Redundancy LLP: Law firms bite the bullet on pandemic costs

September 12, 2020

3 min read

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What's going on here?

As COVID-19 continues to affect businesses around the world, law firms are beginning to ramp up cost-cutting measures with the announcement of redundancies.

What does this mean?

The legal industry is more resilient than other parts of the economy and in fact, some of the COVID-19 chaos has caused an uptick in work for certain departments. Refinancing and restructuring departments, for example, have taken instruction from companies attempting to stay afloat. Equity and debt financing departments have also benefited from fund-raising efforts of companies. Additionally, family law firms have seen a rise in their work with, unfortunately, a 40%+ increase in divorces since the start of the lockdown (compared to the same period last year).

However, a larger part of the legal sector has felt the negative impact of COVID-19. M&A activity, for example, has fallen more than 50% compared to 2019 as companies have focused on bolstering existing businesses. Similarly, private equity saw a 35% drop in activity between January and June compared to the same period in 2019.

Law firms have responded with emergency cost-cutting measures, including furloughing support staff, reducing profit per equity partner and cutting newly-qualified salaries (four out of the five magic circle firms made the decision to do so). Many firms have also announced the reduction of their international operations and the withdrawal from regional hubs, such as BCLP, Stephenson Harwood and Vinson & Elkins which announced plans to close their Beijing offices, and Dentons, CMS and Slater Gordon which closed offices in specific areas of the UK. Some firms have even begun to step up cost-cutting measures with the announcement of redundancies.

What's the big picture effect?

Although it may be quicker to list the law firms who have not yet considered redundancy consultations, the most recent firms include US firm Reed Smith, and 2018 UK-US merged Bryan Cave Leighton Paisner. These firms, citing how work has “evolved as a result of the pandemic”, are due to cut 13 lawyers and six other members of staff; and 19 lawyers and 26 other members of staff respectively.

With law firms adopting remote working arrangements, the reliance on legal secretaries and personal assistants has reduced. Watson Farley & Williams, which made 12 legal personal assistants redundant in August 2020, has stated that lawyers have begun taking on some of the tasks previously delegated to personal assistants, for example arranging meetings. While other duties such as booking travel and meeting rooms are not currently needed. However, support staff are not the only ones at risk of redundancy. In fact, legal recruitment company, Definitum Search, and Giles Murphey of accountant Smith & Williamson, believe that COVID-19 could even be used by law firms to identify “average partners” who are “surplus to requirements”. This might be why, as highlighted in a recent Thomas Reuters report, partners at US law firms have been taking on a greater share of the work from junior colleagues, perhaps in an effort to shore up their value to clients and the firm within the “eat what you kill” remuneration model.

COVID-19 and the resulting recession might force law firms to develop new strategies. Work from home arrangements could lead to law firms reducing their expensive real estate portfolios and providing lower incremental salary increases. It could also see numerous tasks digitised and the development of legal tech expedited, which would save law firms time and allow them to provide a more competitive pricing model. However, it is unlikely that the silver lining will provide much reassurance to the hundreds or thousands of people who are at risk of losing their jobs.

Report written by Keir Galloway-Throssell

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