Law Review: More firms are turning to deferrals for young lawyers

Among mega law firms, this could be more than a onetime maneuver.

Like so many other seismic changes playing out in the legal market this year, the growing number of firms deferring start dates for first-year lawyers points to a potentially permanent shift in the way young attorneys enter the profession.

Under the traditional approach, the most sought after law school graduates joined big firms in the fall after graduation and began practicing almost immediately. For years, the conventional wisdom was that firms so urgently needed to feed the pipeline of entry-level lawyers that it made sense to bid up starting salaries, in some cases to $160,000 a year.

The firms did this even while maintaining that it would be three years on average before they had the prospect of earning a profit on their expensive young lawyers.

The model driving this was called leverage.

Once those young lawyers became significantly chargeable and the firms were able to assign huge numbers of them to deals of one kind or another, profits leveraged by hordes of very busy junior lawyers were sure to follow.

But in the last year or so, many of these young lawyers have been sitting around with nothing to do.

What has stunned several very keen observers of the legal market is the breadth of the pull-back this time.

James Leipold, executive director of the National Association for Law Placement (NALP), which tracks the legal employment market, said a handful of firms deferred start dates for first-year lawyers in the recession of 2000 and 2001.

And some of them rescinded the offers before the rescheduled start dates. This time around, he says, the deferral programs are far more widespread.

"It has never happened on this scale before," he said.

David Skeel, professor of corporate law at the University of Pennsylvania Law School, says the deferrals are merely symptomatic of deeper shifts underway in the world of big law. He's not convinced deferrals will become an ongoing institutional practice, but he does envision a new layer of entry-level lawyers making a lot less than they do now.

"There is a sense that they have to ratchet back," Skeel says.

What it all adds up to is the growing likelihood that what appeared at first to be a temporary coping strategy in a down economy could well become the new normal of deferrals or entry-level compensation or both.

Law firms already are telling law school administrators and second-year law students that they may not only defer first-year lawyers this year but in 2010 as well.

Under many of the deferral programs, newly minted lawyers, instead of joining private law firms, will be working in public-interest legal organizations while receiving stipends of as much as $5,000 a month from their firms.

Eric Kraeutler, firm-wide hiring partner at Morgan Lewis & Bockius L.L.P., said the firm's corporate clients were delighted that first-year lawyers would be getting useful legal experience during their deferrals.

Presumably, they also are pleased that they won't be paying so much for them either. With clients pronouncing themselves satisfied with this new strategy, it is not hard to imagine that firms will want to do more of it.