Big Law firms are laying workers off but raising pay for people who remain, with firm leaders citing a 'fundamental shift' in working conditions

  • Baker McKenzie, Skadden, and Nixon Peabody all announced this week that they're making layoffs, with some firms cutting professional staff and some letting lawyers go.
  • Other firms, like Hogan Lovells, are rolling back the pay cuts they made earlier on in the pandemic. Some firms are doing both.
  • Law firm observers say firms generally outperformed their worst projections, but are looking at a future where they're in the office less.
  • Visit Business Insider's homepage for more stories.

Baker McKenzie and Skadden Arps Slate Meagher & Flom are two of the biggest law firms in the US. And both pulled the trigger on layoffs this week that could impact hundreds of workers.

At the same time, Baker McKenzie announced that it would be reversing the pay cuts it made earlier this year at the end of December. Hogan Lovells, another multinational law firm, said it was also undoing certain pay cuts — and making the restoration retroactive to June. And Davis Wright Tremaine, another big firm, announced it would be bringing back some staff from furlough and undoing some compensation reductions, while letting some staff go for good.

"It does seem incongruous," said Victoria Holstein, a Washington-based legal recruiter at the firm Grover Bond, said of the week's mixed news. "Of course, every firm has different things going on."

Read more: Big Law may have dodged a catastrophe in 2020, but the next 6 months are critical. Law firm leaders predict how the rest of the year will play out.

According to consultants and others in the legal industry, simultaneous layoffs and pay increases are a reflection of market forces. On one hand, firms have beaten their worst expectations; most clients have continued to pay their bills, and many of their competitors either never cut pay in the first place or are undoing the cuts they implemented, adding competitive pressure to do the same.

On the other hand, the way they work has changed; there is no need for someone to stock the conference-room fridge when no one has visited the conference room in months. The firm Nixon Peabody said in a statement that "there are certain staff positions that are no longer needed in a remote work environment." And Jeff Gray, Davis Wright Tremaine's managing partner, said in a statement that his firm's cuts, which impacted 39 people, "were not a cost-cutting move," but reflected a "fundamental shift" in how the firm would work.

"We will be bringing back a number of our furloughed staff members and restoring 50% of the salary reductions we made in May," Gray said. "For equity partners, we will increase the third quarter distribution and are optimistic we'll be able to do the same for the fourth quarter."

Read more: Law firms are starting pay cuts and layoffs — and they're already rethinking tech, office space, and recruiting for the long term

Law firms are tracking billings closely with new tech 

Law firms have also been diligent about making sure clients paid their bills on time, monitoring the hours billed by their attorneys and predicting when funds will be wired. Trevor Varnes, the chief financial officer at Perkins Coie, said his team built a data warehouse and dashboard that provided firm leadership with a way to get a quick measure of the firm's financial footing.

"We're treating every month like year-end," said Varnes, referring to the period when law firms typically work hard to get bills paid. His team queried partners for their expectations for when specific clients would pay, and followed up; while collections have taken longer in the pandemic, he said, it was "not the really disruptive lengthening of 120 to 180 days that we were thinking."

At Skadden, the US's fifth-biggest firm by revenue, the cuts targeted staff roles, which typically include paralegals, billing specialists, marketing and business development professionals and others who don't provide legal advice. Just under 4% of staff are being laid off from its US offices, the firm said. According to the American Lawyer, that equates to about 50 people. 

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At Baker McKenzie, the firm's cuts include "lawyers, timekeepers and business professionals" in the US, Canada and Mexico. Bloomberg Law reported that the cuts were 6% of headcount, but the firm declined to confirm that number.

About 2,800 people in those three countries list Baker McKenzie as their employer on LinkedIn.

At the same time as it announced the layoffs, Baker McKenzie said that it would be reversing the salary cuts it imposed in the US and Canada at the end of December. The firm had cut pay for US employees earning over $100,000 by 15% starting in May and warned that they could last all year.

Hogan Lovells, another international firm with more than 2,600 lawyers globally, also said it would be rolling back the cuts it made for US associates, whose salaries had been docked 10%. The pay restoration would be made retroactive to June and the firm said it would also resume salary reviews for certain lawyers and staff in the UK and Asia Pacific region. Equity partner draws will remain reduced through year's end, though, and arrangements for nonequity partners and senior counsel will be reviewed later, the firm said.

"Most of the firms I work with revised their budgets for the year" in the pandemic's early stages, said Holstein, the recruiter. "What ended up happening was they beat their numbers."

Joe Altonji, a consultant with LawVision, said even in the aftermath of the 2008 financial crisis, during which hundreds of associates were laid off, law firm partner compensation at the 200 biggest firms only fell by about 3%. Between the shift to digital work and the reduction in travel costs, he said, law firms have realized they are "going to do OK."

"The staff cutting, I think, is more a recognition that we have these built-in inefficiencies that we can identify, and take advantage of the times and eventually fix," he added. "I don't want to say any individual is dead wood, but there's a certain amount of unnecessary stuff in any business that builds up in good times."

Read more: A virtual law firm is hiring freelance lawyers to create a Netflix-style subscription legal service that could disrupt the US legal industry

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