Lawyer hiring slows as firms strive for greater profits, according to Thomson Reuters report
Law firms eased up on hiring first-year associates this fall to curtail expense growth, according to a new Thomson Reuters report published Monday.
The Q3 2023 Thomson Reuters Institute Law Firm Financial Index notes firm expenditures have slowed in the last 12 months but after three years remains stubbornly high and suggests firms could be preparing for a year-end push to boost profits by curbing costs. Direct expenses growth rose 6.1% in the third quarter compared to the third quarter of 2022, with overhead expenses increasing 7%, according to the company’s executive report.
In a news release, Thomson Reuters suggests the offshoot of rising expenses was a slowdown in hiring. For the hundred most profitable firms in the U.S., otherwise known as the Am Law 100, first-year hiring was down almost 17% versus the average of the past two Septembers. Am Law 200 firms hired their smallest fall associate class since 2020, the report states. Hiring was down about 25% compared to the average of the past two years. At midsize firms, the hiring of first-year associates was down by about 9% over the same period.
“Restrained hiring to reduce expenses and aggressive rate strategies are positively impacting both the top and bottom lines, helping firms set themselves up for what could be a strong finish to 2023,” Paul Fischer, president, Legal Professionals, Thomson Reuters said in prepared remarks.
The report found demand for law firm services rose for the third consecutive quarter and was up 0.1% in the third quarter. There was increasing demand in practice areas related to bankruptcy, litigation, regulatory, labor employment and intellectual property but decreases in growth in the corporate (-1.5%) real estate (-4.8%) and mergers and acquisitions (-5.2%) practice areas.
“Counter-cyclical practices, which tend to perform better during periods of economic weakness, continued to be among the strongest practices, as they have been for much of 2023,” the news release states. “These include bankruptcy, litigation, and labor & employment, which were up 6.0%, 2.0%, and 1.1%, respectively. Regulatory and intellectual property were also up, rising 1.9% and 1.0%, respectively.”
The news release noted a post-Great Recession high in quarterly rate growth of 6.3%. It said that realization rates—the billable hours included in client bills—improved in the third quarter compared to the second, halting six straight quarters of decline. Still, billing and collection realization remained lower than in the third quarters of 2021 and 2022, according to the news release.
“For the market as a whole, I think 2023 will turn out to be a decent year—it’s not going to be an outstanding year,” William Josten, manager for enterprise legal content at the Thomson Reuters Institute, told Reuters. “There’s going to be a wide range in that average. Some firms are doing very well, and some are struggling.”