Supply chain management as a center of excellence within corporations emerged as a professional vocation in the 1980s. This need arose as the dual concepts of outsourcing and globalization gained prominence. During this time, specialization in supply chain disciplines emerged to meet the needs of businesses seeking to expand their operations into these emerging global markets. As this expertise developed, the power of the global market was unleashed and resulted in a decreased cost of production driven by higher efficiency, specialization, and having manufacturing facilities migrated to low-cost labor regions. As a result, the cost of goods decreased, access to goods and services increased, and profit margins rose over the following decades.
While profitability increased, so did supply chain complexity. No longer were traditional supply chains limited to local or regional hubs to find expertise in manufacturing and services. Modern supply chains now stretch across the globe. The diverse physical locations of parts and assembly services required to produce goods often mean that the components required to produce finished products will have come from multiple continents and traversed the globe several times before a product is completed. These global supply chains have established critical shipping lanes, ports, a need for logistics expertise, and service providers who specialized in moving products and materials across and through multiple jurisdictions. Shipping, air freight, rail, and truck transportation have also boomed, as goods traveled longer distances, requiring many modes of transportation to arrive at the customer’s desired location.
Another central motivation for outsourcing and globalization has been an increase in the cost of production resulting from increases in wages and regulatory controls in developed economies. While the cost of compliance has been studied and cost-conscious decisions were readily made, other considerations were rarely assessed. For example, consideration was rarely given to the reason the developed economy put the regulations in place by either the organization seeking to shift operations or the new country that was to become the new hub for manufacturing. As a result, not only were the manufacturing operations and associated jobs outsourced but also were the underlying pollution, safety/labor concerns, and product hazards.
This reality created a conundrum and generated the need for a new regulatory regime that was reoriented around the complexity of modern supply chains and the associated harms in the new production ecosystem. Regulations rarely occur in real time but will always follow innovation by business. Once the business processes have been established, industry standards will align around best practices and seek to deter undesirable and unethical actions. In time, this pattern and/or the resulting cases that highlight the consequences of failing to abide by industry norms will lead to defined laws. The laws, in turn, will establish rules that businesses and their suppliers are expected to abide by.
This pattern of regulatory evolution was coined the “race to the top,” meaning that once a best practice or undesirable activity was identified and regulated, others would all adapt to incorporate the new best practice. Historically, this trend has also led to traditional environmental and commerce regulation focused on the manufacturing process or point source regulations on facilities. Unfortunately, these existing point source laws were found to be insufficient by many major economies, as cases and problems began to emerge around supply chain actors or the finished products entering into a country. To close this gap, regulators began to establish a new series of laws that regulated the sale of products into the country that was receiving the goods.
To overcome issues of jurisdiction, regulations were oriented around the import of physical products and goods. Therefore, the jurisdictional hook became a call for transparency regarding what was in a product, what party/parties produced the product, and how the product was produced before it was imported into the country. These new regulations can be categorized into three groups:
Product Compliance: Regulations that mandate compliance with material restrictions in products, safety standards, and conformance with norms within the region. Failure to meet these product regulations results in a loss of the ability to sell into a market.
Vendor Management: Regulations that increase the cost of goods by requiring certain classifications and/or costs through the imposition of tariffs, fees, or sanctions. Failure to consider these vendor regulations results in an increased cost of goods and/or a loss of margin.
Corporate Social Responsibility (CSR): Regulations that mandate transparency disclosures if a business sells into a given market. Failure to perform adequate due diligence or to disclose the use of inhumane practices, engage in unethical practices, or environmental degradation during production can commonly result in fines, a loss of customer goodwill, and a net decrease of future sales opportunities.
In totality, these regulations have created market forces and legal obligations that frequently demand rapid changes and coordinated efforts from suppliers, contract manufacturers, distributors, logistics providers, customers, and solution providers. As a result, a growing need has emerged to have internal and external expertise dedicated to the supply chain compliance function within most businesses. These supply chain compliance professionals have emerged over the last decade as a critical component of managing the emerging risks associated with outsourcing and/or globalization strategy. To mitigate risk, companies have attempted to extend and shift the burden of compliance onto the supply chain and the importer of finished goods through warranties, contracts, and/or certifications of compliance. To accomplish this burden shifting, complex databases that can track, evaluate, and disclose due diligence records must be maintained and accessible by key personnel. These databases establish chains of custody and support the identification of where supply chain breakdowns are occurring through systematic record keeping.
A curious tidbit lurks in section 1505 of Chapter 15 of the Bankruptcy Code. Most practitioners know that Chapter 15 applies to the recognition in the United States of a foreign insolvency proceeding. Section 1505 permits a U.S. bankruptcy court to authorize a domestic “trustee” to act in any foreign country on behalf of an estate created under section 541 of the Bankruptcy Code. Among the various parties specially defined as a “trustee” for this unique purpose is a debtor under Chapter 9 of the Bankruptcy Code – a municipality! Why might a municipality need to interact with the foreign representative of a foreign bankruptcy? How might a foreign jurisdiction react to the appearance of a U.S. municipality in its local affairs? And, because there is no estate created in a municipal Chapter 9 case, exactly what authority might a municipality be able to muster? Not unexpectedly, the answers to these questions are rather elusive.
Chapter 15 was enacted in 2005 and is the vehicle under which the foreign representative of a foreign insolvency proceeding enlists the aid of a U.S. bankruptcy court in order to protect and administer the property of a foreign debtor. Chapter 15 presumes the existence of a foreign debtor – i.e., an entity organized abroad. Chapter 15 is intended to be flexibly interpreted to achieve cooperation among domestic and foreign insolvency participants.
Chapter 15 applies in three principal settings: (1) where parties to a foreign proceeding seek assistance in the United States, (2) where parties to a domestic bankruptcy case seek assistance in a foreign country, and (3) where a foreign proceeding and a domestic case for the same debtor are pending concurrently. 11 U.S.C. § 1501(b) (unless otherwise noted, all section references are to the Bankruptcy Code, i.e., Title 11 of the U.S. Code). A case under Chapter 15 is known as an ancillary case (as compared to a plenary case under Chapters 7 or 11 of the Bankruptcy Code), and is commenced by filing a petition with the Bankruptcy Court for “recognition” of the foreign proceeding.
Where can a Chapter 15 ancillary case be commenced? An ancillary case may be commenced in any district: (a) where the foreign debtor has a principal place of business or assets in the United States or, if none, (b) where an action against the debtor is pending in a federal or state court or, if none, (c) where consistent with the interests of justice and the convenience of the parties. 28 U.S.C. § 1410.
Who may be a debtor under Chapter 15? Almost any foreign entity may be a debtor under Chapter 15, except mainly banks with U.S. branches, stockbrokers, or individuals with debts below the Chapter 13 thresholds. A foreign insurance company, although ineligible to be a debtor under other chapters of the Bankruptcy Code, is explicitly eligible for recognition under Chapter 15.
