Law firms are laying people off left and right, according to a story in the New York Times today as well as extensive coverage in the legal blogosphere. Above the Law even has a category, Layoffs, dedicated to the subject.
Or at least you would think the layoffs were coming left and right. The reality is that the layoffs appear to come mostly from BigLaw, not necessarily SmallLaw.
Lawyers like to think that, for the most part, we are recession resistant. Because if things go south, there are companies struggling with bankruptcy, litigation among feuding companies over deals gone south, and investigations galore.
But, according to the Times, the legal field seems to be contracting because the companies are so cash poor from the credit crisis, they don’t want to waste their cash on lawyers. According to the Times:
In downturns of years past, law firms exploited corporate failures and bitter, protracted lawsuits to keep busy and keep billing. But in this still-unfolding crisis, the embittered and the bankrupt have been relatively slow to appear, at least in court…
A wave of big company litigation — those suits that pit armies of associates against each other — has also not materialized. A recent survey by one big firm, Fulbright & Jaworski, found fewer large companies reporting new lawsuits against them this year. Although executives may desperately want to sue one another over recent losses, they may not know how big those losses are or want to know how big they are. In any event, cash is precious in this downturn, and litigation is both costly and risky.
And what does that mean for the BigLaw firms that generally handle this stuff? Lost jobs and altered billing practices for those that aren’t nimble enough to change their (high billing) ways. And that includes, interestingly, a contingent fee. More from the Times, buried deep in the article:
“Rather than having hourly rates, we are increasingly negotiating flat fees or fixed fees, or success fees,” which include a premium based on predetermined conditions, said Ivan K. Fong, chief legal officer and secretary at Cardinal Health in Dublin, Ohio, and chairman of the Association of Corporate Counsel. Some law firms have resisted those changes, he continued, but may find they have to accept clients’ wishes.
Success fees? Yeah, I’ve had those for awhile.
The problem with BigLaw is that some things can’t get cut back. Like that big fat rent bill from the Class A accommodations and the fancy wood-panelled offices. A healthy chunk of an associate’s billing goes to overhead, another healthy chunk to the partners and another chunk to the bloated salary of the associate who is two years out of law school.
SmallLaw, by contrast, generally doesn’t have these problems. SmallLaw doesn’t need to charge $800/hour because they don’t need to feed the vast BigLaw machine. And that means an opportunity for some.
Over at Legal Blog Watch, Carolyn Elefant asks this question in Should You Stay or Should You Go Now:
If you’re currently employed as a lawyer, should you stay at your firm or jump ship now? This Dallas Morning News story quotes experts who agree that, in this economy, it’s better to remain at a lousy job and take the paycheck instead of trying to find a new position. But I’m not so sure that’s the best approach.
In a deep recession, with companies looking to cut back on anything possible including ridiculously high legal fees, savvy lawyers might not be so keen on staying with a BigLaw firm with diminishing work. They may strike out on their own if they can grab a client or two to take with them while they build their practices. While no one answer is right for everyone, it seems clear that starting up one’s own firm in a recession might actually be a viable option for some.
My guess is that we are seeing the beginning of a big shake-out in BigLaw. The pressure will come not just from existing clients that may balk at paying the outrageous fees they command, but from below where former others are now hard at work recruiting their former clients (and new ones) with the same talent. But at half the cost.