efficiently if someone within the company is proactively overseeing what they’re doing.

“Law firm rates continue to increase year over year, but legal departments have to find ways to be more cost effective,” Blake explains. “As a GC, I brought in someone to oversee litigation and get efficiencies from the firms we worked with.”

Other companies are taking a proactive approach by putting an in-house staff member in charge of helping the company avoid lawsuits altogether by resolving claims prior to litigation and staying on top of potential future litigation risks.

“I have a client in the manufacturing sector that has hired someone just to monitor and manage products liability claims,” says Valerie Fontaine, a recruiter at Seltzer Fontaine Beckwith. “The company is taking a preventative step of trying to avoid litigation by staying abreast of the trends.”

Creative Staffing

Legal department budgets remain tight and many companies are wary of bringing in permanent hires that raise overhead costs, even as workloads increase and more help is needed. General counsel are increasingly turning to a project-based model of hiring attorneys and legal staff.

Flexible staffing arrangements, such as contract attorneys, interim hires and secondment programs with law firms, allow legal departments to temporarily ramp up their staffing without committing to permanent positions. Such arrangements are taking several forms. Service providers such as Paradigm Legal and Axiom Law offer companies the option to bring in temporary in-house attorneys to handle short-term needs such as a large document search and to review projects related to a regulatory investigation. InnovaCounsel follows a slightly different model. Their attorneys, all of whom have experience as in-house counsel at high levels, provide the same functions that an in-house team would provide but on a part-time, outsourced basis for companies that may not have enough legal work to necessitate full-time staff.

“Companies are being creative with temporary hires and offering flexible or part-time schedules,” Sachs says. “Temporary hires are in demand, because it offers companies another creative way to provide great service within a budget.”

A new trend is that law firms are also getting in on the act by offering their attorneys as temporary full-time in-house lawyers through secondment programs. For instance, Fenwick & West offers their clients Flex by Fenwick, a program through which associates of the firm come in-house at a client’s facility for a defined project or time period.

Some companies are even using contractors to fill senior roles on their legal teams. This practice allows the company to bring in a person with the expertise to handle a specific immediate need—a large deal or merger, for instance—without creating a permanent position or paying outside counsel hourly rates.

“I am seeing a lot of individual lawyers signing on as contractors to work on a certain deal or project,” says Jennifer Greiner, who works with attorney career development firm Greiner Consulting. “Companies are bringing in attorneys with the title ‘acting counsel’ or ‘interim counsel’ for short- or long-term contracts.”

But not everyone thinks the temporary staffing trend is a panacea for legal departments’ tight budgets. Seth Davis of executive placement firm Lighthouse Legal Search doubts the focus on temporary staff will continue as the economy regains its footing.

“Companies ultimately prefer to hire and retain people who know their needs and issues more intimately,”Davissays. “Contract hiring is already tapering off and we’re see a return to more traditional paths.”

Who’s in Demand

Although in-house hiring is slowly heating up, there are still more attorneys who want to make the leap in-house than there are available jobs. There remains a perception that in-house jobs offer a more relaxed pace and better work/life balance than comparable law firm positions. And increasingly, in house jobs also offer challenging and sophisticated work for attorneys.

“It’s a buyers’ market,” Greiner says. “In house jobs are highly sought after. They are getting more complex and interesting.”

But as legal departments remain under pressure to do more with their budgets, the increase in sophisticated work done by in house lawyers is a double-edged sword. “Outside lawyers need to be disabused of the notion that inside counsel have an easier lifestyle,” Fontaine says.

Recruiters familiar with in house hiring trends almost universally agree that legal departments prefer hiring attorneys who have already worked in-house. Not only are legal departments wary of hiring law firm lawyers who may see an in-house job as an easier gig, but they also need attorneys who understand business and are comfortable working with executives from day one. 

“Legal departments want to hire people who already have some experience working in-house,” Greiner says. “Understanding how to integrate into the business culture is important.”

In terms of practice areas, attorneys with compliance and regulatory experience are in high demand. And no wonder—in a recent survey conducted on behalf of Robert Half Legal, counsel-at-large companies reported regulatory compliance as their number one concern for this year (see “2013’s Biggest Challenges,” p 43). Recruiters also are seeing increased demand for attorneys with transactional expertise and knowledge of privacy law.

“Companies are becoming more strategic about their hires,” Sachs says. “It’s not just replacing attorneys when they leave, but it’s getting the right person in place for the company’s future needs.”

Even though the market favors in-house hires, in-house departments are getting smarter about finding the best lawyers for the job and retaining those attorneys for the long term.

“Companies are offering more benefits such as flexible schedules, telecommuting and mentoring, “ Volkert says. “When they make the investment in hiring, they are aggressive about retention” (see “Keys to Attorney Retention”).

Small Company Fixes

In addition to seeing modest growth in law department staffing, hiring experts also reported seeing many smaller companies hiring in-house counsel for the first time.

“A lot of companies that may have sent all of their work to outside firms now want to establish law departments,” Fontaine says.

Even small businesses and startups that may not have the need or financial resources for full-time in-house staff are finding ways to take their legal work out of the hands of outside law firms. These companies are passing the work off to attorneys who have more of a vested interest in the business, such as independent contractors who work for a daily rate or a flat fee. The trend is being driven by law firm hourly rates, which continue to increase year over year.

“Companies are balking at the high outside legal spend and are under pressure to do things at a lower cost,” says David Blackwood, a partner at InnovaCounsel. “Using independent contractors allows companies to bring in attorneys with a high level of expertise and short learning curve who can get the work done at a fraction of the cost of outsourcing to a law firm.”