This Week in Layoffs – 5/8/09

Indulge us at Law Shucks for a brief editorial.  Two recent tragedies compel us to provide some context.  We don’t write this series and maintain the Layoff Tracker because of some sense of schadenfreude.  We do it because of frustration with the lack of transparency into the firms’ layoffs and the absence of any useful data to put those layoffs into context.  If nothing else, we would hope that those affected have a better understanding of the larger events that factored into the layoffs of particular individuals.  You are not alone and being laid off is not a reflection on your value as a person or your intrinsic self-worth.

On to the news (and the inevitable flaming in the comments).

In the broader US economy, unemployment hit a 25-year high, reaching levels not seen since September 1983.  Fewer people were laid off in April than in any month since October, which somewhat tracks the trend we’ve seen in law firm layoffs.  April was the slowest month this year for our little corner of the market (things didn’t really pick up at firms until January, which trailed the broader economy).  Still, while layoffs are slowing, the unemployment level continues to set new records due to the lack of hiring. 

Data and analysis begin after the jump.

The Market

If you’re going to read one article that’s not on ATL or Law Shucks this week, you’ll probably want to read American Lawyer’s “Calculus of the Damned: How Are Associates Marked for Extinction?“  David Bario and Drew Combs comment on the process, starting at the beginning:

It’s not simply a matter of hours. There is a calculus involved. Some firms really are “realigning,” or making up for lack of traditional associate attrition. Others are tossing dead weight as fast as possible from a sinking ship. But even though a number of agendas are at work, firms usually start at the same place: billables.

That’s certainly a reasonable first place to look, as a corollary to the notion that the best lawyers are the most sought out and, therefore, the busiest.

Still, firm leaders say it’s rare to simply draw a line and fire every single associate who falls below it. “It’s not a purely hours-based decision by any means,” says Reed Auerbach, co-CEO of McKee Nelson. Firms assess their leverage model, try to balance layoffs across associate classes, and ask partners for feedback about particular associates’ skills and flexibility. If they can move associates to busier departments, they will. “There is a huge amount of thought that goes into this,” says Bingham McCutchen chairman Jay Zimmerman.

Then there’s the reality that, as the chairman of one firm puts it, “every hour is not equal.” He explains: “Some people take 100 hours to do a job that someone else can do in 50, and the 50-hour guy may do a better job.” Those details are tough to capture in a statistic.

From there, firms look at other factors like realization rates, but at the end of the day, one consultant (Lisa Smith of Hildebrandt) thinks firms are secretly happy for the opportunity.  In the prevailing mindset that layoffs are a substitute for the voluntary attrition that is a pillar of the BigLaw model, firms are pleased with the new-found opportunity to select and retain the strongest performers.  One unidentified firm chairman puts it bluntly: “The fact is, the qualitative gene pool improves in the process of doing these layoffs.”

Are things turning around for firms?  National Law Journal reports “Study Projects Growth in Corporate Legal Spending,” but we’re not buying it.  Among other things, the study ignores its own finding that seven of the 11 practice areas it measured were in decline, and law departments’ budgets were set long ago and the purses don’t re-open just because things are looking up (which they aren’t).

Actually, read two other articles this week.  Check out Bill Henderson’s thoughtsand Jeff Liptak’s comments on the Legal Profession Blog.  They’re also pessimistic about BigLaw, expecting further deferrals and pay cuts, but think there’s likely to be at least one segment of the market that will benefit:

Other conversations I have had recently suggest that regional firms are going to be the real winners. They are responsive and cost-effective, and GCs have zero ability to go over budget in the current environment. There is a general perception among many that national law school credentials are not required for motivated, high quality, cost-effective legal talent. At a minimum, regional firms are going to get the opportunity to do work that formerly went to DC, Chicago, NY, or West Coast powerhouses.

Activists continue to try to present the downturn as an opportunity.  First, we heard that firms should embrace the opportunity to make firms more hospitable for women, leading to a kinder, gentler BigLaw.  This week, it’s being presented as an opportunity to focus on retention of diverse attorneys as a competitive advantage.  Unfortunately, that message is likely going to get lost in the broader effort to retain as many attorneys of every stripe as possible.  Continuing on the protected-class front, older attorneys are supposedly more at risk.

One segment where we do believe the pundits who say it might actually benefit (at least temporarily) from the downturn is contract attorneys, as “law firms re-imagin[e] how to use lawyer talent.”

Layoffs

We’re definitely in a state of flux right now.  Layoffs slowed significantly in April compared to the bloodbath in March, but this week saw a significant rise compared to last week, with more than three times as many people laid off.  In fact, this was the worst week since the week ending April 3.

More importantly, we saw the return of layoffs to the upper echelons of BigLaw, when Milbank laid off 49 attorneys and 40 staff, and Sullivan & Cromwell stealthed 20 attorneys.  Even though only eight major firms laid people off, the

London

Even when we’re not doing geographic breakdowns, London warrants its own spot.  Due to the “redundancy consultation” process and mandatory financial filings by firms, not to mention top-notch reporting, we’re always getting good information from the City.  Inevitably, the trends we read about in London are spreading across the US, although they’re not as well reported. 

