Weekly take: Law firms can save jobs during downturns – here's how
Many firms let junior staff go during economic slowdowns, but is that really necessary?
When I recently mentioned to a lawyer that I left the legal profession for journalism, his response was: “I assume it probably wasn’t the most lucrative decision.”
It wasn’t the first time I had heard that. And I get it. The legal profession is widely celebrated as a rewarding and largely recession-proof career pick.
When economies go through downturns, businesses look for ways to monetise their dormant assets or suddenly remember to fight for ownership rights.
Those businesses turn to lawyers, who are usually able to secure enough work to safely sail through economic storms.
Of course, not all parts of a law firm are equally productive during a downturn.
In the intellectual property field, for example, downturns can lead companies to spend less on trademark filing, meaning there is less work for a firm’s prosecution division.
Similarly, fewer cross-border investments could mean a decrease in work for those handling transactions.
The post-COVID slowdown, along with economic issues fuelled by climate change, the Russia-Ukraine war, and geopolitical tension between the US and China, has caused businesses across the world to hold back.
With profit margins dropping, many firms have fired their staff.
Unsurprisingly, those at the bottom of the ladder – associates, paralegals, and support staff – were the ones to get laid off.
With artificial intelligence and legal tech on the rise, things could get worse as firms consider redundancies to increase profitability.
To me, this is an opportunity for firms to rethink how they operate and train their staff.
It’s unfair that more junior staff, who earn a tiny amount compared to partners, are usually the ones to suffer. After all, they are the ones responsible for handling a large chunk of client work while partners focus on business development.
I’m not saying associates and paralegals are more important than partners, or vice versa. But more can be done to retain young talent during slowdowns.
There are better ways to deal with the situation.
The first could be reduced spending, with upper management at law firms absorbing some costs.
In December 2022, it was reported that even though there was a 1.2% decrease in demand, firms nevertheless experienced a modest revenue growth of 4.1% on average. A lawyer’s average rate increased by 5.8% in the same period.
I won’t pretend to understand what it takes to keep a law firm running successfully.
But revenue growth of over 4%, coupled with an increase in fees, seems to indicate that some reshuffling of spending and remuneration could enable firms to retain junior staff.
This approach wouldn’t be unprecedented.
Many partners at law firms took pay cuts during the COVID pandemic to keep their workforce intact.
I haven’t seen any such announcement during the post-COVID slowdown, but I have read multiple stories about law firms letting go of their staff.
Of course, the top earners may feel it’s unfair to ask someone who has spent decades to reach their senior position to take a pay cut.
That should be a last resort. The first step, in my opinion, should be reshuffling how most firms operate.
Most big firms work in a compartmentalised manner. In the context of IP, for example, firms usually have different patent, design, and trademark teams.
That makes sense, given that patents and designs work may require a lawyer to have more technical expertise than trademarks do.
But even within trademarks, for instance, different teams usually handle prosecution, transactions, and litigation work.
I understand that compartmentalisation allows a lawyer to hone their skills to the point of perfection and spend fewer billable hours on a single case.
But the problem with this approach is that when demand for a particular segment of work declines, firms often lay off the lawyers who specialise in that area.
Those firms take the view that it doesn’t make economic sense to train a lawyer from scratch in a different domain, all while paying them a senior-level salary.
Law firms should instead give lawyers more flexibility in the work they do.
For example, it could be a good idea to expose a lawyer to a few different practice areas, such as litigation, prosecution, and transactions, early in their career.
If an economic crisis hits, companies may not want to continue filing lots of trademarks, but they may still look to spend on litigation and transaction to monetise their assets.
If firms have lawyers who are trained in different skills, they could easily repurpose the workforce from one department to another, reducing redundancies at the internal level.
Economic downturns are unpredictable, but firms shouldn't panic by just cutting staff at the first sign of trouble. After all, there's a human cost to cutbacks and firms must think about people before profit.
Who knows – if they do, maybe I’ll reconsider joining the legal profession again.