However, there is some ambiguity in the use of the term “debtor” under Chapter 15. “Debtor” is defined in Bankruptcy Code section 101(13) as a person concerning which a case under this title has been commenced. The Bankruptcy Code (i.e., Title 11), embraces cases under Chapters 7 (liquidation), 9 (municipalities), 11 (reorganizations, railroads and small businesses), 12 (family farmers), 13 (individuals with regular income) and 15 (cross-border). Section 109(a) provides that “only” a person that has a domicile, place of business, or property in the U.S. may be a debtor under Title 11 (again, under any of its various chapters, including Chapter 15). But Chapter 15 has a separate definition of a debtor applicable solely to Chapter 15: “an entity that is the subject of a foreign proceeding.” Thus, although not free from doubt, Chapter 15 only permits the commencement of an ancillary case if the debtor is both the subject of a foreign proceeding and has a domicile, place of business, or property in the U.S. See In re Barnet, 737 F.3d 238 (2nd Cir. 2013).
All of Chapter 15 is qualified by a public-policy escape hatch – the Bankruptcy Court may refuse “to take an action governed” by Chapter 15 if it “would be manifestly contrary to the public policy of the United States.” 11 U.S.C. § 1506. The cases that have considered this public policy override have concluded that it is a narrow exception intended to be applied only in exceptional circumstances concerning matters of “fundamental importance” (e.g., constitutional guarantees). E.g.,In re PT Bakrie Telecom Tbk, 601 B.R. 707, 724 (Bankr. S.D.N.Y. 2019) (key consideration is whether the procedures used in the foreign proceeding meet “our fundamental standards of fairness”); Jaffé v. Samsung Electronics Co., Ltd., 737 F.3d 14 (4th Cir. 2013).
The process to launch a Chapter 15 case is relatively straightforward. A foreign representative may commence an ancillary case by filing a petition for recognition. 11 U.S.C. §§ 1504, 1509, 1515. Section 1509 – which is the source of a foreign representative’s direct access to the Bankruptcy Court – applies whether or not another case for the debtor is pending under any other provision of the Bankruptcy Code. 11 U.S.C. § 103(l)(2). Once filed, Chapter 15 contemplates an expedited process to either grant or deny recognition of the foreign proceeding.
A foreign proceeding might be a main proceeding (i.e., located in a country where the debtor has the center of its main interests, or “COMI”), or a nonmain proceeding (i.e., located in a country where the debtor has an “establishment,” that is, “any place of operations where the debtor carries out a nontransitory economic activity”). 11 U.S.C. § 1502(2). Chapter 15 does not define the COMI, although it is presumed to be the debtor’s registered office under section 1516(c). The COMI determination is often a matter of some dispute, particularly in light of the differing rights that flow from recognition of a main instead of a nonmain foreign proceeding.
The entry of a recognition order by the Bankruptcy Court under section 1517 is the predicate for triggering the various rights and remedies available to a foreign representative under Chapter 15. Chapter 15 entrusts the Bankruptcy Court as the “gatekeeper” for a foreign representative’s access to the Bankruptcy Court and other domestic courts. Indeed, if the Bankruptcy Court denies recognition (either because it refuses to act on the petition if contrary to the public policy of the U.S. or because the petition is otherwise flawed because it does not comply with the requirements of § 1517), the Bankruptcy Court may enter any order necessary to prevent the foreign representative from obtaining comity or cooperation from courts in the United States. 11 U.S.C. § 1509(d). On the other hand, if recognition is granted, the foreign representative will have the capacity to sue and be sued in any court in the U.S.
Once a foreign main proceeding has been recognized, certain provisions of the Bankruptcy Code (such as the automatic stay and the restrictions on the use or sale of property under § 363) will, pursuant to section 1520, automatically apply to the foreign debtor and its tangible property located “within the territorial jurisdiction” of the United States. Chapter 15’s “territorial jurisdiction” provision is intended to replicate the scope of an “estate” otherwise created under the Bankruptcy Code, which concept does not apply to an ancillary case.
This provision will also reach any intangible property of a foreign debtor that is “deemed under applicable nonbankruptcy law to be located” within that territory. 11 U.S.C. § 1502(8). For example, under the UCC, patents, trademarks, copyrights, and software are each generally considered a “general intangible” to which a security interest may attach and be perfected (although in some cases not merely by filing a financing statement). The deemed location where that security interest is enforceable would establish territorial jurisdiction.
In addition to the relief that is automatically granted upon recognition of a foreign proceeding, Chapter 15 identifies further categories of discretionary relief that the Bankruptcy Court may grant to the foreign representative at various stages of the recognition process. These categories are: “provisional relief,” “appropriate relief,” and “additional assistance.”
First, once a petition is filed, and an ancillary case commenced, the Bankruptcy Court can order “provisional relief” if urgently needed pending a decision on recognition (such as staying execution against the debtor’s assets). 11 U.S.C. § 1519. This provisional relief expires upon entry of the recognition order unless expressly extended in the order.
Second, if recognition is granted, the foreign representative can also request “appropriate relief” from the Bankruptcy Court under section 1521 (such as the selected application of other provisions of the Bankruptcy Code) to bolster the automatic relief granted under section 1520. It is not uncommon for a recognition order to be festooned with further “appropriate relief,” particularly because section 1521(a)(7) permits the court to also grant any “additional relief” that may be available to a trustee.
Notably, however, the Bankruptcy Court may not extend the reach of sections 547, 548 and 550 (avoidance and recovery of preferential and fraudulent transfers) to the ancillary case. Accordingly, a foreign representative does not have authority in an ancillary case to commence garden-variety avoidance actions, and must instead commence a plenary case in order to invoke those rights. On the other hand, turnover proceedings under sections 542 and 543 are not excluded from the “additional relief” that may allowed in an ancillary case under section 1521.
Any appropriate relief that is granted under section 1521 may also be modified or terminated upon request of the foreign representative or an entity affected by such relief. 11 U.S.C. § 1522(c). In other words, if a recognition order initially makes a provision of the Bankruptcy Code applicable to the ancillary case (such as § 365, regarding the treatment of executory contracts), either the foreign representative or another affected party may later seek to modify that relief.
Third, after recognition, a foreign representative can also (i) ask for “additional assistance” under the Bankruptcy Code or any other laws of the U.S. pursuant to section 1507, and (ii) commence a plenary domestic bankruptcy case pursuant to section 1511. See 11 U.S.C. §§ 1511, 1520(c) and 1528. The commencement of a plenary case under Chapter 11 or 7 would entitle the foreign representative to further remedies not otherwise available in an ancillary case, but would also require the invocation of certain coordination and cooperation provisions under section 1529.
