As this website has reported at length, many Biglaw firms have implemented austerity measures to contend with the ongoing COVID-19 pandemic. Some firms have laid off employees, and other shops have implemented furloughs or relied on dreaded stealth layoffs to deal with the current economic environment. However, the most widespread tactic used by Biglaw firms to contend with COVID-19 is salary reductions. Although salary cuts differ from firm to firm, most shops have implemented salary reductions of around 10 to 20 percent, however some firms have implemented even deeper cuts.
The salary reductions of firms in the current environment is markedly different than the tactics used by Biglaw shops during the Great Recession. During that time, firms relied on mass layoffs to deal with economic conditions. Most Biglaw firms never reduced their starting salaries during that time, and salaries at many Biglaw shops remained mostly constant for around a decade. Of course, reducing salaries versus mass layoffs seems like a gentler way to contend with economic issues. However, the position taken by many Biglaw firms in the present has made me wonder: why didn’t Biglaw shops try lowering salaries during the Great Recession? Although some smaller firms reduced salaries during the Great Recession, Biglaw shops maintained extraordinarily high salaries during the prior economic downturn, which increased the salary stratification between Biglaw firms and other shops.
I am no expert on Biglaw or the Great Recession. Although I attended law school during the height of the Great Recession, I did not enter the legal workforce until 2012. In addition, I only spent a little more than a year at a Biglaw shop (no one should consider the year and change I spent at dearly-departed Sedgwick LLP to be Biglaw experience!). I am really hoping that people reach out to me with their own theories, and I usually get insightful emails from readers. However, here are a few of my own spitballed ideas (in the 900 words of so I have) about why Biglaw firms are now implementing salary cuts when they did not do so in prior economic downturns.
One theory why Biglaw shops are trying salary reductions in the current environment is that management at these firms believe that the current economic downturn is temporary. At the beginning of the crisis, it may have been thought that the current situation would not last long, and that economic issues because of COVID-19 would be resolved within a relatively short amount of time. As a result, firms would only experience an economic downturn for a short period, and firms wanted to lower salaries rather than terminate employees to keep people on the payroll in case the economy recovered. The Great Recession may have been seen as a much more problematic and long-lasting issue for law firms, necessitating that shops terminate employees rather than merely lower salaries.
What makes me worried about this theory is that it appears that economic issues caused by the COVID-19 pandemic will not disappear anytime soon. Although the stock market has improved, many retailers, restaurants, and other companies are facing lagging issues because of social distancing guidelines and safer-at-home orders. This could affect the demand for legal services for a long time to come, which could have a lasting impact on the legal sector. If the economy does not recover soon, the unique salary reductions implemented during the present economic crisis may transform into the layoffs seen in prior economic downturns.
Another theory why Biglaw firms did not implement salary reductions during the Great Recession is since many Biglaw shops have issues “keeping up with the Joneses.” Biglaw firms typically move in lockstep with each other so that firms which have all types of metrics can plausibly include themselves in the elite tier of law firms in the country. For instance, numerous Biglaw shops implement a uniformly high starting salary to keep up with the Joneses. However, some firms just have the illusion of paying a high starting salary, and actually use nonpartnership track and staff attorney programs to pay many lawyers as little as possible. In addition, Biglaw firms often take cues from each other when it comes to bonuses, vacation policies, summer programs, and other initiatives.
If a firm lowered salaries during the Great Recession while other shops did not, it could signal that the firm that lowered salaries was not a shop that should be considered part of the elite tier of law firms, or that they were experiencing unique financial challenges. In addition, since other law firms were laying off attorneys during the last economic downturn, it provided cover for other shops to implement similar strategies. However, in the current economic environment, some of the earliest firms to announce austerity measures implemented salary cuts instead of laying off employees. This accordingly gave other firms the cover they needed to also lower salaries without seeming like they were out of step with the other top law firms.
All told, it remains to be seen how far law firms will go to stay afloat given the current economic realities. If the ongoing economic crisis deepens, it is possible that Biglaw shops will react with widespread layoffs as occurred during the Great Recession. However, it is interesting how law firms in the present at least initially lowered salaries to deal with the current crisis while shops during the Great Recession went straight to laying off hordes of attorneys and staff.
Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.