Lawyer Layoffs: What Doesn’t Kill Us Makes Us Stronger

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Sorry T.S. Elliot, but in the area of legal employment, February was the cruelest month. Beginning last fall, in a trend that developed largely under the radar, lawyers started losing their jobs along with the rest of us. At first it was scattershot, a firm here and a firm there, and mostly on the East Coast. But in February the recession’s collateral damage became increasingly obvious, and some observers even went so far as to suggest that this could be the beginning of the end for the law firm as we know it.

It wasn’t just attorneys and staff who were told to hit the bricks. Whole firms cratered, disappearing into the void along with the retainers and fees the paychecks had been based on. Phelan Reid & Priest, the huge New York city-based firm, went under, and Heller Ehrman, the West Coast mega-firm, has been gone for more than a year. Soon the ripple spread to such traditional areas as headhunters, IT consultants and decorators.

“It’s A Tidal Wave: ATL Reports Law Firm Layoff Frenzy” screamed the headline in the legal tabloid Above The Law on Feb. 12. “Above the Law is reporting a slew of Big Law layoffs today … Once upon a time, a big firm had to be coy about layoffs — it didn’t want to gain a reputation as an unstable workplace. But in a startling real-world example of social norm shifts, the stigma around layoffs appears to be crumbling.” An update at the end of the article noted, “The WSJ law blog asks whether this might be the darkest day ever for big law firm layoffs and suggests that rumors of other layoffs are in the air.”

It didn’t take long for rumor to give way to fact. Joining the big firms mentioned in the article — Dechert, Bryan Cave and Goodwin Proctor — were such well-known East Coast and Washington, D.C., names as Cadwalader, Wickersham & Taft (5 percent of its lawyers got their walking papers), Hogan & Hartson (offered buyouts to 250-300 staff), and DLA Piper (laid off 80 associates and 100 staffers, 6 percent of the firm’s 1,370 lawyers in its U.S. offices).

By the end of February, the virus had spread to the West Coast, with reductions in force at Latham & Watkins (goodbye to 190 associates and 250 staff), and in the first week of March, O’Melveny & Meyers (110 staffers and 90 lawyers laid off). Soon “The Layoff List,” American Lawyer magazine’s bad news Web site, was too long to read at a single sitting.

On the medium-to-small-firm level, several headhunters said that mergers are more common than closures or dissolutions, i.e. firms that would have had to shut their doors are “saved” by being taken under the wing of larger or simply safer firms. According to John Crigler, a partner in the law firm of Garvey Schubert Barer, “Then the cuts that usually follow are seen as ‘normal downsizing,’ rather than as layoffs.”

Nor is the public-law sector immune. Last June, the state of Georgia closed one of its four public defender offices, putting 17 lawyers and a staff of four out of work. However, other offices around the country have diligently fought off efforts to cut their ranks and budgets.

Recent research — that is now conducted on a regular basis by American Lawyer — indicates what most people in the law had already suspected or knew: that things had never been this bad before.

Asked if the current employment picture for lawyers and law firms has hit a historic nadir, attorney Jeffrey Lowe, managing partner of the Washington, D.C., office of Major, Lindsey & Africa, the largest legal recruiting company in the world, immediately said, “Yes. It’s as bad as it appears to be — but it depends on which segment of the market you’re referring to. The market for partners is very active, but the associate market is extremely slow. There are very few associate positions being filled out there; literally thousands and thousands of lawyers have been let go by their firms over the last six months. February and early March is when we saw the biggest departures.”

Lowe, who has been in the legal field for two decades — he was a partner at Hogan & Hartson before coming to Major, Lindsey & Africa six years ago — said, “I’ve lived through probably four recessions since I began practicing in 1989, and this is by far the worst.”

This sturm and drang does not bode well for newly minted lawyers entering the job market. “The classic law student,” said Lowe, “the one who’s done everything right — gone to a great undergraduate school, gone to a great law school — is, in some cases, now being told that the job they were promised when they were summer associates a year ago is no longer there or the start date is being pushed back. And there aren’t any other places to go where they can start out at $160,000 a year. If there were, they were on Wall Street, and that sector’s been hurt even worse.”

You know the situation is dire when the American Bar Association officially expresses concern, which it did in March by adding a new link — “Economic Recovery Resources Web Portal” — to its Web site. The site, says the ABA, “…offers a wide range of assistance for coping with tough times including information on job searching, personal development and career transition, law practice management tips, handling stress, and more.”

Of the new service, the bar group’s current president, H. Thomas “Tommy” Wells, said, “The economic downturn is having its effect on the careers of lawyers just as it is on so many professions. The ABA is committed to assisting America’s lawyers so that individuals, businesses and clients that depend on their help will not find themselves without benefit of counsel as they combat the woes of recession.”

