US lawyers are billing fewer hours than they have in decades amid a sharp decline in dealmaking, a survey found, as more law firms announce redundancies.
Research from the Thomson Reuters Institute, which tracked data from 170 US-based firms, found that average hours worked per lawyer fell to 119 billable hours per month in the year to the end of November. That was the lowest level since it began tracking the data in 2007, when lawyers logged an average 134 hours per month.
The figures underline how a drop in demand for corporate lawyers in the past 12 months has combined with increasing expenses to decrease profitability across the sector. Law firms’ direct expenses rose 10.1 per cent through November 2022, the survey found, and overhead expenses were up 10.9 per cent — the highest levels since 2008.
The report comes just after job cuts were announced at New York-headquartered Stroock & Stroock, following redundancies at Boston-based Goodwin Procter. Silicon Valley outfit Cooley axed dozens of lawyers last year, amid a dramatic slowdown in its technology-focused practice, while another tech-focused firm, Gunderson Dettmer, pushed back start dates for new associates.
In a memo circulated last week, and seen by the Financial Times, Goodwin’s leadership said demand had “dropped from its extraordinary heights of the past several years” and as a result, staffing levels were “too high for our current and projected demand”. The firm had increased the number of lawyers on its payroll by 60 per cent since October 2019.
Stroock said in a statement it had carried out “a comprehensive review of each of our practice groups and the demand to be serviced by them in light of the current slowdown” and subsequently “decided to separate from nine non-partner attorneys and 18 staff/business professionals, with severance and other support being provided”.
The worsening outlook for the legal sector is a reversal from the hiring spree law firms embarked on at the start of the pandemic. Top US law firms have also been forced to raise associate pay in recent years, driven by a fiercely competitive talent war.
After a frenzied 2021, global deal making suffered a record fall in the second half of last year, taking a toll on law firms that had hired extensively to field soaring demand.
Law firm profits rose to record levels in 2021, spurred by an M&A boom resulting from stimulus measures unveiled during the pandemic. Equity partners took home more than $7mn each on average at firms including Kirkland & Ellis and Davis Polk & Wardwell, according to data from the American Lawyer.
But profit per equity partner fell 4.2 per cent in the 12 months to the end of November, with productivity dropping among all lawyers, according to the Thomson Reuters analysis. The average practitioner booked $98,000 less in fees in 2022 than in 2007, the report said.
“After finding ways to endure and even thrive through the effects of the pandemic, law firms now face a confluence of factors that look to make 2023 a challenging year,” said James Jones, a senior fellow at the Center on Ethics and the Legal Profession at Georgetown Law and the report’s lead author.
“Firms are being confronted with issues ranging from slowing demand to record-low productivity, all of which could have significant impacts on their economic and institutional health in 2023 and beyond.”