Big Law Lay-Offs and the “New Normal”. Is the High-End Legal Service Market Shrinking? Or are Clients Imposing Fiscal Responsibility?

Posted on July 16th, 2013 by Legal Fee Advisors

There has been a lot of press regarding recent mass layoffs at Weil, Gotschal & Manges and downsizing at other “Big Law” firms.  The firm of 1,200 attorneys laid off 60 junior lawyers and 110 non-lawyers (roughly half secretaries).  The firm is also reducing compensation for 30 of 300 partners, who, per the 6/24/2013 NY Times article, “Mass Layoffs at a Top-Flight Law Firm” make about $2.2 million each/year.

The Times article asks if the high-end legal service market is shrinking, but there will always be clients willing to pay “top dollar” for “the best” legal representation.  The issue then appears to be “what are we getting for our money?”  Clients want excellent representation, but they also want to know that even the biggest firms are working efficiently and cost-effectively. The emphasis is on value.  Gone are the days of million dollar invoices “For Services Rendered”.

Weil is laying off 7% of its “junior lawyers.”  But what are the statistics on these attorneys?  What “class” years do the represent and how many from each class were let go?  Many clients impose billing guidelines that disallow junior associates on their files or disallow inexperienced associates to bill for “learning” to lawyer on the clients dime.  What rates were the “junior lawyers” being billed at?  Billing rates at “Big Law” firms are higher across the board than other firms, not just at the partner level.  Understandably clients don’t want to pay “top dollar” for inexperienced attorneys doing low-level work which can be outsourced to attorneys with more experience at significantly lower rates.  Nor do they want to pay for work that needs extensive review/revision or associates who do not work as efficiently as more experienced associates.  But the article does not specify the background of the laid-off associates and it is possible the firm laid-off more senior associates simply to reduce the firm’s payroll and keep partner profits high.

Without a full understanding of the drivers behind the firm’s layoffs, it is hard to draw solid conclusions.  The lay-offs are likely based upon many factors, some purely economic for the firm, and some based on the changing nature and climate of the law and delivery of legal services.

For example, while technology has lessened the need for traditional support staff (secretaries, librarians, clerks, etc.) in the face of firm downsizing, clients should ask about the ratio of support staff to attorneys, and review invoices carefully to make sure that paralegals, and even junior associates, are not performing clerical work due to insufficient support staff and the ever-present emphasis on billable hour quotas.  Further, given the new technology it is worthwhile for clients to ask exactly work will be done by support staff, to question the nature of the work, and to determine whether the work represents the provision of legal services, or work that is ancillary to the provision of legal services and should be billed, if at all, as an expense item rather than as legal fees.

An interesting footnote is that the Times article notes that “during the depths of the downturn, the firm avoided the layoffs that some other firms were forced to make,…, largely because of the firm’s pre-eminent bankruptcy practice.”  Is it just coincidence that the Weil layoffs come immediately after the announcement by the Justice Department that the Bankruptcy Court is implementing billing guidelines that will apply to legal fees in large bankruptcy matters?  It will be interesting to see what the next few years hold for the business of law.

B. Popik

Legal Fee Advisors © 2013

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