By: Patrick Austin
Thursday, July 27, 2023
Big Law Firm Layoffs Are an Opportunity for Midsize and Small Firms
Big law firm layoffs have made headlines in recent months. Some of the largest firms in the legal industry have announced reductions in attorney and staff headcount. These law firm layoffs have raised questions and concerns about larger economic issues and whether these layoffs are a sign of bigger problems coming down the pike.
Are Law Firm Layoffs on the Rise?
The short answer is yes. Law firm layoffs appear to be on the rise, at least in specific practice areas and within particular legal services. A number of big law firms decided to lay off lawyers and professional staff members in response to declining demand for various legal services, particularly in corporate transactions such as mergers and acquisitions, according to Reuters.com. Another element to consider is the fact that many big law firms expanded and hired aggressively in 2021 and early 2022 in an effort to keep pace with soaring demand for corporate transactional matters. However, in 2023, demand in global transactional work, especially mergers and acquisitions cooled significantly.
Firms that have opted to lay off attorneys and personnel in recent months include Dechert, Cooley, Goodwin Procter, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, Lowenstein Sandler, Davis Wright Tremaine, Perkins Coie, Shearman & Sterling and Stroock & Stroock & Lavan, among others.
The recent round of layoffs at large law firms is not due to a single event or trend. There is also no direct evidence to indicate large law firm layoffs should be viewed as a signal that a larger economic recession is looming. In reality, layoffs at Goodwin Procter, Kirkland Ellis, Shearman Sterling, Stroock Stroock Lavan, and other big law firms are due to a myriad of factors.
Some analysts point to increasing interest rates and high inflation as suppressing demand for corporate transactions, which in turn led to big law firms having fewer (and smaller) deals to work on. For example, global mergers and acquisitions activity was at its lowest level in more than a decade in the first quarter of 2023, according to a report by Refinitiv.
The average number of hours billed by lawyers in the first quarter of 2023 was approximately six percent lower when compared to the same period in 2022 (specifically, an average of 1,634 hours billed versus 1,536 hours billed), according to Reuters.com. This data was collected from more than 60 of the top 100 U.S. law firms, as determined by total revenue and identified by The American Lawyer.
The decline in billable hours invariably means big law firms will generate lower revenue since most major firms in the legal industry still depend upon billable hours to make money (i.e., big law firm revenue is not performance based; rather, it is input-based).
Another factor to consider in the recent round of layoffs impacting the legal industry is the prevalence of “copycat layoffs.” In effect, organizational behavior may be playing a role in some of these big law firms opting to trim payroll and headcounts, rather than a significant slump in client work.
“Laying off employees turns out to be infectious,” wrote Annie Lowrey in The Atlantic. “When executives see their corporate competitors letting go of workers, they seize what they see as an opportunity to reduce their workforce, rather than having no choice but to do so.” It is also worth noting that big law firms laying off attorneys and staff while other competitor firms in the legal industry are doing the same thing reduces the risk of reputational harm. That is, if they are not the only law firm doing it, the spotlight—and the scrutiny—won’t be so intense.
Big Firm Layoffs are an Opportunity for Smaller Firms
Benjamin Franklin is quoted as saying, “Out of adversity, comes opportunity.” This saying certainly applies to smaller law firms at this moment in time. The recent round of layoffs at big firms means there is an impressive depth of legal talent available to be scooped up. And if an attorney falls into the generational category of “Gen-Z” they will likely be open to taking a smaller total compensation package in exchange for other perks and better work-life balance. This assumption is predicated on responses to a survey report published by Major, Lindsey & Africa, the world’s largest legal search firm.
The report indicates the desire of Gen-Z attorneys to join big law firms upon graduating from law school is on the decline. The survey results show only 39 percent of respondents intended to join a large firm after graduating, which is down from 59 percent in 2020. In addition, a combined 53 percent of Gen-Z respondents indicated they were interested in eventually transitioning to an in-house, government, or non-profit role long-term, compared to 23 percent who hoped to eventually “make partner” at a big law firm.
The survey respondents indicated that long hours, including the need to work nights and weekends, were a strong motivator for not wanting to pursue, or deciding to leave a job at a large law firm. The survey results reflect the fact that Gen-Z attorneys appear committed to achieving work-life balance and more flexible work arrangements. For example, Gen-Z survey respondents stated they would be open to trading a portion of their compensation for better work-life balance and loan assistance. Additionally, 58 percent of respondents indicated that optional reduced hours or part-time work policies were attractive policies that could impact their decision to accept, or decline, a particular legal job or position.
Gen-Z also gives significant weight to the moral values of their prospective employers, with 60 percent of respondents indicating that corporate responsibility programs were important in their selection of a potential employer.
If you work, or manage, a small law firm and are interested in learning new ways to expand your firm, NBI offers a variety of practical resources on the topic, including the following CLE Courses:
- MiniMBA in a Day: Essentials for Attorneys
- Workflow Optimization in the Law Office
- How to Run a Prosperous Law Firm in the Digital Era
- Financial Statement Analysis for Attorneys
Patrick Austin is an attorney specializing in administrative law, including regulatory and compliance matters with experience working in both the public and private sector. Patrick graduated from Old Dominion University in 2009 with a BA in Technical & Professional Writing. He then went on to attend George Mason University School of Law and graduated in 2013. Upon passing the Virginia Bar Exam, Patrick went into private practice joining a boutique law firm focused on civil litigation. Patrick gained invaluable experience overseeing pre-trial discovery, responding to complaints, taking and defending depositions, and so forth. Patrick currently practices law in the Richmond, VA area.
This post was written by a guest blogger. Although this article was thoroughly reviewed by NBI staff, the views, opinions and positions expressed within the post are those of the author alone and do not represent those of NBI. The accuracy, completeness and validity of any statements made within the post are not guaranteed. We accept no liability for any errors, omissions or representations.