And on May 1 — known in the legal profession as Law Day — The National Journal reported that state bar associations are now “… broadening their programming and launching initiatives to help attorneys manage through the down economy. Their efforts touch on everything from assisting attorneys who have been laid off to helping attorneys market their services and manage flagging practices.”

Changes in what had been law-business-as-usual are seen across the board. Said famed Washington, D.C.-based white-collar defense lawyer Plato Cacheris (whose long client list includes Monica Lewinsky, and spies Aldrich Ames and Robert Hanson), “Firms that would normally staff cases very heavily will now, I believe, have to think twice before they do that. In the past, they would throw everything at you but the kitchen sink, but now the clients won’t stand for it.”

Clients are no longer standing for a lot of things they once did. Fifty years ago, and perhaps even more recently than that, the bills of law firms large and small were paid and paid promptly, no questions asked. Today, corporate general counsels go over statements item by item, and whatever appears out of line has to be justified.

John Crigler says, “Clients now ask, ‘How much is this going to cost me?’ And there’s more pressure from the client for us to establish a budget or simply to quote them a flat fee.” Harry P. Hart, of Alexandria, Va.’s Hart, Calley, Gibbs & Karp, a small firm, asked and answered his own question: “What does all this mean to the average client? These days the average client doesn’t have the money to hire a lawyer! We’re doing better than most small firms and we’re down 20 percent.” Hart also points out that when things get tough financially, lawyers’ bills get put way down on the to-pay list because not paying them doesn’t affect the clients’ credit ratings — law firms don’t report to the credit rating services.

Also on the question of what these changes may mean to, say, the average business client, attorney Frank Michael D’Amore, founder of Attorney Career Catalysts, which does legal recruiting and consulting, said, “It could mean they will get more services — or at least get the same services for a lower rate. That might well be the short-term effect for the business client.”

As hard as firm closings and layoffs are on all those directly involved, the troubles ultimately may force changes in the legal infrastructure that some observers say would not be entirely unwelcome. While no Pollyanna, James G. Leipold, executive director of the National Association for Law Placement (a trade association founded in 1971 to provide a common forum for law schools and legal employers), sees the possibility of an even better-looking Phoenix rising out of the contemporary ash heap.

Leipold said, “From a purely analytic standpoint, it’s a fascinating time to be watching the industry. I think we’re going to see real structural change in the way law firms are organized and managed and run.”

Katherine Patterson of Patterson Davis Consulting, which has been providing legal recruitment and human-resources management advice from its base in San Francisco for three decades, agrees completely.

“We need to differentiate between what is recession and what is a natural adjustment in this field, which, in my opinion, is moving the way medicine moved — from doctors being gods to managed care. So we’re moving from lawyers being gods to a more aggressive financial model in which people will not make as much money. And frankly, I think that’s quite appropriate.

“The law,” Patterson added, “is a very outmoded management model, based on the law firm, which again, in my opinion, is an outdated, patriarchal, pyramid scheme. And,” she laughed, “we all know what happened to Bernie Madoff.”

Were this Law-topia to occur, the legal landscape would look mighty different. Gone would be the partner track, huge starting salaries for newly minted (and temporarily almost useless) law graduates, massive support staffs, elaborate offices and satellites around the globe, “lockstep promotions” (based on seniority, not merit), and perhaps even the dearly beloved billable-hours system. That said, few of the people interviewed for this article thought there was any real chance this Brigadoon would materialize (however, being lawyers, they added the cautionary clause that if the recession went all the way south, then all bets would be off).

Insider D’Amore agrees that down the road, the current doldrums may well alter certain big firm habits, such as a continued decrease in the ratio of staff, including secretaries, to the number of lawyers.”

Many of the changes now being noted were, in fact, occurring well before the recent troubles. As Leslie Smith, attorney and founder of the legal search firm Smith & Associates, Inc., says, “In the last 20 or so years, law firms have become increasingly corporate in their business models. Many firms have even adopted a CEO-top-down governing structure, which looks mainly at the bottom line and less at the institution as a real partnership. Like most rational corporations, law firms cut costs in lean times. In my opinion, the recent economic downturn has not occasioned great changes in the behavior of large law firms; it has simply brought their existing corporate mentality into sharper focus.”

Consultant Patterson feels that we now see legal salaries coming down because firms had raised salaries, and not just starting salaries, to a high point that the market will no longer bear. “The firms that have dropped salaries are smart,” she said. “The harm and hurt of this recession is that young lawyers are really getting knocked in the knees, but overall, I think this recession is a wonderful thing that has been tremendously beneficial to the field.

“If you ask me, I say, God bless recession, because, in the end, everybody comes out stronger and better!”

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