Why might a foreign representative whose foreign proceeding has just been recognized (thus invoking the stay of acts against the foreign debtor and any of its assets in the U.S.) also commence a domestic Chapter 11 case? One reason is to obtain the benefit of avoidance powers that are otherwise unavailable in an ancillary case (compare § 1523(a) and § 1521(a)(7)). Another reason is to invoke the expanded reach of an “estate” created under section 541 (which applies to all property of the debtor “wherever located”). This expanded reach, however, is limited only to the extent that such other, non-U.S. assets are also beyond the “jurisdiction and control” of the foreign proceeding. Even if a plenary case is commenced, section 305 empowers the Bankruptcy Court to dismiss or suspend proceedings in that case if the purposes of Chapter 15 would be best served by such dismissal or suspension.
This brings us back to section 1505. Section 1505 permits a Bankruptcy Court to authorize any “trustee” to act in a foreign country on behalf of an estate. It is seemingly misplaced in Chapter 15 because it has no specific tether to either the existence of a foreign proceeding or the commencement of an ancillary case. Rather, it is intended to facilitate the ability of a representative in an existing domestic case to act abroad in an officially enrobed manner. Thus, section 1505 applies whether or not a Chapter 15 case is pending and perhaps more properly belongs in Chapter 1 of the Bankruptcy Code (which contains general provisions applicable to all chapters). Indeed, section 103(l), which provides that Chapter 15 applies only to an ancillary case under such chapter, has an exception for section 1505 that makes it applicable in all cases under the Bankruptcy Code (e.g., a liquidation under Chapter 7, a reorganization under Chapter 11, or the adjustment of municipal debts under Chapter 9, among others).
Section 1505 is derived from Article 5 of the UNCITRAL model law on cross-border insolvency (which was the platform for Chapter 15 of the Bankruptcy Code, enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005). UNCITRAL is the United Nations Commission on International Trade Law. The model law was enacted by the general assembly of the U.N. in 1997. See G.A. Res. 52/158, UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment (Jan. 30, 1998). Its main purpose was to serve as a recommended textual platform for countries to legislate a framework to handle instances of cross-border insolvency.
The model law was accompanied by a detailed guide explaining the intent behind each provision. The remarks accompanying Article 5 (the basis for § 1505) suggest that its purpose is to “equip administrators or other authorities appointed in insolvency proceedings in the enacting State to act abroad as foreign representatives of those proceedings. The lack of such authorization in some States has proved to be an obstacle to effective international cooperation in cross-border cases.”
The domestic legislative history to section 1505 is also illuminating. Section 1505 varies from the model law because, according to that history, it requires a trustee to “obtain court approval before acting abroad.” The model law, by contrast, automatically permitted an administrator to act abroad. This change was made to “ensure that the court has knowledge and control of possibly expensive activities, but it will also have the collateral benefit of providing further assurances to foreign courts that the United States debtor or representative is under judicial authority and supervision.” In fact, the legislative history suggests that “first-day orders in reorganization cases should include authorization to act” under section 1505. See H.R. Rep. No. 31, at 108-09, 109th Cong., 1st Sess. (2005).
Notwithstanding the requirement for court approval, section 1505 is permissive, not mandatory. Very often, trustees or other representatives in domestic bankruptcy cases are able to act abroad, quite capably, without the court’s seal of approval under section 1505. Section 1505, thus, is perhaps best employed when a foreign entity either disputes a trustee’s mandate or requires further corroboration of a trustee’s credentials. Conversely, in fact, there is no requirement that a foreign representative of a foreign proceeding actually commence a Chapter 15 case as a condition to exercising control over U.S. property owned by the foreign debtor. Neither federal nor state law requires a foreign representative to obtain a prior order from a court in the United States before disposing of property located in the United States. In re Iida, 377 B.R. 243 (B.A.P. 9th Cir. 2007). Likewise, section 1509(f) does not affect any right that a foreign representative may have to sue in a U.S. court to collect a claim that is property of the debtor, whether or not an ancillary case has been commenced or recognized.
Another domestic adaptation in section 1505 is to specifically identify the various parties qualified to act abroad. Section 1505 empowers any trustee, as defined in section 1502(6), or “another entity (including an examiner)” to act abroad. A trustee can be any trustee appointed under the Bankruptcy Code, a debtor in possession, or a municipal debtor in a Chapter 9 case. The express inclusion of a municipality was needed because Chapter 9 does not permit the appointment of a trustee to exercise municipal affairs. Rather, for purposes of Chapter 9, whenever a provision of the Bankruptcy Code that otherwise applies to a trustee is invoked in Chapter 9, it is deemed to refer to the municipal debtor itself. (There is an odd quirk in Chapter 9, however, that permits the court to appoint a trustee to pursue avoidance actions that the municipality refuses to pursue; this type of trustee, if appointed, would likely fit within the catchall bucket of trustees that may be empowered under § 1505.)
According to the legislative history, section 1505 “also contemplates the designation of an examiner or other natural person to act for the estate in one or more foreign countries where appropriate. One instance might be a case in which the designated person had a special expertise relevant to that assignment. Another might be where the foreign court would be more comfortable with a designated person than with an entity like a debtor in possession. Either are to be recognized under the Model Law.” This flexibility – to appoint a particular, named individual – would certainly be worthwhile to overcome the resistance that foreign entities might have to distinctive U.S. concepts such as the debtor in possession.
As noted, section 1505 applies whether or not a foreign proceeding involving a foreign debtor is pending abroad. It also applies whether or not the foreign country where the trustee appears has enacted its own matching legislation based on the UNCITRAL model law. Hence, a trustee in a domestic case can be authorized to take steps in any foreign country to advance the administration of a domestic estate. This might entail the sale of property located abroad but titled in a domestic debtor. Or, regulatory approval to domesticate cash or other assets maintained in a foreign financial institution. Or perhaps obtaining testimony or other evidence that might aid the prosecution of an adversary proceeding in the domestic case. If, however, a foreign proceeding is in fact pending abroad, section 1505 works in tandem with sections 1526 and 1527 of Chapter 15 to provide that the trustee, if authorized by the Bankruptcy Court and subject to its supervision, may “communicate directly with a foreign court or a foreign representative.”
It will, at this point, come as no surprise that there is no such creature as a cross-border municipal bankruptcy case. Yet, just like any other trustee of a domestic bankruptcy case, a municipality may need to act in a foreign country to facilitate a consensual adjustment of its debts, perhaps because municipal bonds may be registered for the benefit of foreign owners. Another plausible scenario where foreign cooperation might be needed is in the case of municipal special revenue bonds based on cross-border projects or systems (such as flood control or irrigation districts). It is, of course, quite natural that municipalities, like private debtors, will increasingly enjoy the advantages of foreign investment and trade.
