Biglaw, Job Searches, Layoffs, Summer Associates

The Coming Law Firm Staffing Shortage?

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There’s a reason why our weekly column by Law Shucks has been retitled from “This Week in Layoffs” to “This Week in Biglaw.” The pace of law firm layoffs has slowed dramatically. They haven’t stopped completely, and we suspect that many firms are still conducting “stealth layoffs” (which we welcome tips about — just email us). But many firms have stopped cutting, and some are even hiring again. Last month the legal sector added 300 jobs, according to the Bureau of Labor Statistics.

In terms of the bigger picture, we’re not out of the economic woods just yet — Europe’s economic troubles have led to increased chatter about a possible double-dip recession — but things are definitely improving. Here’s one sign, reported earlier this week by the Associated Press:

One sign of better economic times is when more people start finding jobs. Another is when they feel confident enough to quit them. More people quit their jobs in the past three months than were laid off — a sharp reversal after 15 straight months in which layoffs exceeded voluntary departures, suggesting the job market is finally thawing.

In addition to the strengthening job market, there’s another reason for increased voluntary movement: overwork and discontent among those who managed to hang on to their jobs in the recession….

An article in the Economist on this phenomenon noted:

The biggest danger for companies is if workers head for the door as the economy picks up. [One survey of employees] reports that 59% of its sample are either considering leaving or actively looking for a new job—and more than 85% of those who are not in the job market are staying only because that market is so dismal.

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Could we start seeing these same trends — layoff survivors getting overworked and unhappy, and voluntarily moving towards the exits — in the law firm world? Could we end up with a Biglaw hiring crisis down the road?

It’s not as crazy as it might sound. Biglaw labor shortages have happened before, when the legal economy bounced back after prior downturns. Law firms that “overfired” during bad times then “overhired” during good times. This led to rapidly escalating associate salaries, gigantic summer associate classes, “perk wars”… and then rampant layoffs and widespread misery, when the party stopped.

Some experts think that a Biglaw labor shortage will happen again. At a discussion at the NALP conference in April, two panelists — law firm consultant Frank Kimball, and Helen Long, head of recruiting for Ropes & Gray — predicted a “doughnut hole” in the Biglaw staffing model:

Firms will have a bunch of highly qualified senior associates. Kimball pointed out that the people who are senior associates right now have survived not one but two different recessions (the first being post-9/11). And firms will surely be able to ramp up junior associate hiring by 2012 or 2013 if there is need. But the mid-level workhorses will be largely gone — small numbers to begin with, and in high demand.

Why are they predicting a shortage in midlevels? Kimball and Long believe that firms “gravely underestimated the twin thrusts of (a) small class sizes from 2009 through 2011, and (b) the wave of voluntary attrition that could start happening as early as 2011 (once people get their bonuses).” And there will be voluntary attrition, they claim, in part because the recession severely eroded the “bond of trust” between associates and their firms. [FN1]

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Kimball and Long aren’t alone in this view. One correspondent, an associate at a large law firm, sent us some thoughts from the trenches:

While ATL and other publications have tirelessly chronicled many effects of the down economy on the legal community, I am aware of no coverage of the approaching staffing shortages that BigLaw (unknowingly) faces.

Most large firms have seen voluntary departures fall off precipitously over the past few years. Although many firms have struggled over how to respond to this problem, it’s in many ways been a boon for the firms, which get to keep the best associates ascending the ladder while squeezing out the poor performers and minimizing the incoming classes using class size and start-date.

Voluntary attrition definitely decreased during the recession. The AP piece described this phenomenon in the general economy, but it applies to law firms as well:

During the depths of the recession, workers were hesitant to quit — and not only because jobs were scarce. Even if they found a new job, some feared that accepting it would leave them vulnerable to a layoff. At many companies, layoffs follow a simple formula: last hired, first fired.

Many laid-off associates were hit in just this way: they lateraled to new firms during 2007 or 2008, and then after Lehman collapsed and Biglaw went into a tailspin, they were dismissed on a “LIFO” — “last in, first out” — basis.

But lateral movement, which was risky in the recession, could increase as the legal economy improves. The ATL reader notes two trends:

First, work is picking up dramatically, most notably in D.C. but, anecdotally, elsewhere, as well. Second, mid-level and senior associates are chomping at the bit to leave BigLaw. They saw how their firms treated their colleagues during the downturn, they’ve seen salaries freeze, perks cut, and expectations escalated, and they’re not keen to keep playing the game. Plus, there’s a huge backlog of lawyers who would normally have left for other pursuits but were induced to stay by economic fear and lack of opportunity. Thus, I expect that relatively large numbers of associates with decamp BigLaw for government, in-house, and other legal or non-legal positions in the next 12 months.

And if there is this large-scale attrition, it might not be that easy to remedy:

The result, contrary to some expectations, is demand for lawyers increasing as experienced associates dash for the exits. Who will fill the seats? There are certainly plenty of ’10 grads, even of top-25 schools, who are bereft of opportunities and would jump at a BigLaw offer. But hiring juniors en masse would require an about-face from firms that have indicated a real interest in limiting entry-level hiring.

And hiring hordes of junior associates also runs up against the problem of clients not wanting to pay for them. They’re happy to pay for experienced, competent, midlevel-to-senior associates — but these are the associates who might move on as soon as they can.

So, will this “hiring crisis” come to pass? Not necessarily. Here are some caveats from our Cassandra:

Of course, we could hit the “double-dip,” or government hiring freezes may be imposed, or my read just may be wrong. But I am fairly confident that BigLaw, to its detriment, is overestimating the fidelity of mid-level and senior associates.

One other caveat: large law firms might just fill the gap with a flexible workforce. Instead of bringing lawyers on as full-time, partnership-track associates, they could turn to staffing agencies, collaborate with smaller firms to increase their effective manpower, or hire back some of their former employees on a part-time basis (i.e., as independent contractors). Currently these “flex” arrangements work better for paralegal or contract attorney assignments, but there’s no reason why flexible arrangements can’t be applied to more sophisticated legal work. See, e.g., Axiom Legal.

Readers, what are your thoughts? Feel free to discuss in the comments, or email us.

[FN1] Our correspondent in the trenches agrees with much of Kimball and Long’s analysis, but does question the prediction of a “doughnut hole,” i.e., a fair number of senior associates but not enough midlevels:

I disagree (only?) that “[f]irms will have a bunch of highly qualified senior associates.” Although my current home has been very lax about pushing people out the door, my olde shoppe is increasingly squeezing out mid-level and senior associates who aren’t going to make “the cut.” And both firms are greatly cutting back on partnership classes, not — I think — just because the economy is slow, but because bringing lots of young folks without clients into the equity tiers is bad for the business model.

As a result of these twin forces, it’s really the upper-mid-level and senior associates (5th, 6th, 7th years) who are really looking to get out.

More quit their jobs as economy slowly improves [Associated Press via USA Today]
Overstretched: Many people who kept their jobs are working too hard. What can companies do about it? [Economist]
Entrepreneur or Unemployed? [New York Times]

Earlier: NALP 2010: New Litigators be Warned
Legal Sector Adds Jobs: Let’s Not Lick Each Other’s Popsicles Just Yet

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