Business of Law

Is the recent wave of law firm layoffs a sign of things to come?

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Hiring partners seeking to rightsize their workforce have a lot on their minds right now.

Too many lawyers? Too few? As with Goldilocks’ search for the perfect porridge, the answer can be elusive.

Anticipating firms’ client needs in a post-pandemic downturn can be a head-spinning exercise. There are vast tech industry layoffs to ponder, bank distress and inflation to fret about, the Federal Reserve’s interest rate turmoil on the table and a foreign war in progress—not to mention, China questions and fraught domestic political churn.

It all makes for uncertain law business forecasts and a hiring-versus- firing headache.

Searching for solace amid the gloom of the bank crisis, Forbes predicted financial regulators will need to hire more attorneys and that having experience at key watchdog posts will improve resumés.

“They’ll gain notice for spotting bad actors and be recruited away from the lower-paying government agencies to lucrative law firm partnerships and management roles at banks,” wrote Jack Kelly, CEO of the New York City-based staffing and recruiting firm WeCruitr, in Forbes in March.

But the broad overall lack of clarity has forced the uneasy realization that some firms might be bloated by an overstock of lawyers and support staff.

“They’re seeing work slowdowns in the wake of overhiring when the market was more robust,” says legal recruiter Nicole Kennedy, the national associate practice group leader at Korn Ferry, a management consulting firm. “This is no longer the candidate-dominated market of 2021 and the first half of 2022. There have been some firms forced to lay off associates. Others have done it more stealthily and not across the board.”

She adds that most firms have learned from the 2008 financial crisis that mass layoffs are a bad idea because they’re apt to be left without essential talent during an upturn.

“They’re trying to repurpose associates into busier practice areas like debt financing, health care, renewables financing and restructuring,” she says.

Eliza Stoker, the executive director of the associate practice group at Major, Lindsey & Africa, saw layoffs coming as the pandemic waned. “This is something we were afraid would happen when there was all that aggressive hiring,” she says.

“Some firms even engaged in overhiring to show strength in the market. Also, now, firms are reacting to changes in the workload, especially in technology. And corporate has been a roller coaster—though there are hints of [mergers and acquisitions] coming back this year. The problem is that uncertainty rules.”

Since late 2022, many firms have announced or conducted layoffs. According to reports, Cooley let 78 lawyers go, Kirkland & Ellis said goodbye to 20-plus attorneys, and Gunderson Dettmer bid farewell to 30 lawyers in initial rounds of cuts. In April, both Kirkland and Gunderson made further trims.

Other firms reportedly cutting their ranks include Shearman & Sterling; Stroock Stroock & Lavan; Goodwin Procter; Davis Wright & Tremaine; Lowenstein Sandler; and Perkins Coie.

Trimming staff before laying off lawyers is a common move when hard times loom, says Heather McCullough, a co-founder and partner at Society 54, a law firm business development consultancy. “The business professional side of the house is full of people often looked at first as a potential cost-reduction center.”

McCullough says the mood was upbeat if wary during LegalWeek 2023, which was themed “Addressing the Changing Legal Landscape,” and held in late March in New York City.

“Times are good, but folks are nervous,” McCullough says, summing up. She spoke at a panel on midmarket firms and schmoozed with other attendees. “Many indicated that the layoffs we have been reading about were most likely efforts to ‘trim the fat’ and rightsize departments,” she said in an email. Firms that have been wise in growth and spending “will weather the economic turbulence well and have a good (not great) year.”

“Most experts see ‘economic headwinds’ during 2023,” Procopio, Cory, Hargreaves & Savitch managing partner John D. Alessio said in an internal email obtained by Above the Law explaining why the firm “let go several attorneys and staff.”

“Like most law firms, we are navigating macroeconomic forces and market conditions that are driving up costs at a higher rate than revenue,” Perkins Coie managing partner Bill Malley wrote in an internal memo that was reported on by Above the Law and

Salad days are over

What goes up must come down, legal intelligence data service Leopold Solutions said in its annual State of Legal Industry Report. Entry-level hires at the top 200 firms dropped from 9,506 in 2021 to 6,328 last year, while lateral hires decreased from 10,143 to 8,093 over the same period, Leopold found.

“Firms overhired to catch up in the immediate post-pandemic boom times that carried into the first quarter of 2022. We track open jobs, and that number started to close in April 2022,” says Leopold vice president Phil Flora, who focuses on marketing and business development. “From 12,500 open jobs in April 2022, the number kicked down every month for the rest of the year.”

That sounds dire, but Leopold thinks it was a necessary year of recalibration, especially if you factor in context, the report says: “The last two years were outliers, and 2022 looks to be the correction the industry needed to return to normal after two abnormal years.”

This story was originally published in the June-July 2023 issue of the ABA Journal under the headline: “Market Correction: Is the recent wave of law firm layoffs a sign of things to come?”

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