Pic: Image Ent.
First time jobless claims ticked back up again last week, up 27,000 to 640,000, continuing the 12-week run of record number of people staying on unemployment. There was a net increase of 93,000 in the overall number of people collecting benefits, at a total of 6.14 million. From the “ray of hope” department, the rolling four-week average, which is less volatile, dropped slightly to 646,750 from 651,000 first-time applicants.
“There is nothing suggesting at this point that payroll declines are going to abate,” said Tom Porcelli, a senior economist at Castlestone Management Ltd. in New York. “We could bounce along the bottom here for a while.”
That may be true in the broader markets, but in BigLaw there is one factor looming on the horizon that could stanch the bleeding. What is it? After the jump.
The Wall Street Journal reports
A new Hewitt Associates survey of 518 large U.S. companies found that 54% believe the economic upturn will begin at the end of 2009 or early 2010. Nonetheless, a large percentage have plans for further layoffs, salary reductions, medical-benefit cuts and changes in 401(k) matches.
Hewitt’s survey found, for example, that 25% of companies are considering layoffs in the near future. Similarly, a survey conducted by the Society for Human Resource Management of 467 members found that 24% were very likely to implement layoffs over the next six months.
But when law firms (most of which aren’t going to be winning any HBS awards for their management skills) are making layoff decisions, the P&L is just one part of the equation. Another, equally important factor is the firm’s reputation (yes, we know that ultimately affects P&L as well, but it’s generally considered as a discrete topic). Firms are obsessed with how they are perceived by law students, so we expect that there will be fewer layoffs as students’ arrivals for summer programs near.
In addition to not wanting layoffs to happen in front of the summers, firms seem to be realizing that there are less-controversial methods of reducing costs. According to a Work + Life Fit survey, 94% of respondents (757 individuals who were employed full time at the end of March) would be willing to accept a change or reduction in their schedule, or take a pay cut, to avoid layoffs. Those are all methods that have become significantly more common at law firms recently.
CEOs may not be listening, though. According to USA Today, CEOs of 71 of the 100 largest companies expect job cuts in the next six months. That will likely have three effects on lawyers: some inhouse counsel will be affected directly; the perception that law firms can lay people off without taking a reputation hit will increase; and demand for legal services may further decline, continuing the shame spiral.
We may not see BigLaw associates take to the streets like some Broward County public lawyers and staffers did, but you never know – maybe if Building a Better Legal Profession have their way…
What did happen at firms this week?
Layoffs
This week continues the trend of moderate layoff activity, although there were almost 60% more people fired from major firms this week as compared to last, although only five top law firms had layoffs, compared to last week’s six.
Schulte continues its efforts to keep layoffs under the radar, but ATL has confirmed the firm fired 20 more associates, although some were told it was performance-based and others due to the economy. We’re still trying to figure out a way to recap New York as a market, but so far it’s proven just too daunting.
Philadelphia
Our good fortune in local reporters’ covering their regions continues. Last week, we covered Atlanta with the help of the Fulton County Daily Report. This week, Gina Passarella at the Legal Intelligencer did yeoman’s work rounding up all of Philly’s layoffs.
- Dechert — The firm has laid off 254 attorneys and staff since it first made cuts in March 2008.
- Reed Smith — The firm laid off a total of 283 staff and attorneys across its U.S. and London offices. It said that 50 of those staff members were let go as part of the firm’s overall plan to reduce its staff-to-attorney ratio.
- Morgan Lewis & Bockius — The firm cut 161 staff members and 55 attorneys in its U.S. offices in the beginning of March 2009.
- K&L Gates — The firm laid off 36 associates and 79 staff members in its U.S. offices in early March and placed six London lawyers into redundancy consultation.
- Blank Rome — The firm has laid off a total of 139 staff and attorneys since it first made cuts earlier this year.
- Stradley Ronon Stevens & Young — The firm laid off six associates and four staff members in December.
- Saul Ewing — The firm has cut a total of 26 attorneys and staff through two rounds of cuts.
- Cozen O’Connor — The firm cut 61 staff members, including six paralegals, in February.
- Buchanan Ingersoll & Rooney — The firm confirmed between 50 and 55 staff layoffs through two rounds of cuts between November 2008 and March 2009.
