Encryption Best Practices for Microsoft 365 in Law Firms

Client trust now lives and dies on your ability to protect privileged information across cloud, mobile, and AI-driven workflows. Regulators and bar associations expect “reasonable” security, but threat actors target law firms precisely because legal data is valuable. This week, we unpack encryption best practices for Microsoft 365—how to select the right controls, configure them properly, and prove compliance—so your firm can safeguard confidentiality without slowing down modern collaboration.

Table of Contents

• Regulatory and Ethical Drivers for Encryption
• Microsoft 365 Encryption: Core Concepts and Tools
• Identity, Access, and Key Management
• Encrypting Email, Documents, and Collaboration Workspaces
• AI, Copilot, and Confidential Data
• Mandatory Best Practices: A 12-Point Checklist
• Incident Response, eDiscovery, and Client Notifications
• Future Trends in Legal Data Encryption

Regulatory and Ethical Drivers for Encryption

Encryption is not just a technical setting—it is a strategic control tied to risk, ethics, and client expectations. While frameworks differ, they converge on “appropriate” safeguards to ensure confidentiality, integrity, and availability. In practice, encryption substantiates your reasonable security posture and materially reduces breach impact.

Ethical guidance: ABA Model Rule 1.6(c) requires lawyers to “make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.” Encryption is a primary tool for meeting this duty, especially in cloud and mobile environments.

Microsoft 365 Encryption: Core Concepts and Tools

Microsoft 365 (M365) implements multiple layers of encryption—from the service to your tenant-specific policies. Understanding which layer handles which risk is crucial for defensibility and usability.

• Data in transit: TLS secures traffic between clients and M365. For voice/video (Teams), SRTP/TLS are used.
• Data at rest (service encryption): Microsoft encrypts content at rest in Exchange Online, SharePoint Online, OneDrive, and Teams-associated storage with strong algorithms (e.g., AES-256) using Microsoft-managed keys by default.
• Customer Key: Add a tenant-controlled key (stored in Azure Key Vault Managed HSM) to certain workloads (e.g., Exchange Online, SharePoint/OneDrive) to meet enhanced data control requirements. Validate current availability for additional services as they evolve.
• Double Key Encryption (DKE): You hold one key and Microsoft holds the other. Without your key, Microsoft cannot decrypt the content. This is suited for “crown jewel” matters but has usability trade-offs (limited co-authoring/search; some services cannot process DKE-protected content).
• Microsoft Purview Information Protection (Sensitivity Labels): Apply labels to documents/emails to enforce encryption, usage rights (view-only, no print/forward), content marking, and automatic classification.
• Office Message Encryption (OME): Encrypt email to internal or external recipients without pre-shared certificates. Templates like “Encrypt-Only” or “Do Not Forward” simplify workflows; recipients authenticate via federated identity or one-time passcode.
• S/MIME: Standards-based email encryption/signing using certificates. Ideal where counterparties support PKI; more administrative overhead than OME.
• Endpoint encryption: BitLocker (Windows) and FileVault (macOS) managed via Intune protect local copies, which is essential for offline access and device loss scenarios.

Identity, Access, and Key Management

Encryption is only as strong as identity assurance and key custody. Attackers often bypass encryption by stealing credentials or exploiting misconfigurations.

• MFA everywhere: Mandate phishing-resistant MFA (e.g., FIDO2, authenticator with number matching) for all users, admins, and service accounts.
• Conditional Access: Require compliant devices, restrict legacy protocols, block risky sign-ins, and enforce session controls (e.g., web-only, no download on unmanaged devices).
• Privileged Identity Management (PIM): Just-in-time admin elevation with approval and justification to reduce standing privileges that could expose keys or policies.
• Key custody and rotation: For Customer Key and DKE, store keys in Azure Key Vault Managed HSM; limit access via RBAC and separate duties. Implement documented rotation and escrow procedures.
• Guest access governance: Use Azure AD B2B (Entra ID) policies for external counsel, experts, and clients; sensitivity labels can control guest access to Teams/SharePoint resources.
• Audit and alerting: Enable Purview Audit (Premium where needed) and configure alerts for anomalous access, label removal, or unusual sharing.

Encrypting Email, Documents, and Collaboration Workspaces

Legal work spans email, documents, chat, and file-sharing. Choose encryption modes that match how people collaborate.

Email

• OME for client and opposing counsel communications: Use policies that auto-apply OME to messages containing matter numbers, PI/PHI patterns, or sensitive labels. “Do Not Forward” prevents recipients from forwarding or copying content.
• S/MIME for certificate-based partnerships: Where counterparties maintain PKI, S/MIME provides strong end-to-end encryption and signing. Maintain a certificate lifecycle program and clear external onboarding procedures.
• Secure replies and records: Ensure replies remain encrypted and that journaling/archiving integrate appropriately with encrypted content for eDiscovery.

Documents

• Sensitivity labels with encryption: Create label policies by matter type (e.g., “Client Confidential,” “PHI,” “Export-Controlled”). Configure usage rights: view-only, no print, watermarking, expiration, and offline access limits.
• Automatic and recommended labeling: Use trainable classifiers and sensitive info types (e.g., SSN, bank, health terms) to suggest or auto-apply encryption.
• DKE for the crown jewels: Use DKE for M&A, grand jury, or national security-adjacent files where even Microsoft must be unable to decrypt. Document workflows and exceptions since some services cannot process DKE content.

