This Week in Layoffs – 5/22/09

by lawshucks on May 22, 2009

Flickr pic: Damian Cugley

No! So close! We had this whole piece written on the optimistic assumption that this would be the first full week without a layoff since the end of 2008.

Then Ropes & Gray went and ruined it for everyone.

The slowdown of law firm layoffs reflects the trend in the broader economy. Initial jobless claims were down 12,000 for the week ending May 16, to 631,000. Continuing claims increased by 75,000, the net of the 637,000 claims from last week. That was the 16th straight week of a net increase in unemployment, bringing the rate to 8.9%, a 25-year high. The level is expected to peak over 10% in the next year, and take five more years to drop down to 5%.

So even though the grand total for calendar 2008 broke the 10,000 layoff mark last week, the rate has dropped off dramatically. It was only on April 13, 2009 that the total from the current wave (counting from Cadwalader in January, 2008) broke 10,000. Despite the recent slowdown, it took just over a month to have as many people laid off from law firms as were laid off in all of 2008.

Even if Ropes hadn’t rained on all the barbecues, there were still going to be a number of caveats and clarifications to the “no layoffs” analysis. We address those, and other cost-cutting measures, after the jump.

Layoffs

For those new to the series, we track stealth layoffs just like every other layoff, although our humble opinion puts them in their own special circle of hell.

So Ropes & Gray gives us our first caveat to the “first full week without a layoff” announcement, which is that we don’t give a pass to firms that play the “performance” card. All layoffs in this market are economics-based unless proven otherwise (see, e.g., Deidre Dare or the Quinn Emanuel first year).

Our second caveat would would have been to clarify that “no US firm” had laid anyone off this week. Someone is always being laid off in London.

Addleshaw Goddard, one of the larger UK national firms, went the traditional route and cut 85 staff. But they’re also thinking outside the box. The firm has proposed a 4-day workweek at 85% salary. The firm is soliciting feedback on that and will decide in a few months whether to implement. The firm is also offering four-, eight-, 12-, and 26- week sabbaticals at 30% of pay. And, of course, to complete the trifecta of cost-cutting, salaries are being frozen for those already in place and reduced for the incoming classes.

Regional firm Blake Lapthorn had its third round of redundancies, this time 33 staff, and possibly some number of attorneys.

The third clarification would have been to explain that no one had been laid off who had already begun work.

Freshfields has carved out its own path, announcing it will pay those trainees it doesn’t offer full-time positions an undisclosed amount in cash. That reflects the firm’s expectation that it will only be taking on 70% of its trainees, significantly off the 91% retention rate from last September and 86% from March. That’s really not a whole lot different than letting 10 trainees go through the program and then laying them off. It doesn’t qualify for the tracker, but it is worth noting here.

Fish & Richardson is straddling the line between layoffs and deferrals. Remember Glengarry Glen Ross? For those who don’t, here’s the line:

Blake: We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize?

[Holds up prize]

Blake: Second prize is a set of steak knives. Third prize is you’re fired.

The IP firm, which just laid off 120 people last week, is doing pretty much the same thing. One third of associates start on time, one third start in October 2010 with $5,000/mo to tide them over, and one third are fired before they even started.

Same goes for the 25 graduating law students who planned to start at the Massachusetts Superior Court. They just found out their clerkships are in scope of the statewide hiring freeze and they won’t be starting this fall.

If lawyers can be fired before they start, surely they can quit, too, right? Pillsbury thinks so. Not surprisingly, the firm’s “voluntary departure program” wasn’t well received. So now they’re offering a “voluntary non-employment program,” pursuant to which they’ll reportedly pay $60,000 to any offer-toting first-year who volunteers not to start.

Deferrals

Meanwhile, in the limbo of those who have offers that haven’t been rescinded but haven’t started work yet, the associate class of 2009 continues to disappear.

With (some of) those 2009 graduates starting in 2010, hiring 2010 grads is obviously going to take a hit. So why bother with a summer program? Morris Manning asked that question, and the answer was, “we’re not going to.” Makes sense – there isn’t enough work to go around to the first years already, it’s clearly a buyer’s market so no need to wine and dine, and the firms probably won’t need to replenish their ranks that much next semester anyway.

