Will the Future Associate be a Contract Employee?

The future of the legal profession is full of uncertainty.  Will the old habits return as they did after previous recessions, or will these changes be permanent? No one knows for sure, but there are some possibilities and trends to take notice of.

Cost Cutting:

First of all, corporations have become more serious in their commitment to cutting legal expenses and eliminating waste from their outsourced work. (Gary R. Garrett Ph.D., Will the recovery bring changes to the legal services business model?: Law office management & administrative report, 8, Institute of management and administration, August 2009.) Wally Martinez, managing partner of Hunton Williams, says that, "clients don't want to pay for associates to wade through documents." New software has given in-house counsel a powerful new tool to police firm billing practices. Budget management software allows counsel to review bills and, "track matters more closely than ever before." This could mean that the days of hiring armies of associates are over. In the past, firms have been able to support rising associate salaries because corporate clients effectively subsidized associate income by paying higher billing rates for their work, sometimes unwittingly. Without this ability to offload costs, the highly leveraged firm model may be coming to an end. (Tamara Loomis, Has the recession forever changed large law firms, The American Lawyer, October 6, 2009 at 1.) The resulting effect would be fewer associates, less demand, and fewer jobs.

Associates:

If clients prove to be unwilling to support routine associate work, then firms will likely resort to hiring new attorneys as contract employees. Under this scenario, lawyers are paid only for the work they do and at much lower hourly wages. (Andrew Kitchenman, Recession changes the letter of the law, NJBiz, November 16, 2009 at 1. Loomis at 1.) This would mean less plumb associate positions for graduating law students and a general re-pricing of entry-level positions. Firms have also expressed interest in engaging in more lateral hiring in order to "let someone else train associates in the first few years." (Steven Taylor, Recession sours current state of the profession and some say, its future even more, 4, Of Counsel, May, 2009.) It is still too early to tell what would result from this practice because eventually every firm would be passing the buck. Perhaps this would result in more contract lawyers or it could simply drive down associate salaries due to their reduced market power.

Recruiting:

Another possible change on the horizon is to shift recruiting to later in the law school cycle. This change could actually prove beneficial to law students. (Loomis at 2.) Currently, law firms recruit new hires essentially two years before their start date, effectively putting firms in the impossible position of predicting staffing levels two years into the future. Since economic conditions always drive legal business, if a firm guesses incorrectly, then newly hired associates will suffer rescinded offers and deferrals. (Michel Samuels, Hard times means good news for some legal specialties, Long Island Business News, December 2008.) This is precisely what is transpiring in firms today.

Alternative Fee Structures:

Increased pressure on the billable hour could cause firms to adopt alternative fee arrangements. If billable hours become scarce to the lack of demand, then fixed fees may become the new paradigm. (Erin J. Cox, Economic crisis is a terrible thing to waste: Reforming the business of law for a sustainable and competitive future, 545, UCLA Law Review, 2009.) The dynamics of a fixed fee regime are quite different from the billable hour. In the billable hour, stagnation and inefficiency are rewarded. Firms are incented to drag out litigation in order to keep billing at high rates. In a fixed fee environment, incentives would be reversed. Efficiency would rule, and although corporations would enjoy quick and timely results, firms might be incented to settle suits despite solid chances of prevailing in court. This conflict might hinder the adoption of the fixed fee structure; however, it remains a strong possibility because of corporate frustration with the billable hour. (Cox at 546.)

Due to the new premium on efficiency, firms will likely implement software that can "routinely perform the most basic elements of many legal assignments, work that is now inefficiently (and profitably) handled in many firms by articling students and junior associates." (Jordan Furlong, Will 2010 be the year of the fixed fee?, The Lawyer Weekly, January 15, 2010.) Additionally, it will push lawyers to specialization in specific tasks. In other words, whatever you do fastest is what you will do most often. This could have a pigeon-holing effect on lawyers, and reward those who can accomplish valuable tasks quickly. Stratification of the law firm could worsen.

Changing Associate Pay Structures:

Another way firms could manage associate costs in the future is the adoption of merit-based pay. The current model for associate pay is "lockstep pay" in which all associates are paid the same salary and each get a promotion and raise after each additional year. Since associates develop skills at different rates, firms have become interested in this new and innovative system. (Cox at 543.) Different levels of associateship, billing rate, and pay are determined by skills and competencies. (Loomis at 3.) On the surface this sounds like a meritocracy where the hardest and most devoted workers are rewarded, however, this could open the door to discrimination and bias.

In the legal world, mentorship and quality work can determine the progress, advancement, and ultimately the success of an associate. Successful associates are essentially selected through work allocation and profile. Performance-based pay is inherently subjective and could result in rewarding the "in crowd" at the firm. Although merit-based pay is still relatively rare, young lawyers should be aware that this form of compensation is picking up steam, in fact in 2009, DLA Piper, the second largest law firm in the world, announced a shift to merit-based pay. This move could portend more changes to come. (Cox at 543.)

Building a Better Legal Profession (BBLP) is an organization based at Stanford Law School.   BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.