Employment growth has slowed among the United States' largest law firms, which have responded to relatively flat client demand and a still-cool dealmaking environment by reducing hiring and increasing billing rates, new figures show.
Even with unusually low numbers of lawyers leaving their firms through normal attrition, headcount grew an average of just 2.8% in 2023, analysts at Wells Fargo said on Tuesday.
The largest firms surveyed by Wells Fargo's Legal Specialty Group showed a sharp decrease in headcount growth, to 2.9% in 2023 from 6.0% in 2022. Its survey of more than 130 firms included 70 of the 100 highest-grossing U.S. firms.
"If you take on a normal, new class of associates, you're expecting a certain number of people to exit as well, and they're staying on for an extra year," said Owen Burman, a senior consultant at Wells Fargo's Legal Specialty Group.
The pull-back in hiring can be seen in the number of job openings law firms post. Such openings declined by 6% in 2023, dropping to 14,561 last year from 15,424 in 2022, according to data from Leopard Solutions, which tracks law firm hiring.
At the 200 highest-grossing U.S. firms, job openings shrank by 19% in 2023, Leopard Solutions found.
More than a dozen large law firms also laid off lawyers and professional staff last year.
Hiring "crescendoed" around 2021, when there was a "big boom cycle," said Craig Savitzky, Leopard Solutions' director of content creation and data analysis. That year saw a record-breaking $5.9 trillion in global announced M&A deals, according to the London Stock Exchange Group.
"I tend to think of 2023 as more of a market correction rather than business waning," Savitzky said.
The broader U.S. legal services sector, meanwhile is projected to break its record-high employment level after adding 4,500 jobs in December, according to Labor Department data released earlier this month. That data includes a range of legal workers, including paralegals and assistants, but the majority are lawyers.
Leopard Solutions tends to focus on large U.S. law firms and the highest-grossing firms in the country, while the Labor Department takes "a much broader look at the industry," Savitzky said.
U.S. law firms closed out 2023 with an average revenue growth of 6%, a figure that was buoyed by an average 8.3% increase in billing rates, Wells Fargo said.
The rate increases, which Wells Fargo called unusually high, helped firms grow their bottom lines even as productivity dropped by 2.1% in 2023.
Lawyers in 2023 billed an average 1,542 hours, 24 fewer hours than in 2022 and 126 fewer hours than in 2021, Wells Fargo found. Burman told Reuters last year he had never seen productivity at a top 100 law firm drop below 1,600 hours before.
Law firms grew their profitability in 2023, with net income — which is distributed to the equity partners who own a share of a law firm — rising by 5.9%, Wells Fargo found.
Jumpstart your morning with top legal news delivered straight to your inbox from The Daily Docket.