Of course, that might be penny wise, pound foolish. Firms have consistently scrambled to fill ranks with talented lawyers after waves of layoffs. Adam Smith, Esq. agrees,

A prudential reason argues for the same continue-to-recruit policy: If your firm shuts down recruiting, be prepared for the market to have a long memory and for it to punish you when the good times return. (If you doubt this, recall that some firms were still suffering reputational dings for having laid off people after the dot-com meltdown half a dozen years later.)

The problem with might be the assumption that firms will be competing for the same number of new lawyers, which isn’t likely to happen – it will be a buyer’s market for a long time. Shearman and Clifford Chance were vilified seven years ago for layoffs, but how many bottom half of the T14 wouldn’t accept an offer right now to start there in October?

Skadden is looking ahead. With all those deferred attorneys starting in 2010, the hires from the class of 2010 are being preemptively deferred out to 2011. Eventually, there is going to have to be a whopper of a class, or a whole graduating class simply isn’t going to get hired (a la Morris Manning).

Salary Cuts

Sonnenschein has followed many others in freezing salaries for existing associates and reducing incoming associates’ comp to $145,000, from $160,000. More ominous, however, is the announcement that all compensation is under review for next year, with extensive cuts planned as the firm engages in a “comprehensive redesign” and moves towards a merit-based scale.

Reed Smith did a straightforward 10% cut across the board, plus incoming associates’ salary will be 10% below current first years’. DLA Piper has bounced back and forth between a 20% and 10% cut, finally settling on the latter, but there is supposedly more upside for higher performers.

Then there’s Kirkland. As ATL notes, salary cuts are practically cliche at this point, but Kirkland found a new spin. The firm is reducing the portion of health-insurance premiums it covers, resulting in a claimed decrease in take-home pay of $1,000-$2,000 per year. To be fair, though, 50% employer coverage is pretty standard outside BigLaw. Still, less money in your pocket is less money in your pocket, and we’ll treat it as a salary cut with a hinge of vile stealthiness to it.

Conclusion

There’s always solo practice. The American Lawyer reports on the increasing number of small firms starting up. Amusingly, one of the lead anecdotes is about two former Boies Schiller lawyers who set up their own shop to avoid conflicts between their whistleblower clients and Boies Schiller’s corporate clients. What’s particularly amusing (but somehow not noted in the AmLaw piece) is that David Boies left Cravath to start his own firm because of conflict issues – notably, he wanted to keep representing the Yankees against MLB but Time Warner, Cravath’s biggest client at the time, owned the Braves and objected.

If that is something you’re considering, Carolyn Elefant is pretty much the authority on hanging out a shingle.

Another alternative, proffered by National Law Journal, is going into law-firm management.

Better yet, start a cupcake truck. Mmmm cupcakes.

That’s not as likely to keep you out of the numbers, though.

Numbers

With over a week to go, May has caught up with April.

148 laid off this week (30 lawyers, 118 staff)

1,125 laid off this month (338 lawyers, 787 staff)

10,163 laid off this year (3,881 lawyers, 6,282 staff)

  • http://solopracticeuniversity.com Susan Cartier Liebel

    If you are considering the solo option, yes, Carolyn wrote 'Solo by Choice' (even though with the layoffs I question the 'choice' part of it. But if you want real hands on learning how to actually 'be' a solo you may want to check out Solo Practice University http://solopracticeuniversity.com, a web-based educational and networking community for solos. There is nothing else quite like it out there.

  • http://solopracticeuniversity.com Susan Cartier Liebel

    If you are considering the solo option, yes, Carolyn wrote 'Solo by Choice' (even though with the layoffs I question the 'choice' part of it. But if you want real hands on learning how to actually 'be' a solo you may want to check out Solo Practice University http://solopracticeuniversity.com, a web-based educational and networking community for solos. There is nothing else quite like it out there.

Previous post:

Next post: