Wal-Mart Refuses Law Firm Fee Hikes, Cites High Associate Salaries

Andy G. Jay
Nov 9, 2007 6:21 AM CST

As a big city attorney who has spent most of his 35 year career at large firms, I am appalled at what firms pay young associates, admittedly bright folks who really are not trained to do much legal work at all.  It takes a minimum of 3 years - more for transactional lawyers - to have sufficient experience to do anything professional in the legal “industry.”  I applaud Wal-Mart and hope other clients follow its lead.  At some point the firms will then have to be realistic and economoic in paying for recent grads, and stop the self-destructive escalation of first year salaries and bonuses.  In fact, I think that law graduates should have to do a 2 - 3 year “apprenticeship,” much like an internship/residency in medicine, at a very meager pay (reflecting the fact that they are not really productive but are senior students learning the trade) prior to being permitted to work on a client’s real work.  I would even endorse the concept that the young lawyers pay their firms for the training during the initial years, with a forgiveness of the tuition to the extent the associate stays with the firm and permits the firm to amortize the training costs.  (Firms have stopped really mentoring and training because they feel the investment is not worth it;  associates merely move on to the next job and “rob” the firm of its investment in training.)  Only in that way will firms have the incentive (which they have lost over the last 20 years in which billable hours are everything) to really train associates instead of just giving them busy work and charging large clients like Wal-Mart outrageous hourly rates for young people who cannot add much value to the high level legal advice and representation that clients are seeking.  If clients stop paying for the totally unearned and unjustified salary inflation at the low level, the firms will stop.  Bravo, Wal-Mart.

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sarah b.
Nov 9, 2007 6:33 AM CST

As a law student who is going to graduate with over $100k in loans I would not be able to survive in Andy’s proposed training costs and meager pay.
However, as a student I realize how little practical experience we get-even with clinics.
My school of thought has always been to make 2 years of classroom study mandatory and 1 year of externship mandatory combining that with summer internships and clinics more students would be on their way to being professional in the legal industry. 
Further, the cost of tuition for the year of externships could go in part to training costs.

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CJ
Nov 9, 2007 6:44 AM CST

I’m a temporary doc review attorney and I think Walmart is right. The firms pay people in my position 35 dollars an hour with no benefits then have us supervised by first or second year associates that are less productive and functional than us but get paid 130k plus benefits. However, they bills us out at the same rate (or close) to the client.  As an attorney that is at the very least, experienced at discovery matters it is very frustrating to be supervised by associates without a clue.  Hey Walmart! Give me a job running your discovery projects and I will save you money like you save me money at your stores, I also know hundreds of temp attorneys in New York that are equally functional as high priced Yale and Harvard lawyers, but without the expensive lifestyle to maintain.

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ES
Nov 9, 2007 7:23 AM CST

Let the market work, folks.  When clients (like Wal-Mart) don’t feel that the services they are receiving are worth what they are charged, they will go elsewhere.  Wal-Mart can hire any firm it pleases.  But I assume that Wal-Mart doesn’t go and hire the cheapest firm because the high-priced firm does better work and achieves better results.  When firms don’t feel like they need to pay larger salaries to young associates to attract talent, they won’t.  Firms invest in talent.  One of the reasons temprorary document review attorneys are sometimes supervised by people making more than them with less experience is that the firm hopes that its associates will grow into something more than temporary document reviewers.  I do, however, agree that law training should be re-thought and re-structured.

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LSB
Nov 9, 2007 7:35 AM CST

Sandra,

It is not a client’s responsibility to repay your loan.  You have a few options:  (1) work within the system;  (2) enhance your skills so that you are of value to the client; (3) find another line of work; (4) get a second job.

Welcome to the real world.

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JS
Nov 9, 2007 7:49 AM CST

The reason for rate hikes needs to be examined before we discard the concept. If the rate increases were modest—for example, 5% or so—then perhaps the change was simply a matter of inflation. Also, individuals with more experience should be able to charge more for their services, even if that experience is just one year more than the experience possessed at the last rate increase.  That being said, if the rate increases were unreasonable, then Wal-Mart has every right to choose to seek legal counsel elsewhere.