- Drinker Biddle & Reath — The firm let go of about 20 associates in January across a variety of practice areas.
- Ballard Spahr Andrews & Ingersoll — The firm has let go of at least 53 support staff and has denied rumors that any attorneys were affected.
- Duane Morris — The firm cut a total of 22 staff positions last year.
- Wolf Block — Prior to its recent dissolution vote, Wolf Block had cut a total of 15 staff and attorney positions in January.
She also reports that Schnader Harrison laid off 3 partners, 5 associates and “up to” 10 staff (see our methodology).
Again, we’re not particularly familiar with Philly, so to our NY-centric eye (and with the help of Wikipedia) that leaves Fox Rothschild and Pepper Hamilton as the only Philadelphia firms without layoffs.
Chicago
We summarized Chicago a month ago, and at the time Locke Lord and Winston & Strawn were the last two firms standing. Locke Lord didn’t last long, announcing deep cuts a week later just to spite us. Kirkland is generally considered the premier Chicago firm (at least by those of us from NY), but this week it added 80 staff to the 25 lawyers it cut in January.
London
No summary would be complete without London firms “entering into redundancy consultations” with people. Clifford Chance is looking to get rid of 20 more staff and Herbert Smith is going for 33 attorneys and 51 staff. Going back to March 1, 2008, Clifford Chance has now had TEN separate layoff announcements. No other firm has had more than five. At 401, CC is creeping closer to catching Latham & Watkins (440) for #3 on the list.
Deferrals and Staggered Start Dates
Dechert is one of the many firms announcing staggered start dates, offering three start dates to the class of 2009. Some number will be able to start in the fall, as usual. Another group will come in March 2010 and will receive a $17,500 stipend to tide them over. Finally, some will start in the fall of 2010 and will get a $75,000 stipend. Incoming lawyers will be asked their preferences on start dates.
As with other firms staggering start dates, we expect the vast majority will behave rationally and choose the first start date. When the firm is forced to defer some, we predict those who had particularly successful summers will be most likely to get their preference.
Those who either didn’t summer at the firm (i.e., were hired as third years, which must be a minuscule number), had unremarkable summers, or have expressed an interest in a slow practice will likely be pushed out.
Bingham McCutchen and Andrews Kurth are deferring the class of 2009 out to January 2010 and paying a $10,000 stipend. Mayer Brown doesn’t seem to have specified its start date, apparently allowing students to start as early as January or defer until as late as October 2010 and receive $5,000 per month plus health benefits – with no strings attached.
Kilpatrick Stockton is taking a hyper-aggressive approach. Not only are deferrals until April 2010 mandatory, the firm adds insult to injury by treating its $17,000 payment as an advance against salary, which will have to be repaid, rather than a stipend.
Summer Programs
Of course, the analogue to staggered start dates for students is shortened summer programs. Another trend picking up is cutting those bachanals. Blank Rome is going with a mere six weeks, as is Buchanan Ingersoll. Not only are summers going to get a shorter program (which means significantly less pay compared to the traditional 10-12 week program), but the programs’ grandeur is being severely curtailed.
Salary Cuts
Cutting salaries continues to be another hot trend. At least three major DC firms have done it: Crowell & Moring; Hogan & Hartson; and Wiley Rein. Chadbourne & Parke and Baker & McKenzie are among the other top firms that have also cut salaries.
What’s interesting is that firms are dangling hope that the compensation can be recouped. At firms that have tiered salary structures, associates are being crammed down to lower hour/lower pay scales. If their actual hours at the end of the year meet the criteria for higher tiers, the pay will be made up in a lump sum. Elsewhere, at firms like Chadbourne where the cuts are across the board, there are vague assurances that lost comp will be made up in year-end bonuses if things turn around.
The Numbers
As we said, there were fewer firms laying people off, but those that did, do so heartily. The average layoff this week was 43.8 people, up from 22.8 last week. But lawyers fared far better, with staff taking the brunt of the cuts – 68 lawyers compared to 151 staff. Last week, it was 65 lawyers to just 72 staff. We did go over the 1,000 layoff mark for the fourth time this year.
This week: 219 (68 lawyers / 151 staff)
This month: 1,003 (285 / 718)
This year: 8,866 (3,434 / 5,432)
Will we hit 10,000 for the year before the summers arrive?
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