Section 1505 marshals a potentially unlimited toolbox to maximize the value of a domestic estate. Whether and how the need to act abroad might arise, practitioners in any case under the Bankruptcy Code should keep in mind this overlooked statutory nugget. Although buried within Chapter 15, any debtor in any case under the Bankruptcy Code has the power to seek the court’s imprimatur to act abroad. Indeed, the court can tailor the relief to appoint any person with “special expertise” relevant to the task – even, potentially, an elected official of a municipality. There appear to be no limits to the ingenuity of a court, debtors and creditors to dispatch a bankruptcy envoy to roam abroad.
What a stressful, scary, “who knows what is the right thing to do” time to be considering a return to the office. They say COVID-19 is abating. They say the Delta variant is more dangerous. They say you are to return to the office in September. They say you could consider a hybrid work arrangement.
If you were anxious in 2020, you are probably terrified in 2021. Today, the health-inducing anxieties continue as work options become real. If you were hired or hope to be hired during this pandemic-influenced time period, your decisions today could influence your career for decades to come. This is especially true if your firm goes hybrid and you decide to work remotely some or all of the time.
Let’s look at some of the issues you could face and some actions you may want to consider.
Flexibility Is a Requirement
The details of back to work decisions are especially important for the “Born Digital” generations, Millennials [ages 25 to 40] and Gen Z [ages 9-24]. According to a report from Citrix Systems, 90 percent of them do not want to return to full-time, in-office work. The 90 percent break down into
three categories:
51% want to work from home all or most of the time,
21% would like to split their time evenly between home and office, and
18% want to split their time with more time in the office.[1]
The survey found a sizable disconnect between what leaders thought these workers want and what they said they want. For example, among the Born Digital respondents, 87 percent “are focused primarily on career stability, security and a healthy work-life balance. … Nearly 60 percent of business leaders thought that younger workers want to spend ‘most or all’ of their time at an office.”[2]
Leaders have to make decisions with far-flung consequences in an ever-evolving situation that seems to have no end. “The decisions business leaders make in the coming months to enable flexible work will impact everything from culture and innovation to how organizations attract and retain top talent.”[3] Nowhere are decisions more important than in regard to Born Digital workers.
Advantages of Working in the Office
Microsoft 365 CVP Jared Spataro sees in-office encounters as an important way for leaders to connect with employees to assess their frame of mind. “Those impromptu encounters at the office help keep leaders honest. With remote work, there are fewer chances to ask employees, ‘Hey, how are you?’ and then pick up on important cues as they respond.”[4]
The Citrix survey found that most young workers want engagement with colleagues and bosses. Many of them have been very lonely during lockdown. According to Donna Kimmel, Citrix executive VP, while younger workers want the flexibility of a hybrid schedule, they also “understand the need for in-person interaction, and companies need to provide opportunities for employees to come together both physically in offices and virtually from home to keep them connected, engaged and prepared for the future of work.”[5]
Disadvantages of Working from Home
“Being the lone remote member of a mostly in-office team isn’t just a recipe for FOMO─that is, fear of missing out. It can also be an obstacle to your productivity and professional advancement, not to mention the pleasure you get from work.”[6]
In-office colleagues have the chance to rub shoulders with their boss, hit the proverbial water cooler for time with friendly colleagues, and make themselves visible, effective members of the team. “When they work apart, younger employees lose chances to network, develop mentors and gain valuable experience by watching colleagues close-up, veteran managers say.”[7]
How “Born Digital” Generation Lawyers Can Level the Playing Field
Begin by reviewing your goals for the next few years. Then make a list of people you need to get to know and create a plan to incorporate coffee-chats, breakfast meetings, shared beers and lunch with someone three-four days a week.
If you like your firm but not your practice area, identify people you want to get to know in other practice areas as a way of learning more about what they do.
If you like your current work, list colleagues in your age cohort and older whom you want to get to know better, as well as your boss and other partners you would like to work with.
Look to become friends with your “class” of new lawyers as well as others in your age cohort. As you move through your career these people will be not only your friends, but also key referral and knowledge resources.
Prioritize time with your mentor because they can help you understand the culture of the firm and your practice area. Explain your career ideas to them and ask them to point out approved behaviors and routes to personal success.
If your firm has not set up rules designed to make meetings inclusive for those joining remotely, research the options and then make suggestions. In the meantime, try to find a “meeting buddy,” someone who will cue you in to in-person meeting currents you might miss, and make sure you are included in the conversation.
“It is especially important to connect with colleagues you may not know well, or have lost touch with during the pandemic. Reach out on social media, in addition to setting up a rotation of one-on-one sessions to ask questions about what is going on at the office or to offer your concrete assistance on projects.”[8]
Encourage your colleagues to use a mixture of online chat options and in-person meetings. On the days you do go into the office make a point of exchanging greetings with as many people as possible. Leave time in your schedule for in-person informal, ad hoc or planned, get-togethers. Think ahead about topics you want to discuss, issues you want to know more about, training you need. By planning these conversation points ahead of time, you will be more likely to find opportunities to insert them into conversations, and express your pre-planned points more coherently.
Conclusions
Millennials and Gen Zers are the workforce of the future. As such you have leverage in creating a new way of thinking about work. Use it to help traditional work-only firms begin to include flexibility and work-life balance issues into their culture. For yourself, create a one-on-one visibility program to make sure your physical absence doesn’t preclude an effective team presence.
[1] Rachel Tillman, “How do Gen Z, Millennials feel about returning to full-time work?” https://spectrumlocal.com/nys/centrail-ny/news/2021/06/16/ millennial-gen-z-work-force-pandemic-office–
[2] Jonathan Greig, “90% of millennials and Gen-Z do not want to return to full-time office work post-pandemic,” May 25, 2021, https://www.zdnet.com/article/90-of-millennials-and-Gen-Z-do-not-want-to-return-to-full-time-office-work-post-pandemic-report/
[3] Microsoft 2021 Work Trend Index: Annual Report, p. 4.
On July 7, 2021, Erin Gilmer, a lawyer and disability rights activist, died of suicide at age 38. Her work centered on the view of health as a human right. Erin fought tirelessly for patient-centered care and for a health care system that was more responsive and compassionate to the needs of patients.
Gilmer’s advocacy was based on her firsthand experience as a patient. She had an array of complicated health conditions, including rheumatoid arthritis, diabetes, borderline personality disorder, and occipital neuralgia. She shared her own experiences to illustrate the barriers, difficulties, and degradations she found to be inherent in the modern medical system, from the 15-minute doctor visits to the trauma of the health care experience, and to being dismissed as being “difficult” when she tried to advocate for herself.