On another note brought up in the comments, I find that most attorneys with 15 + years of experience have no concept of the financial burden a newer attorney undertakes to attend college and law school, even schools that are not ive league or top tier.  Most associates now are paying between $500 and $1500 per month in student loan debt.  While it may not be the client’s responsibility to pay for that directly, it is a reality that all individuals seeking legal advice need to recognize.  We spent a considerable amount of money to even get in the door of this profession, so we need to charge reasonable fees to off set that. (Please note I said reasonable fees, not exorbitant ones.)  In order to solve this problem from my own perspective, I would be ecstatic to work out a deal with my firm—which has a wonderful work environment with great associate development, but could definitely use a dose of financial reality re: associates’ lives—where the firm would take over my student loans in exchange for a committment of years.  Where do I sign?

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Bob
Nov 9, 2007 8:08 AM CST

If you look at the salary increases, they really aren’t that exorbitant anyway.  In Atlanta, where I practice, they were paying new attorneys $100k in 2000.  Starting on January 1, 2008, most big firms are going to $145k for new associates.  That is an annualized increase of only 4.75% per year, hardly exorbitant.

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Zach
Nov 9, 2007 9:22 AM CST

Attention recent law grads:  STOP WHINING ABOUT YOUR LOANS!  You made that bed, now lay in it.  Are you so ignorant of fundamental principles of economics to not realize your debt is totally irrelevent to the question of associate salaries and hourly rates?  Neither law firms nor clients have any responsibility for assuring your means of paying that debt.  You have a job for one reason and one reason only: There is work that needs to be done.  The only relevent considerations concerning your compensation are basic principles of supply and demand.  That basically boils down to a question of whether clients are willing to pay hourly rates which will support these skyrocketing associate salaries.

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Ken
Nov 9, 2007 9:26 AM CST

I worked at the Wal-mart coprorate offices for a few years.  They nickel & dime the hell out of every employee, vendor, contractor, etc.  It’s nothing new.  Sadly they always seem to find someone willing to take the abuse just to have Wal-mart on their client list.

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Doug
Nov 9, 2007 9:27 AM CST

Ironic.  If Walmart wants to avoid paying attorney fees of 500-1000/hr, then it should stop chiseling its own emplyees out of pay for a few lousey hours of work.  It must still be cheaper to pay attorneys when its gets caught than to pay its own employees for the hours they earn.

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Now it's the lawyers' turn
Nov 9, 2007 9:31 AM CST

It is hilarious now that Wal-Mart is now turning its sights onto the $160K associate salaries.  Wal-Mart has been paying its store employees near minimum wage hourly rates, combined w/ their notorious unfair labor practices.  Even at double the federal minimum wage, that would be under $30K/yr.  Yet no one cares about this and the ever-increasing gap b/w the rich and poor, and the middle class being squeezed out.

What CJ (#5) said is interesting.  Basically large firms are cheating their clients when they have a document reviewer do the work @ $35/hour then turn around & bill $500/hour for it.  Wal-Mart’s cost-cutting practices, even at their corporate headquarters, are well-known.  It’s about time they noticed the ridiculous costs (and therefore charges) of the large firms.

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James Lindon
Nov 9, 2007 9:39 AM CST

If you have Wal-Mart as a client, you deserve what you get!  I’m shocked Wal-Mart does not openly advertise that they use lawyers from China or India - since they outsource everything else.

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chio
Nov 9, 2007 9:46 AM CST

I found that my law school classmates were financing a lifestyle instead of an education.  I came out of law school with 40% less debt than nearly all of my close friends.  The difference:  I lived in a modest apartment, packed a sack lunch, rarely went out to eat and did not spend two or more nights a week in a bar.  I didn’t have any family money to help me out, so I borrowed money for an education, not a lifestyle.  Once I landed a high paying, big city, large firm associate position, I continued living modestly and paid down my student debt quickly so that I could be free to make a lifestyle decision down the road.  Meanwhile, my friends with the large law school debt continue to live what I consider to be an exorbitant lifestyle and complain about the amount of student debt they still have.

When I hear people complain about their student debt, I always wonder what they were financing—an education or a lifestyle.  It’s all about personal choices.  I made mine.  You make yours.  Mine isn’t necessarily the right choice for you.  But, we all live with the consequences of those choices.  Just be glad to live in a country where we have the freedom to make those choices.

