Target brings fixed fee arrangement system to Canada

When Target begins opening stores in Canada next spring, it won’t just be bringing its much-anticipated retail savvy — its law department plans to roll out some of the alternative billing arrangements it has been recognized for with external firms south of the border.
“We’re excited to bring the learnings we’ve had in the States up here, and frankly the firms have been very open and willing to work with us and build a relationship,” says Eric Sjoding, director and assistant general counsel, employee relations for Target Canada.

Target entered into a lease transaction with Zellers and Hudson’s Bay Co. in 2010 and assumed 135 leases of existing Zellers stores, which will start closing down next week and through 2012. In March 2013, Target will start opening stores in Canada with 25 outlets in the Toronto area.

While in the U.S. Target has established billing arrangements with 18 different external firms, in Canada Sjoding says the retailer is working with three external law firms — Sherrard Kuzz LLP in Toronto, Roper Greyell LLP in British Columbia, and Norton Rose Canada LLP as its national law firm.

“We have already approached them for fixed retainers. As a new company starting in Canada we have put upper limits on those and asked for one rate for advice everywhere in Canada except for Quebec, and also built out, in preparation for litigation, negotiated blended rates per province with the one large law firm, along with fixed fee arrangements for employment and human rights cases and employment standards claims and workers comp,” he said at the Association of Corporate Counsel Ontario chapter meeting June 21 in Toronto.

In the U.S., Target’s law department separates out employee and labour relations functions from the broader law department. In its Minneapolis, Minn. headquarters, there is a large law department of 70 lawyers led by the general counsel of the corporation and then a separate employee labour relations function exists within the human resources pyramid.

“Our general counsel reports to the head of HR who reports to the CEO of the corporation,” says Sjoding. “Our team in the U.S. is about 18 attorneys and 100 people total consisting of HR and operational partners spread across the U.S.”

Assembling the Canadian legal team began last August with senior counsel Alex Teijeira. Mark Wong, previously with The Source, will be the general counsel here in Canada, and there will be two additional counsel and a total team of 14.

Last week Target won an ACC Value Champion award for work on fixed fee arrangements it put in place to control legal spend with its employee labour relations firm in the U.S.

“We really launched fixed fee arrangements in 2008,” says Sjoding. “There was the looming recession in the U.S. and we had suffered through a number of year-over-year increases in fees and had seen a spike in litigation. We needed ways to control our budget and bring more predictability to what we were spending on cases.

Target embarked on an 18-month pilot and in mid-2009 leveraged the recession to approach its law firms and to see if they would consider continuing with the same rates for another 18 months.

“All 18 firms participating with our fixed fee arrangements were immediately on board and the wonderful thing is even since then what we’ve seen is by introducing a format like this it’s driven firms to be more efficient with how they are staffing their cases and working through them,” he says. “By no stretch have we seen a deterioration of the results we’re getting but we think we’re driving better value in general.”

Overall, Sjoding estimates that by going with fixed fee arrangements the company has seen about a 10 per cent reduction in costs.

At about the same time Target also implemented Serengeti matter management, an e-billing system used by corporate law departments.

“We were still getting paper bills and they would pile up and they wouldn’t get to the right attorney and the firms were complaining their bills weren’t being paid on time. We wanted to get a better handle on things, to report and control legal spend. Whether it’s Serengeti or another online billing function I would highly recommend it,” says Sjoding.

For Target, the system helped get a lock on items Sjoding felt were out of control.

“It’s the things that drive you nuts as in-house counsel — it may not be the rates, it’s all the additional fees and costs at the end of a matter. But you’re too busy or it’s too much of a pain to raise a fuss about an extra trip or copying charge that is more expensive than what your external counsel guidelines say,” he says.

Now, when he receives a legal bill, anything that comes across as a violation of Target’s retention guidelines with its outside firms pops up on the audit function of their system and he must approve any exceptions to the Target-specified guideline.

Sjoding also shared Target’s philosophy on how external firms should work collaboratively together.

“We leverage a lot of different firms and we expect them to work collaboratively together,” he says.

For example, in nationwide class actions in the U.S. Target is leveraging a large firm in California and another in Minnesota. Getting them to work together is aided by having a matter-management system in the middle where they can upload documents and file share.

“We’re doing the same thing in Canada and working already with three different firms on a matter to create one central depository of documents that will be produced in that case as a central resource,” he says.

Target also brings the “best and the brightest” of its external law firms together in Minneapolis for two days for an outside counsel conference, now in its sixth year.

“We don’t invite everyone but our 15 best firms are included. Two of the best people from the firms are invited and they interact together. The first time we did this it was almost awkward for the first day — we made them work together on presentations to present to us,” says Sjoding.

Target also conducts annual reviews with its firms and measures how they are performing on issues such as diversity.

“Companies like ours pushing law firms to disclose that information and holding them accountable is the only way the law profession is going to improve themselves on diversity and gender,” says Sjoding. “As we move into Canada we understand the diversity discussion is different — the amount of metrics U.S. companies are required to keep and report on are entirely different than they might be here, but we are looking at it as a company as a whole and as a legal department.”

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