Why Law Firm Recruitment Just Got MUCH More Difficult

Why Law Firm Recruitment Just Got MUCH More Difficult 2

Law Firm recruitment has always been an intensely competitive business, but it just got a lot hotter as some legal recruiters describe the present situation among major law firms in the US and the UK as “approaching boiling point”.

The reason for the issue has been the much more competitive market for legal talent.  Law recruiters are facing the boiling point level now according to the latest Thomson Reuters Peer Monitor Index report.

Direct expenses grew by 7.2 per cent during the third quarter of 2021, driven mainly by increases in associate compensation relative to Q3 last year. But the report, which aggregates multiple factors to produce a score of law firm profitability, also clocked law firm turnover at 13.8 per cent  over the last 12 months.

Despite growth in demand and productivity, and strong performances in nearly every practice area compared to the same time period in 2020, it was enough to cloud the analysts’ outlook a bit going forward, Law.com reports.

“Even dramatic associate salary increases, as of yet, have not helped law firms to hold onto the talent in which they are investing so heavily in recruiting,” the report says.   Although turnover reached a comparable 13.2 per cent  in Q3 of 2019, the increase in 2021 “is equivalent to nearly 400 more lawyers leaving their firms than a normal year among our current sample of firms.

“It has long been true that associate development is a potential profit sinkhole for firms, which spend hundreds of thousands of dollars per associate every year, while many of these associates operate at an effective loss for the year in terms of their collections. Increasing salaries and high turnover rates will only exacerbate this problem, absent either dramatic reductions in turnover or improvements in collections,” the analysts wrote.

Law Recruitment Consolidation Ahead

Bill Josten, a senior legal industry analyst for Thomson Reuters, was reported in an interview saying that the trend could lead to further consolidation at some point in the near future.  The changes in the recruitment marketplace had seen businesses, including law firms, using cheap money to reconsider their physical footprint and making other changes.

The legal business was showing good returns and higher turnover in most cases like real estate (up over 13 per cent), M&A and corporate law work  (up 8-9 per cent respectively) and litigation up almost 3 per cent.

Meanwhile, overhead expenses only grew about 1.1 per cent, driven mostly by staff compensation and technology expense increases. Office expenses decreased 14.1 per cent with many office returns still in limbo, the report stated.

Lawyer full-time equivalent hiring was also up, but only about 2.3 per cent—part of the reason that it’s clear direct expenses were driven mostly by the salary spikes and talent wars within the legal industry.

“There will be some firms that continue to drive the discussion, that will continue to hire people and pay them more, because they have the gravitas to do that. There are going to be other firms that try to keep up with that, but simply can’t, and will potentially suffer existential consequences as a result of that,” Josten said.

“And there will be a third group of firms that will decide to hop off the merry-go-round, deciding that they just can’t keep up anymore.”

Greater Law Firm Diversity

The move towards greater law firm diversity has also increased pressure on law firms.

In the UK,  Herbert Smith Freehills has said it will increase the number of ethnic minority partners from 5.6 per cent to 10 per cent in London by 2025.  The Times also reported the firm saying that it will improve retention of junior solicitors so that the percentage of newly qualified lawyers from ethnic minorities would match the cohort at recruitment.

High Pressure on Associates

The growth in legal business has seen increasing stress upon associates and others as demand, particularly for deals, has seen high turnover in some firms, as recently reported in respect of Kirkland in AbovetheLaw.

This trend has been seen in other jurisdictions where legal recruitment trends have seen increased salary limits as the legal talent war continues, but allied with the trend has been reports about increased pressure upon the associates themselves.

The numbers reported in the Reuters survey are respectable even when compared to pre-pandemic figures.

However according to Bureau of Labor Statistics data from July this year, the actual situation for law jobs in the US in the second quarter was down, somewhat surprising to many given the rebounding economy and reopening of businesses.

And the effort put into law firm recruitment, including retention and the increase in associate salaries has seen some legal departments facing tougher economic realities and shedding law jobs.

Where Are The Law Candidates?

In the UK, law firm recruiters have been seeking more candidates, a task made more difficult with the COVID-19 pandemic.

Recruiter TN Recruits Law said that the country’s h igh level of legal employment had seen LinkedIn law job advertisements at nine times the number of law jobs listed 12 months earlier, but there remained a shortage of lawyers in the five-to-seven year post qualified experience level.

The short term solution has been to employ newly qualified lawyers, which is not a satisfactory solution but merely a short term fix.

One of the issues in terms of making life easier for associates, on both sides of the Atlantic, is to alter the way jobs are offered.

In October, UK-based legal giant Allen & Overy offered a new type of job for lawyers in the U.S. offices by expanding its platform that provides for lawyers to be hired to support US clients via their ‘Peerpoint’ platform.

Peerpoint was launched in 2013 and now has about 350 lawyers across Europe, the Middle East and Asia with the lawyers working on high-end projects on a project-to-project basis and compensated in what the firm calls ‘comparably’ for their time.  The focus is on having the legal talent in a support role that meets the needs of all parties and helps alleviate the problem of lawyer-shortage.

The Legal Job Downturn . . Or Is It?

The fluctuations being seen in the legal employment situation has been seen in other economic downturns where it has been seen that a general economic recovery is not always equated with a strong return to law jobs in the shorter term.

As more law firms and legal departments return to their offices the growing demand in the legal recruitment market will continue.  One of the complications in the post-pandemic world has been the increase in hybrid work where the need for actual, in-person support has reduced due to the working-from-home trend.

There has also been a distinct change in attitude regarding lawyers jobs and how they perform them.  Specifically, law jobs and legal recruitment strategies taken into account a range of different factors, including shorter hours, lower billable hours, more lifestyle choices and so forth.

In other words, expectations and law recruitment requirements have changed.

The competition for talent, as the most recent Reuters report demonstrates, has seen an increased demand for talent even though the ‘talent’ may have changed their expectations of what a law job means.

The situation, says the Reuters authors, may see the start of an approach to “boiling point”.

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