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Brian
Nov 9, 2007 9:50 AM CST

Hey Zach, you forgot the other end of the supply and demand curve.  If you bankrupt all of the young attorneys they will drop out of the legal field and fewer people will enter it.  The supply of attorneys will go down, and because of that, the rates law firms charge will skyrocket to unconscionable levels.  The cost of education has to be addressed.  Right now it’s addressed through high salaries for new associates.  If you take that away, you have to replace it somewhere, or companies like Walmart will shoot themselves in the foot and have to pay exorbitant fees to get one of the few attorneys left to represent them.

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R John
Nov 9, 2007 9:58 AM CST

Wal-Mart should take its business elsewhere if it believes that its counsel is too expensive.  Partners should stop their self-interested whining because it is the market that determines the salaries of associates at top firms.  And LSB and Zach should stop making snippy ad hominem attacks and instead enroll in an economics class.

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Noonie McWhorter
Nov 9, 2007 10:00 AM CST

If I were Wal-Mart, I’d complain, too.  I make a third of what big-form newbies make, but I love my job as an attorney for the state.  It’s exciting, rewarding, and I get to go home at 5 o’clock everyday, if I want.  Sure, I’m up to my neck in student loans and drive a Toyota, but I’m still able to pay my mortgage, take a trip to Europe, and save money for retirement.  I have a life!  Be wise with your money, people.  You can survive.

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Adrian
Nov 9, 2007 10:04 AM CST

Zach-
Your comment actually demonstrates your ignorance and lack of understanding basic economics.

Most students look for a reasonable return on their “investement” as Bob noted earlier.  Firms know this—that is why they have to factor in the cost of living as well as the cost of law school in determining associate salaries (both of which btw increase every year).  If you don’t account for these things firms and the market will lose out on legal talent—which means high rates/salaries anyhow (like Brian points out)

In the end, Wal-Mart will not dictate big firm salaries, the market will.  If they don’t like what they are paying, they can always go to another firm.  Firms will do what is necessary to get the clients—within reason and if in the end it is profitable for them to do so.

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Avatar910
Nov 9, 2007 10:05 AM CST

OK, let’s see.  College and Law School costs are clearly escalating at a rate that exceeds, by a long margin, the CPI.  Law Firms are competing for “talent” such that a wet behind the ears graduate of a top 20 law school can be characterized as being.  Companies are seeking a good or better work product at a reasonable price..  How have other industries solved this issue?  They have done it in a number of ways.  First, they have reduced outside counsel and brough more of the work in house, where billing is not a issue, and the work can be monitored.  I don’t believe for a second that most of the day-to-day rudimentary work needs a $1,000 dollar per hour partner (or a $400 per hour partner for that matter).  Second, they have outsourced work to locations where the work can be done as effectively and less expensively.  Owens -Corning has hired lawyers in the Phillipines to sort through documents and recover costs associated with its insurance litigation related to asbestos.  India has many trained lawyers which speak English as the language of instruction.  While these solutions may not work for every problem, they certainly could be a solution for some of them.  Finally, why must a company hire a firm in Los Angeles, New York, or San Francisco to handle recurring issues?  Certainly there are fine counsel in Kansas City, Minneapolis and Denver where the billing rates are less onerous.

Now, as for the $100,000 in loans that people are whining about.  Did anyone think about a “pay-as-you go” concept.  If you took 3-5 years off and saved a portion of your tuition, the loan burden might actually be reasonable.  Not everyone needs to be in law school when they are 21.  Quite frankly, if you work for some companies, they reimburse your tuition.  In addition to saving your money to pay for the expense, and also working and having the company pick up the burden to some extent, there are a number of other ways to reduce loans.  I understand that serving in the military (oh, horrors, maybe serving my country would be wrong) results in an ability to get them to pay retention bonuses and other monies that could be used to defray the costs of law school.  Indeed, joining the JAG and serving as an officer is another way to receive an education without being burdened with debt.

I for one have no patience with junior associates being assigned to work on my files and wasting effort.  I won’t pay for it.

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Joe G
Nov 9, 2007 10:13 AM CST

Luckily for Walmart, the legal industry is a marketplace just like any other.  Certainly, a multi-hundred-billion dollar conglomerate can find affordable legal services somewhere.  If you don’t want to pay $1,000 an hour, there are other firms that will bill you less just to land your business.  You get the same level of legal services.  Just ask the insurance industry.  They are known for being cheapskates.

