Business & Practice

Is Deutsche Bank’s Refusal to Pay Junior Lawyers Misguided?

March 22, 2017, 7:54 PM

Talk of the morning came out of the U.K., when Legal Week reported that Deutsche Bank will stop paying its outside law firms for work performed by newly qualified lawyers and trainees.

“The decision, which will apply to firms appointed as a result of Deutsche’s current panel review, represents a first major move by a bank on this side of the Atlantic not to pay for junior lawyers, a practice seen in the United States since the Great Recession,” reported Anne Ward and Alex Barry.

General counsels have long bemoaned paying for work performed by first-year associates at law firms. But what happens if a company doesn’t pay for those lawyers altogether? The result will likely have some unwelcome consequences, said one lawyer.

“In my view, it creates some disincentives,” said Brackett Denniston, the lawyer who ran General Electric’s law department for 11 years before retiring in 2015.

“If training first-year associates by giving them work is uncompensated, firms will try to make it up in other rates. Getting good associates is vital to firm performance, so it’s not like you can make costs go away... At bottom, this is a fundamental problem with the hourly rate — and better pricing is the way to address it.”

Steve Reich, general counsel of Deutsche Bank, declined to comment through a bank spokesman.

It’s not the first time that an in-house corporate law department has refused to pay for junior legal talent. A 2011 survey by the Associate of Corporate Counsel, as noted by Legal Week, found that more than 20 percent of 366 in-house law departments had at one point refused to pay for the work of first- or second-year associates.

“I would anticipate that number would be two or three times that now,” said Veta Richardson, president and CEO of the ACC. “Associate salaries have gone up [for first years, from $160,000 to $180,000], law departments are being squeezed; and they are expecting to do more with less.”

Susan Hackett, a consultant to in-house law departments, said GCs problem with paying for first-year associates stems from the billable hour. Clients don’t want to pay expert rates for lawyers who lack experience, said Hackett. “And in today’s global and tech-enabled market, anything over $50 an hour is an expert rate.”

“There is no value delivered to the client by paying a new associate $200 an hour to review documents or perform research that could have been done by someone who was trained to do that task for $25 an hour.”

So is Deutsche Bank’s push back tactic flawed? Or is it the law firms charging by the hour?

Legal Week quotes a couple of anonymous unhappy campers who are involved in Deutsche Bank’s annual review of outside firms. “It has annoyed a lot of people,” said one. “The process was more aggressive.”

The review is being led by Rose Battaglia, DB’s global chief operating officer for legal and compliance in New York, the report said.

Write to Big Law Business with comments at biglawbusiness@bna.com .

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