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According to a survey, many law firms were not only resilient throughout the pandemic but even experienced growth; 69% of those surveyed reported year-on-year growth in fee income in 2020. However, as government assistance has dried up and economic woes look set to continue, with a towards the end of 2022, firms are increasingly looking at tightening their budgets and even considering redundancies.

Legal recruitment consultancy Edwards Gibson that there will be a slowdown in lateral hiring across the legal sector during the second half of 2022. One partner at a leading firm notes that: “We had a successful period of recruitment, and we’re still getting a few CVs coming through the door but there are not as many spaces to fill anymore.”

Although there have not yet been any reports of large scale redundancies in the UK legal sector, if there is a recession it is likely that certain parts of the legal marketplace will face a slowdown and that some firms will be forced to cut costs in order to remain profitable. So how should the legal profession prepare for the challenges of a downturn?

Investing in talent

Training up junior lawyers, making strategic lateral hires and retaining talent are all strategies associated with maintaining organic growth for law firms. Although reducing the headcount might seem like an effective short term fix to boost the health of balance sheets, making redundancies can end up costing more money in the long run.

Even seasoned fee earners who join a firm as senior associates or partners will take time to settle in and get up to speed with unfamiliar processes and fit in with the new culture. Firms which decide to save costs through redundancies but later need to regain that lost talent when the market changes, may find that initial savings are eventually wiped out. 

Redundancies should therefore be considered a last resort. It’s often better to transfer staff to resilient departments (see below) and keep them on until they can be re-deployed, rather than losing them altogether.

Learning from long term patterns

There are certain recurring ways in which previous downturns have affected the legal sector, with the following specific patterns evident in any period of insecurity:

• Law firms tend to cope better with downturns compared to the wider economy - so predictions of doom and gloom will not necessarily lead to cutting costs and making redundancies.

• Specific legal areas are affected differently - some practice areas may be negatively affected by a recession but other departments (such as insolvency) will expand and therefore overall profits may actually improve.

• Regional variations should be expected - trends in London and large cities may buck those in rural areas and vice-versa.

• Pricing certainty becomes more important - clients look for fixed term pricing models during times of economic uncertainty, and will increasingly consider alternative legal service providers (ALSPs) in order to save cost.

• Some firms are better placed to handle downturns - whether it’s due to the type of work they handle or because of their particular structure and business model.

Law firms can learn from these patterns and should consider how a recession will affect them and their clients, making adjustments to their pricing structures if necessary, and focusing on departments which are likely to fare best during the period of instability. Rather than making lawyers redundant, it may be possible to transfer them to profit-making departments and retrain them if required.

How can technology help?

Legal technology can help firms to improve their processes and maximise operational efficiencies. Various software tools such can be effectively harnessed by law firms to automate some of the routine tasks, optimising workflow and ultimately maximising profits.

Although legal tech is always designed to assist lawyers rather than replace them, some products and services can almost act like research assistants. For example, Lexis+ can drastically reduce research time and allow lawyers to prepare a case on their own, without having to rely on research staff. So if a firm needs to reduce its headcount as a result of financial difficulties, technology products can help to mitigate the loss of certain skills.

The great thing about investing in technology during a recession is that it will continue to reap dividends when markets pick up again. Firms which harness software tools to help them cope with a leaner workforce will be able to maintain efficiency improvements into the future.