The Wall St. Journal and WSJ Law Blog reported Monday that a survey conducted for the Journal by the Association of Corporate Counsel found that over 20% of the in-house law departments surveyed (over 350 of them) flat-out refused to pay for first- and second-year associates at large law firms. This continues a trend that began several years ago, and accelerated considerably after the abrupt economic downturn in late 2008 as more in-house buyers of BigLaw services responded to sudden budgetary pressures by finally taking a hard look at what they had been paying for.
Above the Law responded to this data uncharacteristically by missing the point. Elie Mystal, ordinarily a very acute observer of BigLaw, dismissed the in-house refuseniks as “stupid.” He reasoned that clients’ refusal to pay overpriced junior associates for the “work that a conscientious high school student could perform” that is often their lot would simply force this work up the line to even more expensive midlevel associates. He concluded: “It’s entirely possible that 20% of clients don’t understand that having a midlevel do work more suitable for a trained monkey is actually worse than having a first-year do it.”
But of course clients do understand that, and so do the law firms they hire. Clients who are unwilling to pay first-year associates’ rates for borderline clerical “legal process” work (loosely defined as the gathering, review and organization of documents and information) would certainly refuse to pay significantly higher rates for a fifth-year associate to provide the same services, and large law firms are smart enough not even to offer that as an alternative. As discussed in detail in an article Prof. David McGowan and I posted in draft on SSRN a year and a half ago, and published in the Columbia Business Law Review last spring (2011 Colum. Bus. L. Rev. 1, available here), the result of clients’ heightening scrutiny of the staffing and pricing of legal process work has resulted in increasing volumes of that work being outsourced to much less expensive third-party services both abroad and domestically, and “downsourced” (a term McGowan and I believe we coined) within BigLaw to non-partnership-track “staff,” “discovery,” and contract attorneys paid much lower salaries or wages and billed out at much lower rates. And since by 2007 legal process work had become a significant part of many junior associates’ workloads, the rapid reduction of the amount of that work available to associates billing at full freight has been a major factor in BigLaw’s unprecedented reductions in force and falling hiring rates from late 2008 through 2010.
The data are still coming in, but entering associate classes at AmLaw 200/NLJ 250 law firms this fall look like they will typically be 30%-50% smaller than they were in 2005-2007. While a cyclical (recession-based) overall reduction in demand for high-end legal services explains part of this transformation, I believe that a significant and still growing part of the change is structural, and results from the change in the staffing and pricing of legal process work reflected in the trends discussed above. What this means is that rates of hiring at larger law firms for highly compensated partnership-track associates are likely to remain much lower than they were in, say, 2007 for quite a long time. While this is producing some wrenching short-term dislocations in the entry-level job market that are both tragic and widespread, it is at least as important to consider the possible longer-term effects not only on clients and law firms, but on prospective and current law students, law graduates, and law schools.
To keep this and future posts to a manageable length, I will consider these issues in a series of posts in the coming week or two, and dare to share some predictions. Stay tuned.