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Elevate, Reynen Court Follow Law Firm Lead by Cutting Costs

April 8, 2020, 8:51 AM

Legal technology and services companies are taking a cue from their Big Law firm clients by cutting salaries and other costs as responses to a legal industry economy that’s been damaged by the coronavirus crisis.

The consulting and legal tech firm Elevate Services recently decided on an across-the-board 10% salary cut that will hit each of the company’s roughly 1,300 employees located in about 15 countries, Elevate Chairman and Chief Executive Officer Liam Brown told Bloomberg Law.

At the same time, legal tech “app store” Reynen Court, which has been backed by a consortium of 19 leading U.S. and U.K.-based law firms, has taken several steps to cut costs over recent weeks, said the startup’s founder and CEO, Andy Klein. The measures include 20% salary cuts for its senior executive team, implemented on April 1, and freezes on new hiring and non-essential spending, he said.

Brown and Klein say the rationale is simple: Pay a small price now, or a larger one later.

“We believe in acting decisively and quickly,” said Brown, who thought it important to take steps to avoid layoffs. He added that he ran the idea of a shared 10% pay cut by the staff before moving forward. While some expressed concerns, overall he said he received “a resounding response” in favor of both the step and the percentage.

With their decision to cut pay, legal services companies follow in the steps of law firms that have lately made similar choices, such as Cadwalader Wickersham & Taft. Firm chairman Patrick Quinn on March 31 announced a reduction in legal and senior administrative staff pay by 10% to 25%, and a freeze on distribution of partner payouts, in an effort to avoid layoffs.

Days before, DISCO, an Austin, Texas-based e-discovery company, confirmed it had laid off employees to offset a possible virus-caused business downturn.

Yet until now, DISCO appeared to be one of the only legal technology companies to engage in employee-related cuts as a direct result of the pandemic.

According to Brown, last year, Elevate began planning for 2020 to be a recessionary year, because of U.K.'s Brexit law, the elections in the United States, and other indicators. That spurred a capital raise, as well as profit improvement plan called “Project Pottery” in which he said $6 million in annual costs—about one-tenth of the Los Angeles-based company’s overall annual costs—were cut.

These steps helped Elevate prepare for a pandemic that could have been tough to predict last year, he said. They also allowed the company to seed a “soft-landing fund” that could be used if the crisis deepens beyond what’s now predicted, causing one or more key clients to part ways with the company.

‘Everything’s On Hold’

Unlike Reynen Court, Elevate has not put a hiring freeze in place, Brown said. “We want to be ready for the business return to the ‘Next Normal’ so we are actively recruiting for some key positions,” he said, which includes re-purposing current employees coming off projects or engagements when appropriate.

Because of the virus, the company may delay its plans to roll out an initial public offering in 2021, and listing on the AIM stock exchange in London, Brown said. Those plans may be pushed out for a couple years, he said, though it’s too soon to make that call.

“Everything’s on hold as we work through this,” said Brown.

According to Klein, none of the 19 firms that are part of Reynen Court’s consortium have backed off their commitment to the company, which officially launched in late January after running a six-month beta test. The consortium is led by Latham & Watkins, Clifford Chance, and Paul, Weiss, Rifkind, Wharton & Garrison.

Because of successful venture capital fundraising rounds—including two in which Prins H LLC, an investment vehicle controlled by Klein, chipped in more than $2.8 million—he said the company has a good 20 months worth of “runway” to help secure its long-term stability, even in worst-case economic scenarios.

Meanwhile, other leading alternative legal service providers say they are in a position to benefit from layoffs and other dislocations in law firms and corporate legal departments. Axiom, an on-demand legal talent provider, is actively hiring, said David Pierce, Axiom’s global head of commercial, in a statement.

“Axiom is opening a door for high-caliber, displaced lawyers,” said Pierce. “We anticipate a surge in demand for our lawyers and our services given the current market environment and want to be positioned to meet it.”

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com

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