Law firms have been going through a turbulent time in recent days as economic conditions continue to look woeful and layoffs have taken what one legal blog – AbovetheLaw – describe as both “stealth” and “non-stealth” layoffs in the industry.
In essence, this means that the major problems in layoff terms have been in the tech sector and firms involved heavily in that major economic group.
The legal industry has been hit hard by a slowdown in demand, and law firms are struggling to maintain profits in the face of declining revenues but the doom and gloom scenario is not perhaps as dire as some might imagine.
Some of the major law firms that have cut associate attorneys in recent months in the US, as we have reported, include Shearman & Sterling LLP, Goodwin Procter LLP, Stroock & Stroock & Lavan, and Davis Wright Tremaine.
We have reported on legal layoffs in the UK (based on the Thomson Reuters survey) which referred to some serious legal layoffs ahead.
The decline in demand for legal work in 2022 follows the high growth years that was driven by transactional work and pushed the hiring competition between the biglaw firms that saw six-figure bonuses for even lower-level attorneys.
Firm expenses increased in 2022 largely as a result of the cost of recruiting legal talent, but it lead to problems with economic pressures that affected the law profession and many other businesses.
“The work has fallen off a cliff,” said law-firm consultant Peter Zeughauser told the WSJ. “The firms that were really red hot and significantly over-hired are the first movers to lay people off.”
The layoffs have been a cause of concern for many law firms, as they are seen as a sign of weakness and instability.
However, some experts believe that the firms that have resorted to layoffs have misread the market and are making a mistake by cutting back on their workforce.
Reasons for Law Firm Layoffs
Economic Downturn
One of the main reasons for law firm layoffs is an economic downturn.
During a recession, companies and individuals tend to cut back on legal services and we have seen that occur.
The downturn can obviously result in a decrease in demand for law firms, dropping law firm profits.
For instance, Cooley LLP saw profits per equity partner plunge 19.5 percent to $3.27 million last year, and the difficult decision of layoffs occurs. Cooley laid off 150 associates and staffers in November, according to Bloomberg.
Shearman & Sterling LLP, Goodwin Procter LLP and Stroock & Stroock & Lavan LLP announced layoffs and Davis Wright Tremaine LLP said it would eliminate professional staff, but not attorneys.
But economic headwinds are causing problems for law firms and layoffs for lawyers.
Technological Advancements
Another reason for law firm layoffs is technological advancements. With the rise of artificial intelligence and other technological tools, many legal tasks that were previously done by lawyers can now be automated and increasingly firms are deploying new AI tools to make the legal process faster, more efficient – and more focused upon AI rather than lawyer-involvement.
A recent example has been PwC and their ‘Harvey’ chatbox AI tool – but there are plenty of others coming too.
Changes in Legal Industry
The legal industry is constantly evolving, and law firms must adapt to stay competitive and those changing are helping drive layoffs and restructuring of the profession.
Changes in the legal industry, such as new regulations or shifts in client needs, can result in a need for law firms to restructure or downsize. This can lead to layoffs as law firms adjust to the changing landscape.
In summary, law firm layoffs can be caused by a variety of factors, including economic downturns, technological advancements, and changes in the legal industry. While these decisions are never easy, they are sometimes necessary for law firms to remain competitive and financially stable.
Impact of Law Firm Layoffs
On Employees
Law firm layoffs have a significant impact on employees, including both those who are let go and those who remain.
Those who are laid off may experience financial hardship, loss of benefits, and difficulty finding new employment in a competitive job market. Even those who remain at the firm may experience increased workloads and decreased morale due to the loss of colleagues.
Furthermore, layoffs can have a long-term impact on the careers of those who are let go. They may struggle to find comparable employment in the legal industry, and their resume may be viewed negatively by future employers. Additionally, the stigma of being laid off can be emotionally challenging for individuals to overcome.
On Clients
Layoffs can also have an impact on clients of law firms who can feel the impact of losing the lawyers they know and work with.
Clients may experience delays in their cases or projects as the remaining staff adjusts to the loss of colleagues. Additionally, clients can develop ase about the stability of the firm and its ability to provide quality service in the future.
This can lead to a loss of business for the firm, but also a certain loss of confidence in the firm’s standing as in-house legal teams become more discerning about the outside firms they employ and the need to retain consistency and stability.
On the Firm
Layoffs can have both short-term and long-term impacts on the firm itself.
In the short-term, layoffs may be necessary to increase profitability and cut costs but in the long-term, layoffs can have negative effects on the firm’s reputation and ability to attract and retain top talent.
Additionally, the loss of experienced staff can lead to decreased productivity and quality of work. And following the GFC many law firms are reluctant to embrace layoffs as a strategy to increase productivity given the intense competition law firms have to face when attempting to recruit new talent.
It is important for law firms to carefully consider the potential impacts of layoffs before making the decision to implement them. Alternative cost-cutting measures, such as reducing bonuses or salaries, may be more effective in the long-term.
How to Handle Law Firm Layoffs
For Employees
For employees who has been laid off, the repercussions can be serious in terms of both mental health and economic issues.
there are a few things you can do to handle the situation as well as you can and to position yourself to enter the next stage of your career.
- Take care of yourself: Losing a job can be a difficult experience, so it’s important to prioritize your mental and emotional well-being. Take some time to process your feelings and seek support from family, friends, or a therapist if necessary.
- Assess your finances: Losing your job means losing your source of income, so it’s important to assess your finances and make a plan for how you will cover your expenses until you find a new job. If you need to, consider applying for unemployment benefits or seeking financial assistance to see you through the unemployment phase.
- Update your resume and LinkedIn profile: Start preparing for your job search by updating your resume and LinkedIn profile. Make sure to highlight your skills and experience and tailor your application materials to the types of jobs you are interested in. There is plenty of quality material out there on writing a great resume so use them – make sure you make a good first impression and highlight your skills in your resume’s summary statement.
- Network: Reach out to your professional contacts and let them know that you are looking for a new job. Attend networking events and join professional organizations to expand your network and increase your chances of finding a new job.
For Employers
If you are an employer who is considering laying off employees, there are a few things you can do to handle the situation:
| Do: | Don’t: |
|---|---|
| Communicate: Be transparent with your employees about the reasons for the layoffs and provide them with as much information as possible. Offer support: Provide your employees with resources and support to help them through the transition, such as career counseling or job search assistance. Be fair: Make sure that the layoffs are conducted in a fair and impartial manner, and that all affected employees are treated with respect and dignity. | Surprise your employees: Avoid blindsiding your employees with layoffs. Provide them with advance notice and give them the opportunity to prepare for the transition. Be insensitive: Layoffs can be a difficult experience for employees, so it’s important to be sensitive and empathetic to their needs. Act hastily: Take the time to carefully consider your options before deciding to lay off employees. Make sure that layoffs are a last resort and that you have explored all other options. |
Conclusion
Law firms are certainly facing economic headwinds and slowing demand, which has led some firms to lay off associates. As mentioned above, the recent layoffs at Shearman & Sterling LLP, Goodwin Procter LLP, and Stroock & Stroock & Co. are just a few examples of this trend.
However, some experts argue that firms laying off associates have misread the market and that the “steady drumbeat of layoffs” as AbovetheLaw have reported over the last six months has struck terror into the hearts of associates everywhere.
If layoffs become inevitable, then a firm should be as respectful and conscientious as possible in delivering this upsetting news to the associate.
As the economy continues to shift and change, it’s likely that we will see more layoffs and restructuring in the legal industry. However, it’s important for firms to remember that their associates are their most valuable assets, and that they should do everything in their power to support and retain them.
