COVID-19 has had a massive impact on the legal industry. Since the pandemic resulted in shutdowns across the country, law firms have rolled out various cost-cutting measures, including layoffs, pay cuts, furloughs, and shortened summer programs. Given the generational influence of this circumstance, it behooves us to take a closer look at where things stand in the business of law.
Overall, law firms have seen a sweeping decline in new matter creation. According to a recent report from Clio, the number of legal matters opened each week from surveyed firms has declined over 30 percent since the start of the year. The report also revealed that 56 percent of law firms saw a significant decrease in requests for legal assistance. According to Jeff Grossman, head of business development at Citi Private Bank Law Firm Group, “one in five firms said demand for their services dropped 20% or more in April.”
Per the Clio survey, one reason firms are seeing a slowdown has to do with consumer attitudes toward legal problems. Roughly half of the respondents stated that if they had a legal issue, they would very likely delay reaching out for legal help until after the coronavirus pandemic has subsided, while 22 percent reported that they were under the impression that lawyers have ceased offering legal services completely.
“We’ve seen no indication that the need for legal services has subsided during the pandemic, but for many people, dealing with them right now isn’t top of mind,” said Jack Newton, chief executive officer (CEO) and co-founder of Clio, in a press release. “Law firms concerned about cash flow should be focused on understanding what barriers currently exist for clients, and be sure they are prepared to adapt their services to current and future needs of clients.”
According to the U.S. Bureau of Labor Statistics (BLS), the legal sector had lost approximately 64,000 jobs through April, bringing the total number of jobs in the industry down to 1,097,006. This included attorneys, paralegals, legal secretaries, and others. The figure is down by 50,000 jobs from the same point last year. The April Employment Situation Summary had updated statistics for March, showing 1,700 legal sector jobs lost during that month.
For perspective, there were immense job losses across the nation in all industry sectors. The BLS estimated 20 million jobs lost nationwide in April. Unemployment rose by 10.3 percent during that month, which was the largest monthly increase since January 1948.
The last time the legal industry went through an economic calamity, during the 2008–2009 Great Recession, layoffs were common. In the current environment, law firms have been adopting progressively drastic measures, in some instances, to shore up their finances and mitigate the economic impacts of the coronavirus pandemic. Below is a look at what some major law firms have done in response to COVID-19 to achieve cost-saving objectives.
Scott Meyers, Akerman’s chairman, said the firm planned to “control costs by reducing compensation payments across all levels of the firm and resizing our workforce.” Arent Fox made cost-cutting moves, including 25 percent pay cuts for associates and staff and a 60 percent reduction in equity partner distributions. For a three-month period beginning in May, Baker Botts announced it would reduce salaries by 20 to 30 percent for counsel, 20 percent for associates, and up to 25 percent for staff. The temporary pay cuts will not affect any employee making less than $70,000 a year. Additionally, Baker Botts has deferred the start date for its incoming class of associates until 2021.
Pepper Hamilton reduced distributions to partners and stated that all other attorneys would see their salaries decreased by 12 percent on an annualized basis. Staff with salaries of $60,000 or more will see their salaries cut by 3 to 9 percent, on an annualized basis, on a graduated scale. In a statement, the firm said it wants to avoid layoffs and is still planning to merge with Troutman Sanders. Pepper Hamilton also deferred the start date for its new associates to January 2021.
Reed Smith originally indicated it would reduce monthly draws by 40 percent for a period of five months for equity partners and 15 percent for three months for nonequity partners globally. More recently, the firm announced that its owners would bear the greatest amount of financial pain and, in addition to reducing partner draws, pay cuts for lawyers would be implemented on an annualized basis with 14 percent reduction for nonequity partners, 12.5 percent for counsel, and 12 percent for associates. Most of the firm’s professional assistants and select paraprofessionals will move to a four-day work week with compensation reductions.
Seyfarth Shaw indicated it would reduce equity partner draws, cut salaries, and furlough 10 percent of its U.S. workforce. Starting May 1, all nonequity lawyers in the U.S. would see their pay reduced by 10 percent. The firm also cut salaries for staffers, with the first $60,000 being unaffected, but earnings between $60,000 and $150,000 cut by 5 percent. Moreover, anything a staffer made above $150,000 would be cut by 10 percent. Equity partners saw their monthly draws reduced by 20 percent.
Shearman Sterling offered all its staff and fee-earners sabbaticals on reduced pay. The voluntary leave program allowed participants to take between three and six months off work at 30 percent pay. That amount would be increased to 40 percent if they engage in pro bono work during their voluntary leave.
Squire Patton Boggs noted its owners would take the biggest hit by way of reduced profit distributions. Associates would see salaries cut by 20 percent, but bonuses would not be affected. Support staff would see cuts ranging from 10 to 20 percent. Staff who were underused or unable to do their jobs remotely would be furloughed. The firm also canceled its 2020 summer associate program. Thomson Hine slashed non-compensation expenses and reduced quarterly partner draws by 15 percent and staff compensation by 1.7 percent on an annual basis. Womble Bond Dickson temporarily cut U.S. pay for attorneys and staff by 10 percent or less, furloughed “some selected employees,” and laid off “another small group.”
In a recent report, McKinsey noted that law firms weather downturns better than the overall economy. Of the past three downturns, only the Great Recession resulted in a decline in aggregate Am Law 100 revenue. The McKinsey report also predicted there will be a wide spectrum of demand across various legal sectors and practice areas. Elliot Portnoy, CEO of Dentons, noted in an interview that one of the challenges he sees is “to make sure we focus not only on how we respond to the pandemic, but what we’re positioned to do as we emerge from the crisis.”
Ralph Baxter, former chair of Orrick Herrington, pointed out that “law is essential to commerce and justice—so it is not going away.” He further stated that this pandemic is going to accelerate the modernization of legal service. “We’re in a totally unprecedented time—there’s never been anything like this.” Portnoy sounded a hopeful note that his firm would be “positioned for success when we emerge [from the pandemic], effectively stronger than even when we entered the crisis.” Baxter, likewise, is optimistic: “We are in the law business, and law is never going out of fashion.” Let’s hope he’s right.