So a few things to keep an eye on:

• Allen & Overy is both paying trainees to defer start dates (which is standard these days) and has announced that it is reducing its trainee intake (relatively analogous to first-year hiring) to 105 from 120.  US firms typically don’t announce how many people they’re planning to bring in prior to recruiting season, but we’ll certainly be seeing significantly smaller classes.
• At the other end of the associate career track, A&O was one of three firms that announced partner promotions last week, and all three made fewer partners this year.  So not only are students less likely to get jobs, they’re less likely to make partner after they do. 

Salary Cuts

Last week’s announcement of salary cuts at Chadbourne & Parke may leave the firm feeling a bit exposed.  According to Zeughauser and Hildebrandt, we’re not likely to see a trend of New York firms cutting salaries any time soon.  They claim that comp has already been cut by the reduced bonuses and the firms “also might be reluctant to take the reputational hit that comes from cutting salaries.”  Riiiight.  Surely the reputational hit that comes from layoffs is worse, right?  That point makes sense for the firms that haven’t laid anyone off, because they can say, “everything is fine – no layoffs, no salary cuts.”  For the others, though, they might as well resign themselves to second-class status (or TTT as commenters would put it) because there won’t be much difference, if any, in the stigma attached to layoffs or pay cuts.  The firms that have done either are tainted and will be lumped together in one big caste.

Still, lawyers at Schulte are on notice.  There is supposedly a memo in the document-management system that presages salary cuts.  However, there hadn’t been any developments on that front since Monday.

Outside New York, things aren’t so cut and dried.  We’ve summarized a host of other regions in previous entries (London just about every week, Chicago, Atlanta, Philly, etc.).  Nixon Peabody previously announced salary cuts and said associates would be able to earn the base back in bonus.  Now we have the numbers.

In Washington DC, pay cuts have become the norm.  Seven firms have flat out cut salaries and three are doing that funky lower-hours tier cut.  One associate has a pretty good perspective on the matter:

Of course, prospective associates are hardly in a position to fuss. “Look, I know that I am not worth $160,000. But if firms are willing to pay it, I’m not going to turn it down,” said one first-year associate at a D.C.-based firm who requested anonymity when discussing his salary. “If they came to me and said you’re either going to take a pay cut or you’re out of a job, I’d take the pay cut.”

Down in Texas, Gardere managing partner Steve Good came out and said what many people have known for a long time:

As most law firms are recognizing, starting salaries for new associates that begin at $160,000 just do not make sense in the current economic environment, and probably did not make sense even before the downturn.

Don’t forget, that’s a firm that employs a lawyer who drafted an elaborate coin-flip dispute-resolution provision.

Out in California, there may even be a reason that market is more tolerant of layoffs and salary reductions:

“Failure in New York is a big, black, dark cloud and it’s failure,” Miller said. “Whereas in Silicon Valley people almost brag about, ‘Well, I did three startups and the fourth one finally took off.’ Try and try again, and if you fail, just get back up and try again. It’s a very Western kind of mindset.”

Zeughauser agreed.

“The New York firms culturally can’t see their way through those layoffs, but California firms can,” Zeughauser said. As far as salary cuts, he said of California firms: “Sure, they are much more likely to do it than the New York firms. New York firms are going to do it last, if they ever do it. I don’t think they’ll do it.”

Deferrals

On the deferral front, Stroock was the big news.  The firm is offering $75,000 to incoming associates who choose not to come in.  Those who do still want the job have to act fast -  the decision has to be made by July 1.  And even then, they’re getting just $50,000 to defer all the way out until January 2011.

Kirkland’s new class got good news.  They’re starting in November.  We’re still getting our arms around November being “on time” this year – that used to be the last class for the hardcore stragglers.  There’s an updated start date roundup in that piece, too.  We’ll talk to Kash about putting it in a more user-friendly format.

Meanwhile, Dewey & LeBoeuf and Shearman & Sterling both announced deferral programs in the vein of the Skadden Sidebar.

Layoff Tracker Errata

One thing we’ve long struggled with is how to handle staff lawyers and part-time contract lawyers.  For the record, we treat them as staff – lawyer layoffs only include associates, counsel, and partners.  So Skadden’s two rounds of staff-lawyer layoffs and most recently the 119 temp lawyers at Eckert Seamans count as staff.

Activity at smaller firms we don’t track on the BigLaw Layoff Tracker

• Ruden McClosky, a Florida firm, laid off two attorneys and 18 staff.  The firm had previously laid off a real-estate associate and 15 secretaries.  The firm now has 172 lawyers in 11 offices throughout the state.
• McDonough Holland & Allen laid off four associates and 13 staff.  They take the title for the greatest Crash-Davis-esque nickname for a law firm’s dubious accomplishment.  The  ”second biggest law firm in Sacramento” steals the title from Pierce Atwood, “the largest law firm in Maine.”  I wonder which is bigger.

Numbers

526 people (176 lawyers, 350 staff) laid off by eight major firms this week.
576 people (196 lawyers, 380 staff) laid off this month.
9,942 people (3,741 lawyers, 5,851 staff) laid off this year.

Related posts:

1. This Week in Layoffs – 7/31/09
2. This Week in Layoffs – 2/27/09
3. This Week in Layoffs – 10/23/09
4. This Week in Layoffs – 6/12/09
5. This Week in Layoffs – 1/23/09