Practice Projections: 2014

January 13th, 2014 / By Deborah J. Merritt

Hildebrandt Consulting and Citi Private Bank have just released their 2014 Client Advisory for law firms. The annual Advisory, which draws upon surveys of law firms and interviews with managing partners, focuses primarily on BigLaw (although some smaller firms respond to the survey). The Advisory also relies upon self reports from firms, rather than independently collected data, which can decrease accuracy. Still, the Advisory offers a useful perspective on key trends in law practice. I summarize below the highlights with greatest importance for legal educators.

The Past Is Past

Very few people, I think, still believe that law practice will soon return to the heady days of 2002-2007. For those who do, Hildebrandt and Citi Private Bank offer yet another rebuttal: “we do not project a return to pre-2008 levels of performance,” the Advisory announces on its first page. “We believe that we have witnessed a fundamental shift in the market for legal services, resulting in a changed and more muted demand environment for law firms.”

Later, the report offers concrete figures. Demand for law firm services grew 4.4% annually between 2002 and 2007, then dropped sharply from 2007 through 2009. For the last four years, demand has been flat. Going forward, Hildebrandt and Citi Private Bank predict “much more modest growth” than before 2008. Demand will grow over the coming years, but quite slowly.

For law schools, these predictions offer further confirmation that we can’t expect BigLaw hiring to rebound to pre-recession levels. Conditions at those firms have improved since the dark days of 2009 and 2010, but associate hiring is unlikely to grow beyond where it stands today. In addition to offering fewer plum positions to our graduates, this BigLaw contraction will continue to create cascade effects in the market as more graduates seek positions in government, public interest, or smaller firms.

The Present: Lower Cost Lawyers

Since the recession, law firms have greatly increased their use of contract lawyers, staff attorneys, and outsourcing companies. This year’s Advisory devotes considerable attention to that trend, noting the rise of “lower cost lawyers” at most firms. 82% of the law firm managers who responded to the Citi survey acknowledged that they use temporary or contract lawyers to support their work. 70% acknowledged that they hire lower cost, non-partner track lawyers at their firm. Hildebrandt and Citi recognize these practices “as a permanent shift in the legal staffing model.”

Notably, the Advisory offers insight into the trends that have made this shift possible. Technology allows senior lawyers to supervise temporary and contract workers more easily; software also supports quicker training of those lawyers. Project management skills have become more common in law firms; those skills allow lawyers to organize large teams of temporary workers more readily. Excess capacity in the labor market, finally, provides a steady stream of lawyers willing to work in temporary or lower paid positions.

Law firms are not the only organizations hiring lawyers at lower wages. Hildebrandt and Citi point out that corporate clients are pursuing the same path on their own. Some corporations are hiring more in-house lawyers than they did in the past, realizing that they can pay those lawyers less than they would pay law firms for the same services. Corporate clients are also sending some of their routine legal work to alternative providers, bypassing law firms entirely.

The Future: Sunshine and Shadows

The Advisory concludes on an optimistic note. Its authors believe that the US economy has stabilized and “the economic outlook in 2014 has improved from the past few years.” Conditions abroad are also improving. As a result, Hildebrandt and Citi predict that “law firm profits will grow around 5 percent in 2014.”

This brighter outlook, however, casts shadows that will capture many of our graduates. Those profits depend largely on “a laser focus on efficiencies.” Firms, in other words, will continue to use contract workers, lower paid staff attorneys, and outsourcing firms. These practices have become essential to support partner profits. At the same time, firms are tightly controlling the number of equity partners and starting to prune income partners from their ranks.

These trends mean that our graduates will continue to settle for more temporary, lower paid work than they did before 2008. They may also enjoy fewer opportunities to become income or equity partners. Jobs in law firms and elsewhere will still exist, and some of these positions may compare favorably to other opportunities for college graduates. The jobs, however, will be different than the ones we are accustomed to imagining for our students.