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Paul B
Nov 9, 2007 10:44 AM CST

Fascinating discussion.  I have been in practice for 28 years, all in trial work.  My partners do transactions.  I think it takes 5-10 years to become a good lawyer.  And my experience with large firms is that they use young associates who waste a lot of time on efforts that don’t really advance their client’s cases much, and often contribute ot a poor result.  But there are plenty of clients who seem to like that kind of representation.

If a law student incurs a huge debt to purchase entry in a club which they are likely to conclude is not worth the price, then they made a foolish mistake.  And if demand for law school admission decreases, so too will the cost of law school.

In the end, clients and lawyers are getting what they want.  I don’t think anyone should be shedding any tears for either group.

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Roi
Nov 9, 2007 10:54 AM CST

To clarify, Wal Mart didn’t say they were paying $1000/hr, only that the firms were charging that.  It seems that the threads are going along two avenues: 1) Wal Mart is the big evil cheapskate that doesn’t pay; and 2) student loans are making it dificult for lawyers to work for less than $160k/yr.  I disagree with both points based on facts only.  Some have said that the market will dictate prices, not Wal Mart.  Wal Mart is a market participant.  Thus, Wal Mart, like it or not, is the market.  And they can be characterized as either cheapskates, or efficient, depending on your like or dislike.  I think that is an important lesson to be learned in efficiency from Wal Mart’s attempts to influence the legal market.  I work for the government sector, and we save money wherever we can.  I have friends that work for large international firms, and they waste a lot of money and a lot of man hours in inefficient use of resources.  Not all large firms do, and not all government legal agencies are efficient.  The issue is, however, whether or not law firms need to address inefficiencies to compete in the marketplace.  If they don’t, then they will be able to command larger and larger hourly rates and the legal field will be just fine.  If not, then Wal Mart and other corporate clients will begin to drive prices down by expecting more efficient use of their resources.  As for the student loan issue, I, for one, am willing to admit that I took way too much out in student loans for my need.  As a result I struggle and work to repay them.  I think on both issues, the bottom line is that, in the global marketplace, efficiency is the key to both profit and survival, not expectation.

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Isaac Laquedem
Nov 9, 2007 11:09 AM CST

I know some lawyers who do a lot of Wal-Mart work.  Taking Wal-Mart as a client works for a big firm if the work can mostly be done by junior associates working 2000+ hours a year, on whom the firm can make a profit.  It doesn’t work if the senior lawyers get so seduced by the idea of representing a BigPublicCompany that they accept less than their market rate.  I think many lawyers who represent Wal-Mart would tell you privately that it’s a difficult client: argumentative on fees and rates and slow to pay.  I would rather work for people who are happy to have me represent them.

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Isaac Laquedem
Nov 9, 2007 11:12 AM CST

As to associate salaries, the big New York firms pay the market rate to get graduates from the top 5% of the year’s crop.  The seduction of entering law students is to read about those $160,000 salaries and think that they have a realistic chance of getting them, when most of the entering class should be expecting starting salaries of $50,000 to $80,000, depending on area and school.

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Quit your whining about law school debt
Nov 9, 2007 11:26 AM CST

Here’s a concept.  If you don’t have the money for law school and don’t want big student loans and a lot of debt coming out of law school, then:  (1) don’t go to law school, (2)  work to save money for law school first or, (3) work while going to law school.  Since when did continuing on with an expensive education become a right regardless of the financial consequences?  If you choose to incur that debt, don’t make it your future employer’s problem.  I worked full time and went to law school at night precisely to avoid huge debts when I graduated.  So, when I graduated and began working well below the national average, I could survive.

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Well read
Nov 9, 2007 11:34 AM CST

To “Quit your whining” - So, how do propose that the middle and lower class get a higher education?  You are awfully cynical of your colleagues and their intentions.  Perhaps you should consider that not everyone comes from the same circumstances or backgrounds, therefore making it harder for some to achieve the same goals as others.  Personally, I went to law school, worked one, if not two jobs, all the while trying to study and get relevant legal experience.  I now have a lower-end paying job in the state government, and continue to work a second job to make ends meet.  I’m not complaining, however, I do think there need to be more affordable alternatives and perhaps some more compassionate people - people who understand that their colleagues coming from middle class and lower class families shouldn’t be shut out from higher education just because the schoold charge outrageous amounts of money.

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