Brutal Week May Not Be the End of Law Firm Layoffs

Jeff Jeffrey
Legal Times
February 17, 2009

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Even in the darkest days of the dot-com bust earlier this decade or in the recession of the early 1990s, there was never a day like Thursday in the world of law firms.

In the space of a few hours, some 300 lawyers -- the equivalent of a midsize firm -- were handed pink slips around the country. And by the close of business on Friday the 13th, more than 1,100 lawyers and staff had either been fired or asked to consider buyouts.

Washington, no longer recession-proof, took a fair share of the pain -- with 149 D.C. staff at Hogan & Hartson offered buyouts and dozens more attorneys and staff at Holland & Knight, Dechert, Bryan Cave, and DLA Piper let go. All told, nearly 250 lawyers and staff in Washington were affected.

"Everyone was very shocked," says one of the laid-off Dechert associates in D.C., where at least four lawyers were let go. "There was a prior layoff last year, but we were still caught off-guard."

Unfortunately, more surprises may be on the way. The layoffs last week are "going to accelerate the decision by other law firms to lay people off," says Jerry Kowalski, a New York-based legal consultant.

Law firm leaders aren't going quite that far, but they aren't offering much encouragement, either. "I think every firm is just going to take it one month at a time," says Maureen Dwyer, Pillsbury Winthrop Shaw Pittman's D.C. managing partner. "Every firm is looking within its practice groups for places to trim." Steptoe & Johnson Chairman Roger Warin adds that layoffs have to be an option in this economy. "If that's what seems to be necessary in terms of right-sizing to the volume of our work, it's got to be a consideration," Warin says.

Hogan & Hartson Chairman J. Warren Gorrell Jr. says he hopes the buyouts offered to staff members in Washington, and 109 others nationwide, will help the firm avoid layoffs. But he's not making any promises. "We'll cross that bridge when we get there," Gorrell says. "We, of course, hope to avoid a layoff, but we can never say never."

MILLIONS SPENT

The firms that announced cuts last week included: DLA Piper, which trimmed 80 lawyers and 100 staff; Bryan Cave, 58 lawyers, 76 staff; Dechert, 19 lawyers; Holland & Knight, 70 lawyers, 173 staff; Goodwin Procter, 38 associates, 36 staff; Cozen O'Connor, 61 staff; Luce Forward, 12 lawyers, 15 staff; Nixon Peabody, 20 lawyers, 36 staff; Epstein Becker & Green, 23 lawyers, 30 staff; and Faegre & Benson, 29 lawyers.

For the firms, it was an expensive week. DLA Piper is offering three months' salary and outplacement services, Francis Burch Jr., chairman of DLA's global board, told The National Law Journal, a Legal Times affiliate. (It's not clear if that offer was extended to both lawyers and staff members.) Holland & Knight is offering two months' salary with outplacement to affected employees, sources familiar with the firm say. Dechert is offering two months' salary without outplacement counseling, a former associate says.

Marcia Shannon, of D.C.'s Shannon & Manch, which provides outplacement services, says that a transition package can range from $3,000 for limited assistance to $9,000 for a full transition package (which includes long-term career counseling). At even the lower prices, a firm like DLA would have paid $240,000 in counseling alone for its lawyers, and severance likely topped $2.5 million, based on the firm's publicly reported associate salary figures. (The firm would not comment on how much it spent last week or how much it accrued in savings.)

That said, firms are banking on big savings. Thomas Clay, a law firm consultant with Altman Weil, says that between salary and benefits, laying off a junior associate can save larger firms more than $200,000 over the course of a year. Clay adds that savings could be even greater for more-senior associates with higher salaries. Clay says for staffers, the savings are less, but still considerable at more than $100,000 over a year.

Using Clay's numbers as a guide, firms that cut lawyers and staff last week will save more than $100 million in salary and benefits collectively. At DLA Piper, which announced the largest cut in lawyers last week, the firm may have saved at least $25 million in staff and lawyer pay if Clay's numbers hold. (One day after the cuts, DLA announced that its revenue for 2008 grew by 3.8 percent and its profits per partner had climbed to nearly $1.3 million.)

Hogan & Hartson kicked off the dark week by announcing its buyout plan on Feb. 9. The offers were extended to staff with at least five years of experience at the firm. Hogan's Gorrell says those people who accept the buyout will be given four weeks' pay plus an additional week for each year they worked at the firm. Gorrell adds there are some staffers with as much as 40 years of experience at the firm -- meaning if the most senior staff take the buyout, they could receive 44 weeks' pay.

Gorrell says the reason for the buyout offer was because he wanted to give employees the "voluntary option" of leaving. Gorrell adds he does not want all 258 staffers offered the buyout to accept and says the firm has no specific target number in mind for departures.

'A GOOD TOWN TO BE A LAWYER'

In exchange for their severance packages, many associates went through a now-familiar process for firms: They signed nondisclosure agreements that required them not to badmouth their former employers. And they signed waivers releasing firms from liability. "You sign something that says you're not going to sue them or ask for anything else," says an associate who was laid off in Holland & Knight's Washington office.

Holland wouldn't say how many of the 70 lawyers it cut were in Washington. The associate says 27 staff were let go, but that he believes more lawyers than staff were asked to depart in D.C. "I heard of one hiring partner that got canned. ... I think he had like 15 years here," says the associate, whose last day is Feb. 19. "It's not just new associates like me."

"Sometimes jobs suck, but these are really talented and smart people," the associate says, "That's kind of the hard part. Leaving friends, leaving people who when you walk down the hall, humble you. D.C. is a good town to be a lawyer. ... There's a lot of opportunity here, so I personally am not that concerned."

At Bryan Cave, an associate who was not laid off says at least five associates in the D.C. office got the boot. Bryan Cave and Powell Goldstein merged in January and in Washington are still operating out of separate offices. The Bryan Cave associate says two of the D.C. layoffs were in the Bryan Cave office, and three were at Powell Goldstein.

The associate says the lawyers who survived are "relieved," but he adds, "everyone's just kind of thinking about what's next."

OVERSTIMULATED?

So why so much pain in a single week?

Several theories are making the rounds. One holds that the rocky reception by the markets and Congress to the Obama stimulus package convinced several firm leaders that the downturn wasn't ending any time soon. "Numerous firms held off on layoffs in December and January because they were avoiding letting people go around the holidays and wanted to see how the economy played out leading up to and after the inauguration," says Dan Binstock, managing director of BCG Attorney Search's Washington office. "[The economic stimulus package] may have just been that last straw that some firms really were looking for in order to feel fully justified."

Another reason may be that balance sheets for 2009 are already looking grim. With 2008 profits per partner already down at several firms, the need to placate partners -- especially those with significant books of business -- may be growing. "If you're looking in the short-term lens, some firms are doing this to increase their profits per partner," says Altman Weil's Clay. "It can prevent losing partners and help attract laterals."

Some clients say they are watching the cuts closely to see how the turmoil may affect their relationships with firms. Curtis Schehr, vice president and general counsel at DynCorp International, a Falls Church, Va.-based government contractor, says clients are not likely to respond kindly to a scenario where partners start staffing work once done by associates -- and charging partner-level rates for their time. "Law departments," Schehr says, "aren't going to be receptive to having higher-paid lawyers doing work on matters that would normally be staffed by lower-level associates."

Marisa McQuilken and Brian Katkin contributed to this article.

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