Gilmer encouraged people to advocate for themselves, writing a free guide entitled What You Should Know as an Advocate. She included the voices of over 100 advocates from every walk of life to share what they wish they knew going into advocacy and what advice they’d give to other advocates. The guide focused on what it really means to be an advocate, in particular “the challenges you’ll face, the ups and downs you’ll experience, the realities of the commitment involved, the people skills that will impact your work, and the toll it can take.”
Erin demonstrated the realities involved in being an advocate, how hard it is and the amount of perseverance it takes. She shared her health struggles and the pain she felt worsening daily, calling on those in the medical profession to acknowledge patients’ lived experiences, truly listen to them, believe that they are suffering, try to find a reason for their suffering, allow patients to become colleagues in their care and share in decision-making, find humility, and extend compassion. Erin let us see into the reality of her struggles. In the end, she didn’t feel heard, believed, or cared for by the medical profession and decided she could not keep living in so much pain. The hope is that we can carry on her fight.
The ABA Young Leaders in Securitization and Structured Finance is a growing subcommittee of the Business Law Section (BLS) Committee for Securitization and Structured Finance. The committee and the Young Leaders are at the forefront of discussing and tackling new issues in the growing field of structured finance. Among the many topics discussed are cutting edge vehicles that manages leverage and risk, issues with warehousing and collateralized loan obligations and the effects of the latest Supreme Court decisions, such as, Collins v. Yellen, and their implications for the mortgage market. The Young Leaders take an active role in these discussions. Most recently, the Young Leaders hosted a practical workshop on the payment waterfall.
The workshop, hosted by the Young Leaders and joined by the panelists Alfredo Moreira, a Director at BofA Securities, Inc., and Nikolas Ortega, an associate at Cadwalader, Wickersham & Taft LLP, was a practical introduction taking attendees through how the priority of payments is crafted from term sheet to final document. The workshop was a great success and useful not only for associates and newcomers into the securitization sector,but served as an important refresher for more seasoned market participants in the intricacies of structured financial products.
The BLS Committee for Securitization and Structured Finance, and the Young Leaders subcommittee are both planning to hold additional events furthering interest and development in the securitization sector The Young Leaders also hope to continue to host events for young lawyers who are in the sector or are interested in it.
A decade ago, almost no one even had heard the word “cryptocurrency,” and gambling was a subject reserved to those who visited Las Vegas, Atlantic City, offshore poker websites, and, as ever, the movies. In 2021, both are mainstream and—increasingly—converging.
Supported by blockchain digital infrastructure, cryptocurrencies purport to offer the possibility of commercial and wealth-management activities outside the purview of publicly regulated markets and state treasuries and central banks. While employing currency-related terminology like “coins” and “tokens,” the adaptability and seemingly unconstrained purposes of cryptocurrencies present fundamental questions about their nature. Existent only in digital form and not created by any government mint, are they nevertheless akin to conventional currencies? Often volatile in value and not issued by a particular corporate entity, are they nevertheless akin to securities?
Of course, traditional currencies also bear features of both media of exchange and securities, and the facts that government actors neither create nor fully understand something do not necessarily prevent them from trying to regulate it. Indeed, to varying degrees, this is the circumstance of many business-lawyer clients, who are responsible for the generation of their business outputs and, vis-à-vis public regulators, tend to be the real experts in their respective fields. When it comes to cryptocurrencies, however, that degree of variance can be so extreme, and their relatively recent emergence and growing popularity coupled with a core identity that is openly hostile to state oversight, has thus far made it difficult for governments to develop workable regulatory models.
That regulatory uncertainty appears to have done little to slow the use of cryptocurrencies, which is not expressly outlawed. Cryptocurrency ownership requires a blockchain wallet, and available statistics show that the number of unique blockchain wallets has been growing at high rates in recent years. Anecdotal indicators, such as financial news sources like CNBC regularly displaying the live value of Bitcoin, perhaps the most popular cryptocurrency, alongside major stock exchange indices, also are consistent with the increasingly mainstream status of cryptocurrencies. Even government actors in countries like El Salvador and states such as Wyoming have expressed approval of the legal use of cryptocurrencies.
Meanwhile, gambling has pressed its way into the mainstream milieu in recent years as well, largely kickstarted by the Supreme Court’s decision in Murphy v. NCAA (No. 16-476, 584 U.S.___ (2018)) that the federal statutory prohibition on state-run sports wagering (the Professional and Amateur Sports Protection Act (“PASPA”)) was unconstitutional. Since then, about a dozen states, including New Jersey, Tennessee, Pennsylvania, and Michigan, have authorized sports and other gambling activities, with similar initiatives churning through many other state legislatures. Driven, to varying extents, by public interest, prior experience with online daily fantasy sports (“DFS”) and other games, and COVID-19-induced stay-at-home requirements, these state gambling authorizations and bills increasingly allow for mobile gaming applications that require little or no player interaction with brick-and-mortar casinos.
The Murphy decision was not quite the broad-scale legalization measure that some in the general public thought it to be, but there is little doubt that it signaled a call to entrepreneurs large and small to begin exploring in earnest the development of gambling and gambling-adjacent products. Some of these products, naturally, came in the form of sports books at land-based casinos that had not previously hosted them.
Far more of these new products, though, were mobile apps. Past experience with online poker, DFS, conventional fantasy sports, and internet casino (“iCasino”) games showed that an audience for mobile gaming exists, and it certainly seems easier to build a smartphone app than a brick-and-mortar casino. Incorporation of cryptocurrency compatibility and blockchain infrastructure made both practical and cultural sense: why not use the latest technology and do so in a way that might appeal to player preferences toward confidentiality in a so-called vice activity? Open, distributed, and decentralized technologies also lend themselves to the creation of different types of gaming experiences, such as peer-to-peer structures that, at least on their face, appear to bypass or invert the traditional concept of “the house.”
While the Supreme Court, in Murphy, ended a nationwide prohibition, the practical consequence was not nationwide, uniform legalization. As referenced above, the way forward was and remains a patchwork quilt of unique state-by-state authorizations that, for developers, represent another layer (or many other layers, depending on the scope of operation) of regulatory obstacles to navigate. Including cryptocurrency components might make engagement easier or more enticing for players, but it adds yet another regulatory web to an already highly regulated industry.
Gambling and currency are not remotely new to the human experience. Today, though, technology is permitting them to interact in new ways that pose new and exciting questions. Business lawyers navigating these overlapping regulatory environments also must think beyond basic licensing and compliance matters and consider significant security and privacy responsibilities.
Some of the most valuable assets for any company are its employees, key service providers, and advisors. This is particularly true for startups and emerging companies. A talented and dedicated team is essential to a company’s growth and scaling its operations. Yet, it can be hard to find and retain qualified employees, advisors and consultants. Established companies can typically offer more competitive salaries, generous benefit plans, perks and the promise of stability. In an integrated global economy where there is a worldwide competition for top talent, the reality is that startups and emerging companies need to be innovative, not just in their technology and services, but also in how they attract and retain talent.
