As the legal industry continues to face growing competition and increasing uncertainty, many law firms and legal departments will face redundancies and layoffs in 2023. Here, we provide an overview of the current state of the legal industry, the challenges, and the impact of the current climate on the legal profession across the board.
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The current economic era has brought great uncertainty, and law firms are not immune to the challenges posed by redundancies and inflation. Due to this, many law firms across the globe, from Luxembourg and Germany to the United Kingdom (UK) and the United States (US), are facing difficult decisions about how to manage their legal departments and ensure the continued success of their businesses. For law firms, the key to successfully navigating this period of uncertainty is the dual combination of good management and legal technology adoption. It’s more than possible to manage legal departments through this period of uncertainty by ensuring that a firm’s workload is well-organized and prioritized and by using technology to streamline processes and minimize errors. Legal technology can also manage an overload of work, allowing lawyers to focus on high-value tasks and reduce the time spent on routine or repetitive tasks. In this article, we’ll discuss how to navigate uncertainty, what the prospect of mass firing means for legal operations, and how legal technology can offer law firms huge advantages by reducing work overload and maximizing employee productivity.
In this article, we will cover the following:
How to Lead a Legal Department Through Tough Times
Fears of a recession are currently very real across the markets, in both Europe and the US, with economists currently predicting that there is a 70% chance of a downturn.
However, although there may well be an impending recession, economists and experts are not in agreement about how bad the slump might be or even for how long it might last, with many believing that not only might it be relatively short and mild, there is the chance that it may not even happen at all. Given the considerable variation in the economists' opinions, it isn’t easy to discern what may happen at all. For example, whilst both the financial powerhouses Goldman Sachs and JPMorgan Chase consider that there will be a recession. Still, it won’t be too severe or long-lasting; Barclays insists that 2023 will be the worst global economy in four decades.
Instead, there are a lot of dissents from the supposed experts, so it’s no wonder that law firms are preparing for the worst. In fact, by the end of 2022, law firms were being forced to make stealth layoffs to correct the over-hiring that had occurred during the previous growth period, in which there was a mass hiring of associates who had the privilege of selecting their chosen firm, bonuses and location. However, many such associates fear their jobs as the “stealth layoff” process strikes again. No law firm wants to make layoffs en masse, but the stealth layoff enables a firm to conceal the actual cause of mass redundancies across a firm. As those familiar with the expression will recognize, stealth layoffs would allow firms to cut employee headcount without being required to confirm that such cuts were based on financial need. Law firms frequently frame the reductions in performance review terms that coincidentally need to occur right in the midst of an economic downturn. In reality, however, it’s most likely that the cuts we’re going to see from law firms will be done by those who recruited excessively during the past period of economic growth.
Indeed, the rationale behind the stealth law off can be explained simply, as being “when a law firm wants to lay off a bunch of attorneys but doesn’t want to send a sign of weakness to clients and peer firms”.
Restructure Corporate Legal Department
The criteria for laying off employees, it seems, may well be performance-related. Still, firms may well prefer to strategically frame redundancies around performance review periods, which tends to leave those lawyers laid off questioning their professional abilities.
Unfortunately, corporate legal department restructurings are highly likely to take place in 2023.
As the Center on Ethics and the Legal Profession at Georgetown Law and the Thomson Reuters Institute’s joint 2023 Report on the State of the Legal Market reveals, the coming year will likely be filled with many difficulties and unpredictability for the legal profession.
What Layoffs mean for Legal Operations
We know that the potential for large-scale layoffs is a major concern for legal practices. This can have a major effect on a massive range of personnel, with many lawyers falling out of work and law firms losing access to their skills and experience. However, the formulation of a clear strategy for adjusting the corporate legal division and the shrewd use of the newest legal technology can help to reduce the impact of layoffs and guarantee that you can ensure your departments can continue to run smoothly and proficiently. As such, law firms must have a well-defined plan to restructure their corporate law division. A carefully designed and implemented program can help you to tackle the issues presented by an industry downturn, inflation and reduced client demand. This necessitates a comprehensive understanding of a firm’s aims, advantages, and weaknesses and a familiarity with current market trends and legal competitors.
