The Am Law 100 was recently announced, ranking the top Biglaw firms by 2021 gross revenue. And it was a banger year in Biglaw. Every single Am Law 100 firm saw and increase in revenue. All. Of. Them. Plus 52(!) firms crossed over into the billion dollars in revenue world.
And we know that Biglaw firms are struggling to keep up with the demand on their legal services. They’re in need of qualified lawyers to staff the deals/cases that are filling up their books of business. So, yes, the lateral market’s been intense with all manner of repercussions like special bonuses, signing bonuses, retention bonuses, raises, offers without interviews, and making senior associates lateral partners.
But, some Biglaw watchers are cautioning there’s a potential downside lurking in this frenetic market. That’s right… it’s time to talk about stealth layoffs.
For those who might only be hearing the term for the first time, stealth layoffs are disturbingly popular in Biglaw and they allow firms to cut headcount without confirming that there were economic-based layoffs. So, they’ll give the associates X number of months/weeks to find a new job and the firm frequently couches the reductions in performance review terms, that just, purely coincidentally, happen in the midst of a downturn — whether economic- or demand-related — making those let go doubt their lawyering skills. By their secretive nature, they can be challenging to confirm in specific numbers, but insiders slowly find out something is amiss.
But the market’s good right now — why the layoff talk?
California recruiter Larry Watanabe told Law.com that the current lateral market is simply not sustainable. So, yeah, stealth layoffs ahoy:
Watanabe says that includes firms that over-hired in corporate, firms that made multi-year compensation guarantees for equity partners regardless of firm performance, and firms that merged for market share and then raised billing rates after they climbed the Am Law 100.
“It’s not feasible for them to catch the more elite firms. Their profitability levels are almost less than half,” Watanabe says of the latter group. “With billing rates of $1,500 to $1,600 an hour, in a more modest economy, clients are going to be more careful about bills and how they pay their lawyers.”
Already, Watanabe says, firms are looking at stealth layoffs as demand tails off.
As law firm consultant Tim Corcoran noted, firms that overplayed their hand in the lateral market are likely to turn to layoffs, and the old standby stealth layoffs are on deck:
“Your hours are down, shame on you, you didn’t hit your numbers,” Corcoran says firms will tell lawyers. “They’ll call it a performance discussion when, in fact, it’s really an economic discussion.”
So enjoy the skyrocketing demand while you can (and pay down your student loans). Because the good times? They don’t last.
Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).