One way startups and emerging companies can attract talent and incentivize employees, advisors and consultants (“Service Providers”) is by offering equity in the company. This is typically in the form of issuing shares or granting options to purchase shares in the future. By granting Service Providers equity in the business, organizations can ensure that the interests of these key stakeholders align with those of the company. This article will explore how startups and emerging companies can effectively use options to attract talent and scale.
What are Options?
An option grants the Service Provider the right to purchase shares at a predetermined price in the future. The assumption is that the company’s value will increase over time and that the Service Provider will be able to purchase shares at a significant discount at the time of exercise, or cash-out on a liquidity event such as the sale of the company. For a high-growth company, this offers Service Providers significant upside. Notably, as options are only a contractual right to purchase shares in the future, an optionee is not the same as a shareholder. Optionees do not have the rights or privileges of shareholders, such as the right to vote or receive dividends – until the optionee exercises the right to purchase shares.
Vested options are exercisable at the discretion of the Service Provider. Thus there is little downside to the optionee as the optionee may choose when or if it will exercise the options. Options also result in more favorable tax treatment for Service Providers when compared to issuing shares directly. This is because the Service Provider will generally only realize a taxable benefit in the year the options are exercised (assuming that the Service Provider is not paying fair market value for the shares). This ability to defer taxes may not apply in certain circumstances, such as where the entity issuing options is a non-Canadian controlled private corporation with consolidated group revenue of more than $500 million. The tax treatment of options is beyond the scope of this article and should be discussed with a tax advisor who has experience with options.
Stock Option Plan
Before issuing options, startups and emerging companies will generally put a Stock Option Plan (“SOP”) in place. SOPs are not required, but are recommended as they outline the rights and restrictions related to any issuance of options. A SOP is a policy document that outlines the terms and conditions of how a company will issue and manage the options it has granted. A SOP also outlines the rights and obligations of the optionee. It specifies what will happen to the options on the occurrence of a specific event, such as the sale of the company or the termination of the employment or engagement of a Service Provider. Typically, each optionee will enter into an option agreement with the company that will specify key terms associated with their options, such as the number of shares being awarded to the Service Provider, the exercise price the Service Provider will eventually pay for vested options and the vesting schedule.
Startups and emerging companies typically grant options to Service Providers based on a predetermined vesting schedule. This means that the options will not vest, and the Service Provider will conversely not have the right to exercise its options, until a predetermined event or events have occurred. This vesting schedule can be tied to years of service or the successful accomplishment of a milestone, such as securing a key client. If the vesting schedule is tied to years of service, a portion of the options may vest on each anniversary of the Service Provider’s start date. This will assist in incentivizing the Service Provider to remain with the company.
When devising a SOP, many factors need to be considered for the plan to be effective. Some key considerations are outlined below.
Considerations
1. Optionee Selection
Careful consideration should be given when choosing which Service Providers should be granted options. For example, long-term key employees in management roles who can directly impact the growth and performance of the business are usually preferred over roles subject to high turnover.
2. Selecting the Option Pool
A SOP will specify the total number of shares and class of shares that may be allocated pursuant to the SOP. The size of the option pool is typically a percentage of the company’s cap table and is negotiated by the key shareholders of the company, including the founders, key investors or other significant shareholders. The bigger the pool, the more the dilution in ownership can occur for each shareholder. The company must balance the risk of dilution with the need to ensure that the option pool is large enough to attract key talent. Though option pools typically range between 5%-20% of the company’s cap table, stakeholders should determine the appropriate size based on the unique factors the organization faces. The size of the option pool will typically be “topped up” on future equity financing rounds.
3. Strike Price
The strike price (or exercise price) is the predetermined price that the optionee must pay for the shares underlying the options. The strike price is usually set at fair market value at the time of the option grant unless there is a desire to reward past service by allowing the strike price to be set at less than the current value. Early-stage companies may set the strike price at a nominal amount to reflect the fact that the company’s valuation is typically low.
4. Vesting Period
The vesting period is the length of time that an optionee must wait to be able to exercise their options. Typically, options are not immediately available to be sold, exercised or transferred. The vesting period should be carefully considered because it could seem unattainable if the period is too long. However, if it’s too short, the optionee may exercise their options and then leave the organization, defeating the intended retention goal. It is common for startups and emerging companies to set a four-year vesting period for their Service Providers with 25% of the options vesting after the first year with the balance vesting monthly, quarterly or annually in equal installments over the following three years. Companies looking to reward past work of current employees may consider having a portion of the options vest immediately.
5. Termination of the Service Provider
The SOP will stipulate when the options will expire. This option expiry date is when the Service Provider will no longer be able to exercise their options. There are certain instances under which the option expiry date will be brought forward, for example, if a Service Provider is no longer engaged by the company. What will happen on termination is usually dependent on the reasons surrounding the termination of the relationship. What is typical is that if the Service Provider’s relationship with the company is terminated for any reason other than cause, the Service Provider will have a limited period following termination to exercise their vested options (e.g., 30 days following termination). If a Service Provider is terminated for cause, then the Service Provider’s right to exercise any vested options usually terminates immediately. In either scenario, the Service Provider’s unvested options are typically canceled. Startups and emerging companies should also consider including the option to repurchase any shares held by the Service Provider following termination. There are numerous reasons for doing so, including the desire to limit the company’s ownership for those who have received “sweat equity” to only those actively involved in the business.
6. Triggering Events
The SOP should also address what will happen if certain defined triggering events are to occur. This could include the termination of the employment or engagement of the Service Provider, the sale or restructuring of the startup or emerging business or a going public transaction. In the context of a sale of the company, organizations may want to consider if all or a portion of the unvested options will automatically vest. In addition, the company should ensure that it can force the exercise and sale of any vested options at the time of the sale of the company as a potential purchaser may be unwilling to acquire the business if it cannot acquire all of the shares of the company. If the exercise of the options takes place concurrently with the sale of the company, the options could be subject to a cashless exercise that would allow the optionee to exercise its options without having to pay cash to cover the exercise price. This is achieved by decreasing the number of shares the optionee will receive by an amount equal to the exercise price that the optionee would have been required to pay for exercising its options.
Conclusion
Options offer startups and emerging companies a method to attract and retain one of their most critical assets. Although there is significant upside in using options, companies should carefully consider how they structure options and SOPs to ensure they limit their exposure to risk, the ambiguity of terms and avoid unintended consequences in terms of the alignment of the company and the optionee.
