Nearly half of the largest 100 law firms in the U.S. made pay cuts, furloughs, or other moves to trim costs in response to the coronavirus pandemic, according to a Bloomberg Law analysis.
“There’s a part of the market that viewed this as an opportunity to make some cuts,” said Dan Binstock, a partner at Washington-based legal search firm Garrison & Sisson.
A total of 48 firms of the top 100 firms in the country resorted to some form of equity partner payment reductions or delays, attorney and staff salary cuts, furloughs, or layoffs. Those moves have varied widely by firm, with just four of the largest 20 firms resorting to pay cuts, furloughs, or layoffs.
Much of the belt tightening came in the initial months of business closures and shelter-in-place orders that hobbled economic activity across the country. As Covid-19 cases rise in several states, it’s unclear whether firms will be willing to lift measures that many posed as temporary or if some will be forced into a new round of austerity measures.
Bloomberg Law’s analysis is based on information from law firms, as well as reports from ALM Media and Above The Law. The data is limited to actions impacting lawyers and law firm employees in the U.S. and does not include reports of “stealth” layoffs by certain firms that have not publicly confirmed the moves.
At least 38 of the largest law firms have imposed cuts to attorney or staff salaries and at least 38 firms have cut or deferred their equity partner distributions since February. At least 22 law firms have furloughed staff, 10 have resorted to permanent staff layoffs, and seven have laid off attorneys.
‘Number One Cost’
Faegre Drinker Biddle reportedly made the deepest cut in equity partner draws, slashing them by 33%. Crowell & Moring, Hogan Lovells, Holland & Knight, and Pillsbury Winthrop Shaw Pittman cut draws by 25%.
Cadwalader Wickersham & Taft also reduced associate salaries by 25% and imposed pay cuts of 10 to 25% for staff, while Squire Patton Boggs reduced its associate salaries by 20%.
Several firms have also furloughed non-attorney staff, including Faegre, Cozen O’Connor, Davis Wright Tremaine, Dorsey & Whitney, Katten Muchin Rosenman, Locke Lord, Nelson Mullins Riley & Scarborough, and Nixon Peabody.
Only one firm in the Am Law 100, Boies Schiller Flexner, obtained a federal loan through the new Paycheck Protection Program. Some that lived through the 2009 recession opted for quick proactive measures to try to avoid having to take out a loan or draw down on a line of credit, Binstock said.
“Other firms are more fearful and did it out of necessity as opposed to uber conservative planning,” he said.
There are not a lot of options for law firm leaders running out of cash, said Bruce MacEwen, an owner and principal at law firm consultancy Adam Smith Esq. Firms don’t typically have significant assets to sell and they can’t go to capital markets. They’re also unlikely to make a capital call, asking partners to pony up their own cash, because that could spook lawyers, he said.
“The only thing you can do is cut costs and the number one cost is people,” MacEwen said.
The longer the crisis continues, the more fragility that will be exposed across the economy, MacEwen said. The question becomes, for law firms: How do they keep cash flowing in the meantime?
“I imagine that some firms are going to find themselves in uncomfortable situations now and I just think that the reality is the longer this goes on the more cuts we’re going to see,” he said.
A searchable chart of law firm cuts and other moves is available at https://news.bloomberglaw.com/business-and-practice.
—Jasmine Ye Han contributed to this report.