How does your law firm’s response to COVID-19 compare to its competitors? Part 1: BigLaw

Kumara Mallikaaratchi Written by Kumara Mallikaaratchi on 13th May, 2020

Most Australian law firms have now announced the measures that they plan to implement to combat the initial impact of COVID-19. There is no doubt that the on-going effects of the pandemic will continue to influence the extent of these measures over the coming months. This article – the first of a two-part series – will provide an insight into how each BigLaw firm’s response weighs up against its competitors. Part two of the series will cover the response from SME Law.

US & UK Global Law Firms

The leading global litigation boutique, Quinn Emanuel, seems to have fared well. The firm has not yet announced any cuts to Partner draws or fee-earner salaries and continues to remain busy across the firm. US heavyweight Jones Day is also very well positioned. No cuts have been announced and the firm continues to hire during this period (although, lawyers will need to meet their exceptionally high standards). Jones Day’s global client base developed significantly out of the GFC and a similar increase in global workflows has been seen by the firm over the last few weeks.

UK Magic Circle law firm Clifford Chance has put salary reviews on hold and will defer Partner profit distributions. Bonuses for FY19 will still be paid. Magic Circle counter-part, Allen & Overy has yet to announce any cuts to Partner draws, working hours or staff salaries.

The need for fewer or relatively little cost-cutting measures for these firms is partly due to their business structures being fully integrated, both by brand and financially, with their global office network. The Australian based offices of these firms need to be viewed in the context of their global revenues.

Australian Top-tier 

So far, Allens has not announced any cuts to Partner draws, staff salaries or working hours. The firm has encouraged staff to take annual leave prior to FY19-end, but this will not be an enforced requirement. Fee-earners are satisfied with the communication from the firm and the support shown throughout this period.

Herbert Smith Freehills, also fully integrated across its offices, has introduced relatively few measures. Partner draws have been cut, but this reduction has not been extended to lawyers’ salaries. Communication with the wider firm has been ‘exceptional’, says a current fee-earner. Promotions by title may still take place this year, with salary increases to follow in 6 months’ time. This sits well with the current cohort who are relatively content with the measures – and rightly so given the firm will pay bouses for FY19 (albeit in tranches). HSF had been ahead of the recruitment drive throughout FY19 and were fully resourced across most of their practice areas in the lead up to COVID-19 – no surprises that the firm is standing strong.

One of the quickest firms to react to the COVID-19 situation was Gilbert + Tobin. Working from home measures were in place well before their top-tier counter-parts. Partner draws were cut by 50% effective from March onwards, to ensure that the firm “can protect our people’s jobs”. The message has been well received by fee-earners, who appreciate management’s mentality of ‘taking a hit’ for the benefit of their staff. This has not gone unnoticed by lawyers in the market at some of G+T’s competitors.

Clayton Utz has so far only introduced a firm wide freeze on recruitment and have offered some staff the option to buy four weeks of leave.

Having initially conveyed that the firm was in a strong position, Ashurst recently cut Partner salaries by 20% for the next six months. All lawyers were asked to adopt 80% work patterns and agree to a respective 20% remuneration reduction for at least three months – bonuses will be paid but in staggered payments. There is some concern from lawyers already over utilised in teams which have remained busy. The firm has said that if lawyers are working at 100% capacity, their pay will be “topped up” to their full salary. Some staff are uncertain as to whether this will work in practice. Salary reviews have been deferred until November.

MinterEllison reduced Partner draws by 50% and deferred promotions until January 2021. Staff were asked to purchase six weeks’ leave under a new scheme, which will be funded by a temporary salary reduction until December. Some lawyers have questioned why the measures have been put in place for such a long period of time, with no allowances for an upturn in the market over the remainder of the year.

International – Verein Structures

Law firms with a verein structure are integrated by branding and appear to be one entity to the outside world. However, each office’s liability and crucially financial performance, are ring-fenced from other offices. Simply put, unlike the fully integrated global firms discussed outside this section, the Australian arms of these following firms cannot rely on the financial performance and potential support from their global office network in the same way.

Norton Rose Fulbright reacted early and reduced hours and pay of most Australian staff up to a limit of 20% depending on client demands. Dentons has introduced measures which are arguably the most conservative of all. The firm asked all staff to either take a 20% salary reduction without a reduction in working hours or to reduce both their hours and pay. Partners’ cash flows were slashed by 50%, a mix between a lower monthly salary and a freeze on drawings. The impact this has had on employees in unsurprising, many of whom are disappointed in the way the measures were communicated. At the time of writing, it is understood that Dentons has started to make fee-earner redundancies.

DLA Piper and Baker McKenzie were firms well placed in the lead up to COVID-19. DLA in particular had made sensible, strategic Partner and team hires across their offices in FY19. Neither firm have yet announced any cuts to salaries or working hours.  

Summary

There has been a mixed response to COVID-19 from BigLaw firms in Australia. Some firms have introduced precautionary cost-cutting measures with short timeframes attached, others have opted more conservative long-term measures and some firms seem fairly unperturbed, so far. The full impact of COVD-19 on the economy and in turn, law firms, is still not yet fully understood. Further cost-cutting measures may still be implemented and unfortunately, redundancies may further impact BigLaw firms.

If you are interested in having a discussion about the market please do feel free to get in contact. Part two of this series covering the response from SME Law firms will follow shortly.