Law firms saw a 9.9% growth in net income last year after cutting discretionary expenses and laying off lawyers, according to two reports released this week.
Initial layoffs and furloughs in 2020 hit staff members, according to Thomson Reuters’ Peer Monitor Index. Then, in the third quarter, law firms began to lay off lawyers, with associates being the primary targets.
By the end of 2020, the average law firm employed 1.6% fewer attorneys than in 2019, “a pace reminiscent of 2009 and the great recession,” said the Peer Monitor Index fourth quarter report, available here.
Law firms aggressively cut overhead in 2020, “and it has been quite effective,” the Peer Monitor Index report said. The cuts contributed to an 11.5% growth in profits per equity partner, a hike that was nearly triple what it was by the end of 2019.
The lawyer layoffs were due to decreased demand, as well as the funneling of legal work to more senior-level lawyers, according to Mike Abbott, vice president of market insights and thought leadership at Thomson Reuters, who spoke with Law.com.
A second year-end survey report, by the Wells Fargo Private Bank Legal Specialty Group, found that net income growth was up an average 9.9% at larger firms in 2020, up from up from 3.9% growth in 2019. Its report found an 11.2% growth in profits per equity partner.
In 2021, law firms expect an average 3.5% growth in revenue.
Joe Mendola, senior director of sales for the legal specialty group, told Law.com that the metrics were better than expected at the beginning of the COVID-19 pandemic.
“I think there was a lot of doom and gloom—firm chairs speaking to partners and telling them to expect 15% to 25% declines in profits. And lo and behold, the year didn’t play out that way,” he said.