Practice Management

Cuts in lawyer head count and expenditures 'buoyed profitability metrics' at law firms, report says

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Demand for legal services decreased for the last two quarters, but austerity measures implemented by law firms have them well positioned for profitability, according to a report issued this week.

Demand for legal services decreased by 5.9% in the second quarter and by 2.4% in the third quarter, the largest and second largest quarterly dips since 2013, according to the Thomson Reuters Peer Monitor Index.

“While the second quarter may have served as an abrupt shock to the system of the American law firm, it also provided ample time to chart a path forward,” said the report, available here.

Law firms responded by lowering head counts and expenditures, the report said.

At first, lawyers were largely spared from layoffs and furloughs in favor of nonlawyer professional staff.

“That changed in the third quarter,” the report said. “Lawyer head count in the market contracted for the first time in the last decade, albeit slightly.”

Associates were the preferred target of job cuts, the report said.

At the same time, the average worked rate—the average agreed-upon billing rate—increased by 5% in each of the last two quarters as partners took on more work and layoffs hit associates and paralegals.

The changes “buoyed profitability metrics,” according to the report. “In a year where the overall economy will have taken its hardest hit since the great recession, law firms may find themselves to be more profitable than ever.”

The Peer Monitor Index gathers information from 160 major law firms in the United States and key international markets.

Among the publications covering the report are and Thomson Reuters Legal.

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