Reasons for Deferral
The reasons for start date deferral are varied, but they all relate in some manner to a law firm’s top or bottom line:
- Economic Uncertainty: Economic downturns can severely impact law firm revenues. During such periods, clients may cut back on legal services, and firms may find it challenging to support a large incoming class of associates.
- Client Demand Fluctuations: The demand for legal services can be unpredictable. When client workloads decrease, law firms might not have enough work to justify hiring a new class of associates.
- Cost Management: Law firms often need to control costs to maintain profitability. By deferring start dates, firms can reduce salary and benefits expenditures during challenging times.
Financial Impact of Deferring Associate Start Dates
Start date deferral can have a significant positive financial impact on a law firm, assuming the cost savings exceed the revenue loss:
- Immediate Cost Savings: One of the most apparent financial benefits of deferring associate start dates is the immediate reduction in expenses. Law firms are relieved of the financial burden of salaries, benefits, and training costs associated with new associates.
- Preservation of Profit Margins: By deferring start dates, law firms can maintain their profit margins in the face of reduced revenue. This financial strategy allows firms to weather economic downturns without resorting to extensive layoffs or other drastic measures.
- Resource Allocation: Law firms can reallocate resources to more pressing needs, such as technology upgrades, marketing efforts, or expanding practices in growing areas of law. This can lead to long-term financial stability and growth.
- Retention of Top Talent: While deferring start dates can be frustrating for incoming associates, it can also be a retention tool. Firms can offer financial incentives or guarantees to associates who agree to delay their start, ensuring that top talent remains committed to the firm.
- Flexibility: Deferral provides law firms with the flexibility to adapt to changing circumstances. If economic conditions improve, firms can choose to accelerate start dates or hire additional associates as needed.
Challenges and Considerations
Despite the financial benefits, there are challenges and considerations that law firms must address when deferring associate start dates:
- Talent Pipeline: Delaying start dates may impact the talent pipeline, potentially leading to a shortage of experienced attorneys in the future if firms don’t hire new associates regularly.
- Associate Morale: Extended deferrals can harm associate morale and commitment to the firm. It is essential to communicate openly with associates about the reasons behind deferrals and any compensation adjustments made.
- Client Expectations: Clients may have expectations about the size and composition of legal teams working on their matters. Law firms must manage client relationships carefully when making staffing changes.
- Training and Development: Delaying start dates means associates join the firm later, potentially affecting their training and development. Law firms must have plans in place to address this challenge and ensure that associates receive necessary support and mentorship.
In April 2023, following a round of layoffs, Bay Area stalwarts began deferring first years to January 2024. In May 2023, Dechert—one of the 50 largest law firms in the U.S. by gross revenue—announced a global reduction in force. At the time, the firm let go of about 5 percent of its total workforce, including 55 attorneys and 43 business professionals. More than a dozen other large U.S. law firms have announced similar reductions in workforce since late last year. In June, Cooley offered a year-long deferral for certain incoming corporate associates with a $100,000 stipend.
More recently, Dechert announced the option for associates to defer their 2024 start, with the inducement of a $75,000 stipend if they choose to work with a nonprofit or pro bono entity through the firm. The associates who accept this deferment would start at the firm in fall 2025. Industry recruiters expect to see more deferrals, especially at firms that swiftly hired in 2021 and rely on deal activity tied to the tech sector. “I am not as certain as I was earlier in the year that things will quickly improve. There may be more fallout (layoffs or deferrals) before things start to get better,” cautioned HFF Legal Search partner and co-founder Jennifer Henderson, Los Angeles, CA, in The American Lawyer.
Deferring associate start dates has become a financial strategy that law firms use to adapt to economic uncertainties and manage their workforce effectively. While it offers immediate cost savings and helps preserve profit margins during tough times, it also comes with challenges related to talent retention, morale, and client expectations. “Deferrals allow firms to retain the top talent they’ve recruited,” Henderson reiterated. “And they can always bring them back sooner if demand improves…. It isn’t beneficial for these associates to start in a firm where they won’t have enough work to do, and it doesn’t behoove the firm to have associates not getting training and experience,” she explained.