City law firms may be forced to make layoffs as UK downturn hits, recruiters say
The City’s top law firms could soon be set to follow their US counterparts in laying off staff, recruiters have said.
The UK’s corporate law firms may be forced to make lawyers redundant due to the wider economic downturn and a lull in M&A activity, recruiters told CityAM
Scot Gibson, director of legal sector recruitment firm Edwards Gibson, said that, while “no law firm wants to be the first to do it”, layoffs could be on the horizon soon.
He warned that after a boom in hiring on the back of bumper profits, UK law firms may soon be forced to reduce their “fixed costs” by laying off staff.
The comments come as some of the US’s top law firms have already begun laying off lawyers following a slowdown in work.
In December, tech specialist Cooley laid off 150 US employees, including 78 lawyers, on the back of a downturn in the tech sector.
More recently, Boston-headquartered firm Goodwin Procter laid off five per cent of its US associates, paralegals and operations staff.
New York firm Stroock & Stroock & Lavan yesterday became the latest US law firm to make redundancies, laying off nine lawyers and 18 other staff.
Stroock cited the “current slowdown” in the market, as it determined it had “more attorney and staff resources” than it needed.
The layoffs come as research from Thomson Reuters shows profit-per-equity-partner (PEP) at US law firms has dropped for the first time since the financial crash in 2009.
The research showed average PEP at US firms fell 4.2 per cent after surging by 10.1 per cent in 2021 on the back of a boom in demand for legal services.
The Covid-19 boom saw law firms bolster their ranks in a bid to capture more work, as the US’s top firms started a pay war that drove up salaries for newly-qualified (NQ) lawyers to record highs.
The uptick in profits as a result of a surge in work “meant law firms suddenly felt very, very flush,” Gibson said.
The pay war saw NQ salaries in City law firms surge to heights of well over £100,000 a year, with those at the top end receiving up to £179,000 per annum.
However, Thomson Reuters research showed law firms efforts to boost their headcounts led to a decline in productivity, as lawyers’ billable hours fell to all-time lows of 119 hours per month.
For comparison, lawyers in the US market in 2007 worked an average of 135 billable hours each month.
US law firms’ hiring spree also saw their overall business overheads increase by 10.9 per cent in 2022, in a shift that took a toll on partner profits.
Gibson noted that the legal sector has seen three major pay wars in its recent history, including the current one.
Notably, the other two, in the run-ups to the dot com boom and the financial crash, both led to widespread layoffs, Gibson said.
UK law firms have however held out from laying off lawyers and other staff, despite also suffering a downturn in work.
Andrew Waters, managing partner at recruitment firm Chadwick Nott, noted the City’s top laws firms are continuing to be profitable.
He explained that law firms are “committed to keeping their top talent” despite the slowdown in work.
Waters however noted that law firms “will resource to the extent that there’s any given work at the time”.