SharePoint, OneDrive, and Teams

• Service encryption and per-file keys: SharePoint/OneDrive encrypt each file at rest; add Customer Key for heightened control where required.
• Label-enabled sites and Teams: Apply sensitivity labels to Teams and SharePoint sites to control privacy (public/private), external access, and unmanaged device policies. Labels can propagate protections to files within.
• External sharing hygiene: Use “Specific people” links with expiration and passwords; disable “Anyone” links for confidential repositories; restrict downloads for unmanaged devices.
• Teams meetings and chat: Content in meetings is encrypted in transit; recordings and files are encrypted at rest. Consider optional E2EE for 1:1 calls when needed, recognizing feature trade-offs.

AI, Copilot, and Confidential Data

AI can accelerate drafting and research, but it must respect encryption and access boundaries.

• Copilot for Microsoft 365 honors permissions: If a user cannot open a labeled/encrypted document, Copilot cannot surface its contents. This is why accurate access scoping and labeling matter.
• DKE content and AI: Many AI features cannot process DKE-protected files. Decide in advance which matters are DKE-only versus label-encrypted with co-authoring.
• Disable consumer AI connectors: Prevent users from copying privileged text to non-enterprise AI tools. Provide sanctioned AI with commercial data protections and clear usage policy.
• Prompt hygiene and logging: Treat prompts and outputs as business records when material; apply retention/labeling; restrict export of chat transcripts if they could include sensitive snippets.

Mandatory Best Practices: A 12-Point Checklist

1. Mandate MFA and block legacy auth: Enforce phishing-resistant MFA; disable IMAP/POP/Basic Auth to prevent bypass of OME/S/MIME protections.
2. Standardize sensitivity labels: Publish firm-wide labels (“Client Confidential,” “Internal,” “Public”) with encryption where appropriate; require labels on new document creation.
3. Automate labeling: Use auto-label policies (keywords, classifiers, sensitive info types) for emails and files; require user justification to downgrade labels.
4. Adopt OME for external correspondence: Create transport rules that automatically apply OME based on patterns (matter numbers, PHI/PII) or sender groups (e.g., healthcare, employment).
5. Deploy S/MIME where necessary: For partners requiring certificate-based encryption, implement enterprise PKI, client certificate distribution, and key recovery procedures.
6. Use Customer Key where required: For clients or regulators demanding customer-managed keys, scope Customer Key to applicable workloads and define rotation cadence.
7. Reserve DKE for the “crown jewels”: Publish a DKE usage policy; pre-stage compatible workflows; train attorneys and litigation support on limitations.
8. Harden external sharing: Disable anonymous links in confidential sites; set default to “Specific people,” enforce link expiration and passwords, and restrict download to web-only on unmanaged devices.
9. Encrypt endpoints and govern devices: Enforce BitLocker/FileVault with Intune; require compliant devices; apply App Protection Policies for mobile; wipe on loss/theft.
10. Implement DLP and monitor exfiltration: Create DLP policies for client names, matter IDs, PII/PHI; block auto-forwarding to external domains; alert on mass download or unusual sharing.
11. Secure admin and keys: Use PIM for admin roles; split duties for key management; store keys in Managed HSM; log and alert on key operations.
12. Test and document: Run tabletop exercises for encrypted email with clients, DKE access recovery, and external sharing; retain evidence of control design and effectiveness for audits and client demands.

Incident Response, eDiscovery, and Client Notifications

Encryption changes breach dynamics and legal obligations. If stolen data is strongly encrypted and keys are intact, notification duties may be reduced in some jurisdictions. Your plan should reflect this.

• IR runbooks: Include steps to verify encryption status of affected content, review key integrity, and assess whether data was actually exfiltrated in readable form.
• Purview eDiscovery: Validate that encrypted content remains discoverable for authorized legal hold teams. Plan workflows for OME/S/MIME and label-protected documents.
• Backups and key continuity: Ensure backups are encrypted and tested; maintain secure key escrow and rotation logs to avoid accidental data loss.
• Client communications: Pre-draft notices explaining your encryption posture and how it limited risk. Coordinate with cyber counsel and carriers.

Future Trends in Legal Data Encryption

Encryption strategy will keep evolving with regulation and technology. Expect:

• Post-quantum cryptography (PQC): Roadmaps to PQC-ready protocols and key management will matter for long-lived archives and privileged material.
• Broader customer-managed keys across SaaS: More workloads will support tenant keys, enabling consistent control and regional compliance (e.g., EU data boundary requirements).
• Confidential computing: Hardware-based enclaves to process encrypted data with minimized exposure—relevant for sensitive analytics.
• Deeper AI-policy integration: Sensitivity labels and encryption will more tightly govern what AI can index, summarize, or export.
• Automated compliance evidence: Systems will generate audit-ready proofs of encryption, access decisions, and key events to satisfy client and regulator due diligence.

Proactively implementing encryption best practices in Microsoft 365 lets your firm protect privilege, comply with evolving regulations, and collaborate at the speed of modern practice. By combining layered encryption, strong identity, and disciplined key management, you reduce breach impact and increase client confidence—while keeping attorneys productive across email, documents, Teams, and AI-enabled workflows.

Want expert guidance on compliance, security, and privacy in legal technology? Reach out to A.I. Solutions today for tailored solutions that protect your firm and your clients.