Yet how to reduce staff numbers – how law firms can actually implement the necessary streamlining – is rather another matter altogether.
Furthermore, apart from the legal differences between jurisdictions concerning the legislative and regulatory criteria for laying off employees that must be observed by legal departments and operations, when it comes down to the issue of staff requirements for meeting client demand and firm turnover, the situation is the same from Luxembourg to Germany and the United Kingdom, across the European Union and even the United States. The fact that there is a strong downtrend is undeniable, and in London especially, law firms have reported a “daunting 2023” with both falling profits and client demand.
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In a financial climate like this, the role of legal departments and ops during a layoff is crucial. Interestingly, the same Reuters report also revealed that there had been a significant drop in lawyer productivity, whilst, at the same time, firms are being required to bear the costs of the high headcounts due to the massive hiring schemes that took place to meet client demand during the 2021 boom period. Unfortunately, as demand is no longer robust, the prospect of mass firing is moving ever closer. Although legal workers across all firm levels might expect to be impacted, firms need to remember to tread extremely carefully. Again, this is where the role of legal dep and ops during layoff can be expected to play a major part. The legal operations departments, particularly human resources departments of law firms, must ensure that they don’t – even accidentally – partake in what has been referred to as “recessionary discrimination.” That’s the rather euphemistic term used to refer to laying off staff, such as pregnant women, for example, and potentially troublesome employees who have previously raised their concerns about discrimination.
Indeed, that’s one important factor to bear in mind. At the same time, it’s also reasonable for law firms to want to ensure that they keep hold of their best people and trim the fat. The market across the board is growing much quiet, especially in corporate departments, for example, where the previous rich supply of financing and M&A work has long died down.
Cut Overload – and Overheads – with Legal Technology
Economists are currently arguing about how long a recession may last and whether there will be one. Some say that it will last at least two years. Others insist that there will undoubtedly be a slump. Indeed, this is already becoming evident, but the kind of stealth dismissals and mass cuts seen in previous recessionary eras are very unlikely. In any case, law firms now possess sophisticated and decisive resources in the form of legal technology that will help them to weather the storm. The current legal technology can help firms with a plethora of tasks, from automated document review to providing crucial document assembly tools and cloud-based collaboration, to name just a few. This all massively reduces the requirement for paralegals and other support staff.
By reducing costs and increasing efficiency, legal technology provides law firms with the help required to stay competitive in a saturated and ailing market.
As experts in legal technology, our task is to stay up-to-date on the tools you need to sail through this tough economic period, reduce your costs, remain competitive, and even reach out to new markets. This may be the right time for law firms to jettison former, sluggish working methods and instead focus on a new strategic vision for the future and capitalize on legal technology's incredible opportunities. Indeed, as Bloomberg law has pointed out, although there is currently a slowing of some sort in the market,
“The good news is that law firm profits will likely remain steady across the board”, with any market contractions being more likely to be “geographically narrow”
That means that although the market may well be tough right now, it is set for an imminent improvement, so wise investment in legal technology will not only reduce your firm’s overhead costs and increase efficiency – and profitability – in 2023 and also ensure your success for years to come.
About this article
Bloomberg (2023). Big Law Layoffs Look to Correct ‘Over-Hiring’ in Pandemic Boom
Bloomberg Law (2023) The Legal Industry Can Expect Robust Hiring and Practice Growth
Forbes (2023). Recession Fears 2023: What Lies Ahead?
Goss, L. (2023). City law firms may be forced to make layoffs as UK downturn hits, recruiters say
Legal Futures (2022). Law firm profitability: Surviving economic uncertainty
Patrice, J. (2023). When Biglaw Firms Set 90-Day Performance Targets, Stealth Layoffs Can't Be Far Behind
Wigdor, P. (2023). Another Round of Recessionary Discrimination Looms
Featured Image: Photo by Ryoji Iwata on Unsplash