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Nationwide Layoff Watch: No Severance at Sonnenschein?
Elliott Portnoy to WSJ: It’s all about the benjamins, baby.

Sonnenschein Nath Rosenthal Above the Law blog.jpgNo, that’s not a direct quote. But Elliott Portnoy, chairman of Sonnenschein Nath & Rosenthal, was quite candid in discussing the role played by profitability in his firm’s decision to lay off almost 40 lawyers and 90 staffers (a story we broke on Tuesday night). Portnoy spoke with Nathan Koppel of the WSJ Law Blog, who wrote:

Sonnenschein laid off lawyers whose practices have slowed, [Portnoy] says, to sustain the firm’s profit margins and overall profitability. It takes financial heft to pay competitive salaries for top lawyers, he says, and the firm has been focused heavily on partner recruiting. It hired 42 lateral partners last year, and is on pace to exceed that number in ‘08. To hunt for big game, in other words, it can’t afford to carry underperformers.

“Business as usual isn’t an option, and we have to take the steps necessary to make sure we are competitive for talent,” Portnoy says. “A small group of firms are positioning themselves to pull away from the pack” in terms of profitability, “and we intend to be in that small group.”

For more on the Sonnenschein layoffs and what they reflect about the changing culture of law firms, see this Chicago Tribune article, by Ameet Sachdev.

Perhaps Sonnenschein’s bottom-line focus explains why it’s not paying severance to its “separated” lawyers. One of the affected individuals contacted us to complain about the lack of severance. We initially found that hard to believe, since the “market” severance package in Biglaw layoffs hovers around three months. But a firm spokesperson confirmed it for us.

Lawyers are receiving 60 days’ notice of their termination, but they are not receiving a formal severance package. Unlike some other firms — Paul Hastings, holla — Sonnenschein is not asking its lawyers to sign releases (which the laid-off lawyers probably wouldn’t sign anyway, since they’re not getting severance payments).

What’s the difference between two months of severance pay and 60 days notice? With the former, you get paid without having to work. “If you get severance, you can go out and get a contract job or take [another] lower paying position,” explained one laid-off Sonnenschein lawyer. “Severance makes it a little less painful.”

Staff members do have a formal severance plan. “Our staff are eligible for a severance package that is linked to their tenure with the firm and, accordingly, varies by individual based on service,” explained Mr. Portnoy. “All staff are also, of course, eligible for outplacement and related assistance.” Outgoing staff members must execute releases to receive payments under the plan, according to a firm spokesperson.

More about the Sonnenschein layoffs — some readers thought we went too easy on the firm, so we’d like to present their (harsher) side of the story — after the jump.

Our original tipster on the lack of severance had this reaction to learning that the firm confirmed: “I am surprised they admitted it. They are some of the most dishonest and manipulative people I have ever encountered.”

In his conversation with us, Elliott Portnoy debunked rumors that the firings were motivated by an imminent merger. But one source had this to say:

It is not a merger, but an acquisition by White & Case…. [I]t seems a bit strange and not very strategic. There is significant overlap between the cities. I don’t see how it makes sense for White & Case.

There is also some question about the extent of the layoffs. The firm said that it laid off 37 lawyers and 87 staffers, but sources claim that these numbers reflect only the people notified last week. There may be others who were told before last week to start looking for new jobs. For example, there were rumors of lawyer layoffs in the Charlotte office earlier this year.

As for the official numbers — 37 lawyers, 87 staff members — the Chicago Tribune offers some context:

The 37 fired attorneys at Sonnenschein represent about 5 percent of the firm’s 691 lawyers. Of the 37, six are partners, four are “of counsel” and 27 are associates, a firm spokeswoman confirmed. The Above the Law blog first reported Sonnenschein’s layoffs Tuesday night.

The majority of the layoffs involved paralegals, secretaries and other administrative staff. The total of 124 represent about 7 percent of Sonnenschein’s workforce of more than 1,700 in 13 U.S. cities and Brussels.

The Chicago office, where the firm was founded, is its largest and was the hardest hit by the cuts. Ten lawyers and 30 support employees were let go out of a total of 691 employees in the Sears Tower.

Another source had this reaction to our post (which we’re happy to share; we appreciate constructive criticism):

I am disappointed that ATL comes off (to me at least) as just being a mouthpiece for Elliot Portnoy. There were some angles here that could have been explored in your article. E.g., Elliot moving the firm [in directions that caused] the firm financial problems; Elliot telling the firm three months ago that he was not expecting any layoffs….

Elliot is slick, there is no doubt, but it’s hard to get at the truth through his sound bites in the article. Anyway, I am glad you posted it, even if there is a scent of Big Law capture here.

Fair enough. We will acknowledge one major shortcoming in our earlier post: we should have snarked on Elliott Portnoy’s use of “separated” as a euphemism for “laid off.” If that locution struck you as odd, you’re not alone. See this funny piece by Karen Donovan of Portfolio.

Still, even if the firm engaged in a certain amount of spin control, Sonnenschein deserves props for acknowledging what it is doing, and why. From the Tribune:

[F]irms risk their reputations by disclosing mass layoffs. Because of fierce competition for top law-school graduates, firms don’t want to send the message that associates are expendable. Downsizing also can be seen as a sign weakness in the market, making firms more vulnerable to poaching by rivals.

“It does hurt recruiting for a period of time,” said Art Gunther, a Chicago legal recruiter. “But I give Sonnenschein credit for being upfront about the layoffs.”

If you have concrete information about sub silentio or “stealth” layoffs at other firms — we have plenty of gossip, but we’d like some facts — please email us (subject line: “Nationwide Layoff Watch”). Please note that we keep our tipsters anonymous (unless they request otherwise). Thanks.

Behind the Sonnenschein Layoffs: Pushing for Profitability [WSJ Law Blog]
Lawyers’ Separation Anxiety [Portfolio]
Profits trump legal custom [Chicago Tribune]

Earlier: Nationwide Layoff Watch: Sonnenschein Nath & Rosenthal Separates 37 Lawyers, 87 Staff

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