Happy International Workers’ Day, comrades! In light of the scarcity of jobs, we expect few lawyers will be taking to the streets to protest poor working conditions this year.
Once again, mixed news on the broader employment front. Initial jobless claims unexpectedly dropped by 14,000, but continuing claims hit a record high for the 13th consecutive week. That mirrors what we’re seeing at the major law firms: layoffs are slowing down, but new work isn’t being created to fill the massive void.
By the way, Google is rolling out some cool new tools that allow you to view various statistics. Here’s a chart of the New York unemployment rates. Check out TechCrunch for more on the feature.
After the jump, we break down layoffs by region, plus a recap of other cost-management activities.
Layoffs
The most-interesting news of the week is probably that White & Case and Clifford Chance have identified the partners who will be laid offand begun the notification process. Both firms had earlier indicated that the partner ranks would be thinned. Legal Week is reporting that nine White & Case partners in the firm’s London finance practice are to be gone by the end of the year; most were not equity partners. Sources tell Law Shucks that partners in other offices (New York in particular) received one of two emails. Email “A” included the partner’s comp for the year; email “B” was basically a “come see the principal” note. White & Case marginally extends its lead in the big three layoff categories: total, attorneys-only, and staff-only. Despite four months of significant layoffs, one expert doesn’t think it’s been enough yet. Dan diPietro, client head of the Law Firm Group of the Citi Private Bank, is concerned that 2008’s results weren’t bad enough to shock partners into correcting a broken business model. He’s concerned that last year’s 3% decline in PPP “will be greeted with relief and complacency.” In fact, the model is greeted with scorn:
Among our 175-firm sample, head count for fiscal 2008 was up 4.5 percent from fiscal 2007. I showed the flash report of our sample to a colleague of mine who lends money to Fortune 100 companies. Her response? “So, Dan, the way law firms make money is to grow head count when demand drops?” This is a neat way of summing up the problem firms faced as they entered 2009–too many lawyers chasing too little work.
He’s predicting that without further significant layoffs, profits will decline 5-10%, but even at those levels, several manging partners told him he was being too optimistic. He’s not the only optimist, though. For some incomprehensible reason, law school applications are up 3.8% this year. Do applicants think they’ll be the ones who gets the few jobs there actually are out here, or are they just trying to hide in school for three more years to avoid the entire mess? Our good fortune continues with local reporters summarizing their regions for us. We’ve previously enjoyed having our work done for us in Atlanta and Philadelphia. This week, we’re doubly blessed, with two non-US markets surveyed. But first, London.
London
There’s always something going on over there. Allen & Overy’s massive redundancy consultation – 200 lawyers, 200 staff and 47 partners, came to a close this week as the individuals were identified and effective dates of termination were set. That’s about 10% of the firm’s total headcount. Legal Technology Insider analyzed just how much these actions cost:
The restructuring is expected to cost A&O £44m once redundancy packages are paid out, with the firm previously stating that equity partners had been asked to contribute an average of £30,000 each of fresh capital, equating to around £11m, to help fund it. A&O’s restructuring was guided by a series of principles set out by senior partner David Morley, who told staff that A&O had considered alternatives such as reduced hours, reduced pay, sabbaticals, secondments and trainee deferrals, but concluded that none of the methods would deliver the appropriate level of cost savings required.
(A GBP costs about $1.50 today, so add 50% to convert to greenbacks). Meanwhile, LegalWeek has the details on the Herbert Smith payouts to the 84 people it’s laying off (30 lawyers, the rest staff). Despite a policy that requires severance of only two weeks’ pay per year of service, the firm is being slightly more generous.
The deal means a newly-qualified lawyer who trained at the firm will receive £27,100 in severance pay, while those with one-year post qualification experience (PQE) will receive £30,700, two years PQE £36,900 and three years PQE £48,700. Lawyers subject to compulsory redundancy will also serve three months’ notice but will only receive three weeks’ pay for each year of service, with no three-year minimum payout. On these terms, a newly-qualified lawyer who trained at the firm would receive £21,900, while lawyers with one year PQE will receive £28,800, two years PQE £34,100 and three years PQE £44,700. Laid-off support staff are thought to be receiving similar packages, although notice periods are understood to vary from one to three months depending on seniority and length of service.
Further to what we said above, at Clifford Chance, “several real estate partners and two leveraged finance partners have been notified.” The pain is just non-stop over there. That marks the ELEVENTH separate report of layoffs. Clifford Chance extends its runaway lead in the one category White & Case doesn’t own: number of discrete layoff reports.
Canada
Up north, Julius Melnitzer of Canada’s Financial Post has analyzed six Canadian firms with offices in New York: Torys (46 lawyers); Osler, Hoskin & Harcourt (29); Davies Ward Phillips Vineberg (16); Stikeman Elliott (14); Fraser Milner Casgrain (11); and Blake Cassels & Graydon (five).
None of the firms has reported any layoffs attributable to the current economic crisis.
Why are Canadian firms suffering less?
That’s because of a number of factors. First, the overhead structure of Canadian firms is considerably less than their U. S. counterparts. Second, a large component of their client base is Canadian. Third, the Canadian economy and financial system have not been hit as hard as in the United States. Fourth, the U. S. situation is presenting a buying opportunity for Canadian companies, increasing the demand for Canadian legal services.
But it may not be all Montreal Petting Zoos and Reverse Rick Moranis-es up north:
“How can the situation in London and New York fail to impact on Canadian firms?” asks Philip Henderson of Stikeman Elliott in Toronto. “My impression is that Canadian firms are not as busy as before, but the anecdotal evidence is that deals are still in the pipeline for them and they’re much busier than their U. S. counterparts.”
