Law Review: In dark economic times, rays of hope for junior associates

Now that the layoffs, deferments and salary cuts that have been wracking the legal world appear for the moment to have subsided, is it finally safe for young associate lawyers to crawl out from under their desks?

The answer, it seems, is a resounding maybe.

It is unquestionably the case that the pace of downsizing at big law firms, along with other cost cutting measures like salary reductions and hiring deferments, appears to have slowed since late winter and early spring, when every week brought a new downsizing announcement from another major firm.

But the work that might propel law firms to the robust levels of profitability of just a few years ago has yet to emerge. Bankruptcy and labor and employment practices continue to boom, but the cascade of billable hours that had been anticipated from the federal government's various economic rescue programs has yet to materialize.

Many firms downsized earlier this year on the belief that a recovery was only months away.

If that recovery doesn't produce more engagements, a new round of layoffs is not only possible but quite likely, said Bill Brennan, of Altman Weil, the national legal consulting firm based in Newtown Square.

Layoffs "have definitely subsided, but the question now is whether there will be another wave," Brennan said. "That is kind of what we are expecting based upon what we see as a modest slowdown in the pace of recovery. We think there will be a second round or even a third round. A lot of firms were hoping for the best and now realize that they don't have the work."

The signs of a broad-based restructuring in the legal world are everywhere. And not all of them are grim for young lawyers, especially those two or three years into the practice of law.

The reason is that corporate counsel, the in-house lawyers who select big firms to do complex and lucrative work for their companies, are now pressuring their law firms to radically change the way they charge for services.

This means that more and more companies are telling their outside lawyers that they no longer want to pay by the hour for every case, and they are demanding flat rates in some instances. The Association of Corporate Counsel, in a blueprint for reforming the way that law firms charge their clients, even suggested earlier this year that more work be assigned to associates.

When law firms are forced to stick to a budget, the tendency is to be very careful about how the work is assigned. No longer will the highest paid partners be assigned to work that can be handled as well by much more junior associates who are paid a great deal less.

In the parlance of big law, this is called pushing work down, and that means junior associates with three or four years of experience may find in some cases that they are being loaded up with work.

This won't help first years of course, who at many firms have had their start dates deferred as law firms struggle to realign staffing with diminished work flow. The same in-house counsel who are urging law firms to push work down, redesign their billing practices, and become more efficient say they don't want to pay for the training of first-year lawyers.

In contrast, the hiring picture for partners with established track records and large books of business looking to jump from one firm to another is seemingly robust. The same is true for associates who are key players in the practice groups of those partners.

Big firms like Morgan Lewis & Bockius L.L.P. of Center City, which so far this year has brought on 47 lateral recruits including energy lawyers from the powerhouse Houston firm of Baker Botts and a trio of corporate and tax lawyers in Chicago last week from Sonnenschein Nath & Rosenthal L.L.P., are constantly on the prowl for lawyers who bring in business.

The fallout from the March 23 collapse of Philadelphia's Wolf Block law firm also is emblematic of the state of the legal market. Little more than a month after the firm announced it was going out of business, the vast majority of its lawyers had been picked up by other firms.

Entire practice groups migrated en masse to other firms seeking to benefit from the business that they brought with them, all of this in a legal marketplace that had fallen into the steepest recession in decades.

Andrew Kassner, the managing partner at Center City's Drinker Biddle & Reath L.L.P., said for some firms there are signs of revival.

For firms that skewed their business in the direction of structured finance and Wall Street deals, the prospect of recovery is further away, he said. He hastened to add that Drinker Biddle had minimal involvement in capital markets work.

"I would say that law firms as a group were caught off guard by the magnitude of the drop in the economy," he said. "The economy was so overheated and there was such a great amount of hiring going on. I don't know whether at the capital markets firms you can come out from under the desk, but there is hope that we have reached the end of the cycle."