The Supreme Court of Pennsylvania recently affirmed a Superior Court order in Pittsburg Logistics Systems, Inc. v. Beemac Trucking, LLC et al., No. 31 WAP 2019, finding a no-hire provision between competing, sophisticated businesses to be void as a matter of public policy and enforceable.[1] While the Supreme Court reviewed out-of-state and federal case law discussed by the parties on the enforceability of no-poach provisions and noted the federal government’s recent efforts to curb no-poach use, it focused its analysis and ruling on the balancing test set forth in the Restatement (Second) of Contracts. Under that test, the court reasoned that while there was a legitimate interest for the no-hire provision in the first instance, the restraint was both overly broad and harmful to the public on balance in this case. Therefore, although the outcome represents a victory for Beemac after a long road of litigation, the impact of this decision on future no-poach/no-hire cases remains unclear.
Background
The case concerned a preliminary injunction to enforce a no-hire provision that Pittsburgh Logistic Company (“PLS”) sought to impose against certain shipping companies, Beemac Trucking LLC and Beemac Logistics LLC (“Beemac,” collectively). Through the no-hire provision, Beemac agreed that during the one-year contract and for a period of two years following the contract’s termination, it would not “directly or indirectly hire, solicit for employment, induce or attempt to induce any employees of PLS or any of its Affiliates to leave their employment with PLS or any Affiliate for any reason.” But while the contract was in force, Beemac hired four former PLS employees, causing PLS to seek a preliminary injunction. The trial court denied the preliminary injunction request because it found the no-hire provision was void as a matter of public policy and therefore, PLS could not meet its burden to show a likelihood of success on the merits. An en banc panel of the Superior Court was convened after one of its panels affirmed the trial court decision. In exercising a highly deferential standard of review as to the grant or denial of preliminary injunctions, the court affirmed that the no-hire provision was an unenforceable restraint on trade, finding that it violated public policy because it allowed PLS to restrain employees without providing the employees with consideration. In reaching its decision, the Superior Court noted there was no Pennsylvania law on point, and therefore it relied entirely on out-of-state or federal decisions.
The Supreme Court allowed PLS’s appeal to consider whether “contractual no-hire provisions which are part of a services contract between sophisticated business entities [are] enforceable” under Pennsylvania law.
Supreme Court Opinion
The Supreme Court acknowledged that “Pennsylvania common law has treated restrictive covenants as restraints of trade that are void as against public policy unless they are ancillary to an otherwise valid contract.” If the restraint is ancillary, the court employs a balancing test to determine if the provision is reasonable, using the Restatement (Second) of Contracts test for evaluating the reasonableness of the provision. Specifically, the Restatement balancing test reads:
A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if
the restraint is greater than is needed to protect the promisee’s legitimate interest, or
the promisee’s need is outweighed by the hardship to the promisor and the likely injury to the public.
—Restatement (Second) of Contracts § 188(1)
Applying the Restatement test, the court found that the no-hire provision was an unreasonable restraint on trade because two commercial businesses used the provision to limit competition in the labor market “ancillary to the principal purposes of the shipping contract between PLS and Beemac.” The court recognized PLS’ legitimate interest in preventing its business partner from poaching its employees. However, the no-hire provision was “greater than needed to protect PLS’s interest and create[d] a probability of harm to the public.” The provision was overbroad because it precluded Beemac from hiring, soliciting, or inducing PLS employees for the one-year term of the contract plus an additional two years regardless of whether the PLS employee had worked with Beemac during the contract. Under the Restatement, the Court’s overbroad finding should have been enough to void the provision.
Nevertheless, the court went on to find that the no-hire provision created a likelihood of harm to the public in both specific and general ways. First, the provision specifically “impair[ed] the employment opportunities and job mobility of PLS employees” not party to the contract without their knowledge or consent. Under the facts of the case, this represented “real” rather than “hypothetical” harm because PLS sought the preliminary injunction to prevent Beemac from employing former PLS employees who had already taken a position with Beemac. Second, the court found that the provision generally undermined free competition in the labor market, creating a likelihood of harm to the general public. The court’s analysis did not explicitly weigh Beemac’s hardship and the public harm against PLS’ legitimate need except in a conclusory fashion in a statement at the end of the opinion.
Takeaways
The opinion is notable because it represents the first Pennsylvania state case to weigh in on the enforceability of a no-hire provision between two commercial businesses. The true import of the decision, however, will come only with time. One could argue, based on this decision, that any ancillary no-hire provision that impairs employment opportunity and mobility is unenforceable under Pennsylvania law. At the same time, the analysis used by the Pennsylvania Supreme Court indicates that every restraint on trade is subject to the balancing test under the Restatement and therefore, the outcome is based on the facts of each case. One wonders if the legal outcome would have been different had the no-hire provision been effective only for the life of the service contract and only applied to PLS employees who worked directly with Beemac.
The precedential value of the court’s analysis regarding harm to the public is also questionable. While the court found harm to the public in the record, it weighed that harm against PLS’ legitimate interest — an express requirement under the Restatement — only in a conclusory manner. This is significant because any no-hire or no-poach provision can be said to harm employee mobility in some regard. That is the purpose of the provision. On the other hand, one could argue that the court’s public harm analysis is merely dicta because the court had already determined that the restraint was overly broad. Put another way, once the court found the provision as overbroad, it did not need to also find that it harmed the public to be unenforceable. In the end, the court’s analysis here (while short) could have a significant impact on how employers in the state of Pennsylvania use no-hire provisions in their commercial contracts.
About the authors: Troutman Pepper Business Litigation Practice Group litigators A. Christopher Young, Jan P. Levine, Robyn R. English-Mezzino and Christopher J. Moran help clients analyze and solve their most emergent and complex problems through negotiation, arbitration, and litigation.
[1] See previous Troutman Pepper article on the Superior Court’s decision and its potential ramifications here.
Appraisers are not prognosticators; they apply professional judgment to available data. And what information is available? Transactions and market trends that occurred in the past. Looking to past market behavior after a crisis – be it financial, natural disaster, terror attack, or pandemic –may not provide useful data to support decisions regarding future behavior. This article discusses the issue with regard to property appraisals.
Using any of the three most common approaches to value presents the same problem. In the cost approach, the appraiser must determine the value of the subject land as if vacant based on the recent past sale prices of similar parcels of vacant land. The sales comparison approach depends on the recent past sales of physically similar properties. The income approach relies in part on the analysis of past rents for similar space and in part on the yield rates indicated by recent past sales of similar properties.
When markets are disrupted as suddenly and steeply as they have been during the COIVID-19 pandemic, how does relying on recent past transactions and market behavior support an opinion of current market value? How can an appraiser develop a credible opinion of market value in the aftermath of a disaster? Putting the human tragedy aside, business transactions and financial arrangements continue. How can appraisers provide value opinions and other analyses when markets are unstable at the least and more often downright chaotic? If appraisals are required during such times, the appraiser must do his or her best. It is up to the client and other users of the appraisal report to determine its reliability and usefulness as well as the durability of the value opinion.