Canadian firms may not be laying off New York people, but the reverse isn’t true. We’re constantly getting anecdotal evidence that New York firms are laying off Canadian lawyers at a greater rate than graduates of local schools.
Moscow
Sofia Lind breaks down the Moscow market for Legal Week. Almost all of the significant action in Russia goes through Moscow and it’s almost all handled by local offices of international firms. We can’t remember dealing with any Russian firms in the half-dozen or so deals we’ve done in the country. The English have long had presences there and the mining (gas and mineral) and other industries have attracted players from the US as well.
Despite the vast natural resources and free-flowing cash, the market has been hit just like every other. As for layoffs:
White & Case has laid off 31 staff in Moscow as part of the global redundancy programme announced in March. Of the 31, 18 were legal staff.
Simmons, meanwhile, has downsized its Moscow operation by nine, laying off three corporate and finance associates and two support staff last month, and relocating four lawyers back to London. The relocations include corporate partner
Isabella Roberts.A&O and Dentons both declined to comment on the extent of the reductions, although Dentons confirmed that both lawyers and support staff had been affected. Legal Week has already reported that CC made around six lawyers redundant, with 24 said to have left voluntarily before the end of last year. It is thought a further 30 legal and support jobs have been cut at CC this year. Baker & McKenzie made three lawyers redundant in Moscow at the beginning of this year.
Deals in the country are at 2004 levels: just 46 in the first quarter, compared to 117 in the first quarter last year. The recent uptick in oil prices has led to optimism that things will turn around soon, though.
United States
In addition to Clifford Chance and White & Case described above, the major law firms laying off people this week were Kilpatrick Stockton (24 lawyers, which may or may not have played a part in a horrible tragedy); K&L Gates (20 staff); Wildman Harrold (10 lawyers, 7 staff); and Squire Sanders (32 staff). [Update: Seyfarth Shaw laid off 50 people late on Friday after we posted]
Inhouse
Even worse an abomination than laying off first years is laying off inhouse counsel. Unfortunately, but not surprisingly, Nomura has gotten around to wielding the axe after bailing out Lehman’s UK operations. The Japanese bank has laid off 31 people from the law department – 12 lawyers, 19 staff. The affected came from both sides of the merger.
We kid about the first years, although most of them have been in place at least six months by now. Considering the current environment, that might be enough time to make an impression. In our opinion, though, they should get a full year, but we’re not as outraged as we were when first years were getting laid off two months into their tenure.
Deferrals
Start dates continue to be pushed back. ATL updated the Start Date Round-upearlier this week and it ain’t pretty. You know things are bad when Kash writes “some firms are starting associates as early as September 2009.” When did “on time” become “early”?
Even more frightening is that not only are a host of firms forsaking have new attorneys start in 2009 at all, a number are offering deferrals that go as far out as 2011, potentially passing up on 2010 as well. Foley & Lardner, Paul Hastings, Faegre & Benson, and Andrews Kurth are among this week’s deferrers.
Meanwhile in London, Simmons has come up with the creative solution of allowing its trainees to defer for six months, during which time they can participate in a custom MBA program. 29 of 58 accepted, and they get a $22,500 stipend for the duration.
Compensation
An interesting variant this week. Linklaters is going ahead with annual salary raises based on class progression, but is tightening the bands. Rather than typical raises of about 4%, classes will be getting a bump of about 2%. Staff, of course, are taking it on the chin. Their pay is frozen, except in connection with performance-based promotions.
Nixon Peabody has gone the traditional route, cutting first-year salaries to $145,000 from $160,000 and is shifting toward a more-performance-based bonus system. Squire Sanders revisited its earlier salary freeze and implemented a 10% cut across the board. Someone finally figured out that zero attrition plus zero pay cuts still leads to zero savings.
To the extent there’s anything funny about these circumstances, at least we can laugh at Husch Blackwell Sanders firm chairman Dave Fenley. In a strange interview, he refused to call the firm’s termination of 62 people “layoffs” because that implied business at the firm had slackened. Instead, he said things were “going gangbusters” and the firings were part of the normal review process.
Fenley deserves some sort of dipshit award. First, for being so obtuse and insensitive. But even better for this week’s gaffe: the firm announced pay cuts. While he admitted that the prior exuberance was “boneheaded,” he still doesn’t get it. Fenley said “these [layoffs] would’ve occurred “regardless of the economy” but the “economy reminded us” that it needed to be done.” Huh?
Conclusion
This week was again very light, but the trend was that almost all of the layoffs were in the attorney ranks. Last week, lawyers accounted for 68 out of 251 total layoffs (31%), and historically lawyers are just under 40% of the total layoffs. This week, however, it was almost all lawyers: 80 out of 107 (75%). On the bright side, that’s the fewest people laid off by major law firms in any week since the Christmas-New Year break.
This week: 157 (100 lawyers, 57 staff)
This month: 50 (20 lawyers, 30 staff for May – but stay tuned for the April recap)
This year: 9,066 (3,565 lawyers, 5,501 staff)
[Ed: Updated to add Seyfarth to the tallies. Split is estimated as 60% staff, 40% lawyers until we get confirmation of the real allocation]
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we have disenfranchised our own country of all honest industry. we have handed over the keys to the kingdom to outsourced, third-party countries, and now, shockingly, business has dried up.
fire more lawyers
i love it
teddy, although the legal profession is probably over-stocked with attorneys, it is never good for the entire economy that mid- to high-wage earners lose their jobs. These people spend lots of money and help employ others, including staff at law offices and lots of people in retail.
You are clearly ignorant.
Why not create a clearinghouse for all the attorneys/staff formerly employed with the law firms in Chicago and nationwide. Perhaps that would give these skilled workers some hope to their future. If the law firms continue to downsize we are left in a worst case scenario with no change of catching up.