Do Norton Worry: London firm proposes lower pay and a shorter working week to protect its employees

May 3, 2020

2 min read

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What's going on here?

Norton Rose Fullbright (NRF) has asked staff to agree to a 20% reduced working week and payment of only 80% of their base salaries to “safeguard jobs as far as possible” from the impact of COVID-19.

What does this mean?

The scheme is expected to last 1 year, starting on 20 April 2020. Staff were informed that participation is voluntary. The programme requires 75% of eligible staff to participate to have a worthwhile economic impact on the firm. This means that unless a certain number of employees choose to participate in the programme, the scheme will not be able to reduce costs for the firm, which is necessary to prevent layoffs.

The firm stated that all reductions will be assessed on a departmental and team basis, according to the needs of the business. NRF further plans to defer payments of partner distributions, postpone salary increases and bonuses, and reduce or defer any non-commercial spending in the immediate future. 

The London outfit used similar measures to survive the global financial crisis. Immediate action was taken to protect its people and respond to future changes in work for an undefined time period. The move will help conserve cash and protect jobs from predicted falls in fee income (the revenue earned by law firms from charging clients fees for legal services).

What's the big picture effect?

The action comes as no surprise. City firms across the board are making similar moves as a result of the coronavirus crisis. 

With several countries under lockdowns due to “stay at home” initiatives, billable work has slowed down because clients are more cautious to invest in new opportunities or continue current projects. Falling revenue due to lower demand from clients, make it harder to maintain high salaries and bonus payouts without laying off workers.

This is why firms are preserving jobs by cutting costs in line with reduced incomes. Pinsent Masons, Fieldfisher and Linklaters, like NRF also considered holding back partner payouts (these are payments made to partners for time invested, capital made available or services provided). The action is sensible because law firms are thinly capitalised (that is, their debts are much greater than capital), due to the bulk of financing being paid as profits to partners annually. 

Other firms like Allen & Overy, requested partners to inject capital into the firm. While national outfits such as Burges Salmon, have redeployed staff into newly-created roles in IT, finance and remote working. By reinvesting profits and restructuring teams, firms may survive the pandemic by retaining talent and stabilising cash flows according to global demand. 

This action helped survive the recession of 2008 and may push NRF through the current crisis. After the pandemic ends, the firm will be equipped with the manpower necessary, to take advantage of the renewed demand for legal services, if and when a recovery finally happens.

Report written by Evania D’souza

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