What is required to determine market value of an interest in real property? Market value is defined as:
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
Buyer and seller are typically motivated;
Both parties are well informed or well advised, and acting in what they consider their best interests;
A reasonable time is allowed for exposure in the open market;
Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
(12 C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended at 57 Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994). (emphasis added)
Following a crisis, how can sale prices not be affected by undue stimulus? In fact, after a disaster most if not all of the criteria of market value may be unmet. In the last year, we have seen hotel occupancies plummet if not disappear; office leasing has fallen drastically, along with rents. Cinemas, restaurants, even summer camps have not been exempt from plummeting revenues while property taxes, insurance premiums, mortgage payments and rent for those properties that are leased have remined the same. Owners of such properties often sold when they were desperate to get out from under the costs of ownership; they were not willing sellers as we normally understand that term.
If an appraiser is required to value a commercial property as of March 1, 2021, relying as it should on recent past transactions and market behavior, the appraised value most likely will be significantly lower than the appraised market value as of March 1, 2020. The 2021 valuation may trigger default provision of a mortgage or reduce the asking price for the property to something significantly less than the seller had expected to realize. It has been reported that appraised values of shopping malls nationwide were 65% lower than the appraised values of the same properties at the end of 2019. If the data were available, something similar would likely be seen for hotel and office properties. The appraisal for the same properties as of March 1, 2023 will likely indicate values closer to those in 2019, significantly higher than in 2021 and even in 2022.
If the appraiser takes the position that transactions that occurred during the pandemic are not reflective of market value and relies on pre-pandemic transactions, the value will reflect the actions of market participants prior to the date of value, rather than the market participants temporally adjacent to the subject transaction, and so over-value the property.
It must be recognized that appraisers are required to use the available data; appraisers cannot fabricate comparable transactions. It is up to the users of appraisal performed in tumultuous times to assess the reliability and durability of these value opinions.
Contracts are essential to ensure legal obligations are met by both parties (primarily businesses) with their mutual consent, which in turn maintains a healthy commercial relationship. It is therefore vital to keep contract-relevant papers secure and organized because failing to meet obligations can lead to costly fines in the long run. This reflects the difficulty level of a lawyer’s fundamental job responsibilities.
Most businesses rely on lawyers and law firms for contract management services to prevent contract-related issues, such as a contract breach. However, companies lose 9.2% of their annual revenue due to poor management of contracts, according to the International Association for Contract & Commercial Management. Here, lawyers and other legal professionals can embrace LegalTech to enhance contract management efficiency, helping their clients prevent this hefty damage.
How is the Legal Industry Benefiting?
There are plenty of artificial intelligence (AI) tools on the LegalTech market that legal professionals can use to simplify various tasks. For example:
Clause identification & extraction – legal software can identify and extract specific clauses more precisely.
Contract review – this job has become easier with contract review tools and can be done in less time.
Contract management – software can be used to analyze a contract against a standard.
However, there are many firms that have not adopted new technology simply because of the lack of time and resources required to make the shift successful. Lawyers must realize the potentials of AI that can genuinely improve contract management. Instead of relying on traditional methods of drafting, consolidating, storing, and tracking contracts that consume a lot of time, legal practitioners can get better control with the help of AI tools by automating routine tasks and centralizing contract management.
Let’s now get into details of how legal technology benefits the industry.
Contract Drafting
For contract drafting, AI-powered software allows lawyers to use several standardized contract templates, ensuring the usage of the latest and most accurate language. Also, there are tools that are integrated with both AI and Machine Learning (ML) technologies that lawyers can use for language assessment, especially while adding new contracts to the system and screening existing contracts for confidential data.
Contact Review
Lawyers know how demanding the task of contract review can become. Considering the need for highly secured systems for contracts, many legal professionals are adopting new technologies to minimize their workload. Otherwise, since a contract is comprised of various important documents, many law firms depend upon an outside counsel or external, specialized document review services.
The latest LegalTech tools can automate the entire contract review process:
Reading contacts
Identifying key information
Presenting the information in a certain way so that it can be easily read and understood
Moreover, many law firms are experiencing the benefits of such software, which makes the review process a lot easier – it can even be automatically carried out within a few minutes.
Contract Management
Many lawyers and law firms consider contract management an intricate and labor-intensive task that requires them to track terms, conditions, obligations, and deadlines for each contract they manage. However, with new technologies, lawyers can upload contracts to a central location where AI software adds tags to each document automatically according to a predetermined set of criteria (for example, contract’s starting and end date, parties involved, type of contract, etc.). This enables users to view a snapshot of ongoing workflows and upcoming events, which means monitoring important dates and deadlines becomes easier that used to be one of the most challenging jobs related to contract management.
Catching up with a Changing Legal World
While the most suitable technology may vary as per the needs of individual law firms, one thing is certain: LegalTech adoption is a necessary step. Law firms should now know that AI is helping legal teams to streamline processes, making contract management a lot easier, efficient, and cost-effective. Such software also helps lawyers free up their time to focus on other, more critical practice areas.
With more and more lawyers, law firms, and in-house counsel turning to new technologies, affordable contract management may become common, and no one wants to be left behind. Moreover, the need for more efficiency and productivity will remain forever; hence, it is vital for legal practitioners to stay updated with the latest technologies and systems to catch up with industry-leading competitors.
Increased Visibility
Moving from paper-based contact management to digital contract management systems can be a smart step. Storing all contract-relevant documents in one centralized, secure location helps ensure optimal compliance and reporting. With this, law firm owners can ensure their staff is using the latest contract templates and clauses.
Additionally, in the current times when most employees are working from home, law firms can empower their mobile workforce by allowing them access to the platform using a password-protected panel. This way, all the latest contact templates and clauses can be made available for authorized team members from anywhere at any time.
Efficiency Enhancement & Time-Saving
Automation-powered contact management systems offer several great features, including:
online redlining,
negotiation,
editing,
approval cycle,
e-signatures,
emails,
alerts, etc.
The systems are very easy to utilize. Such tools are best for busy law firms handling a lot of contracts at a time as they help boost efficiency and improve the core of the entire process. All of this leads to fewer errors, helping lawyers and law firms save time.
Conclusion
Contract management software gives legal practitioners a competitive advantage, helping them create more value for clients. It moves the client’s organization way beyond a transactional approach using a complete, interlinked system that also offers valuable insights that grow with their business deals and help comprehend the value of their contracts.
The legal industry has entered an era where innovative & tech-focused legal service providers have a myriad of new opportunities. At the same time, clients stand to reap multiple benefits from better service and affordable legal fees. With this, we can say that LegalTech is helping the legal industry not only with contract management but also with a variety of functions and processes, taking center stage within this highly professional and vast industry.
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