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More On Law Firm Economics As It Relates To Employment Law

Published by on November 6, 2008

In a recent post, I commented on the economy and law firm economics.  An article on Law.com today discusses some of the same pros and cons of hiring super-sized institutional law firms — Why Law Departments Should Beware Super-Sized Firms.  The author, Rees Morrison, has his own blog on law department management here.  More after the break. […]

In a recent post, I commented on the economy and law firm economics.  An article on Law.com today discusses some of the same pros and cons of hiring super-sized institutional law firms — Why Law Departments Should Beware Super-Sized Firms.  The author, Rees Morrison, has his own blog on law department management here.  More after the break.

The following paragraphs in the article caught our attention.  The emphasis in bold is mine.

As revenue is driven higher to sustain the holy grail of profits per partner, chargeable hour requirements whip associates to unworldly billable hours or perhaps bill padding. Burning the candles too short and slogging through mind-numbing piles of paper take its toll. Mega-firms suffer from high turnover rates, and in turn, law departments suffer from seeing the fees they invested in training walk out the door to another firm.

A related downside for law departments is that the astronomical starting salaries of associates, with the commensurate bumps in pay up the line, make recruitment and retention harder for law departments — recruitment because some associates may expect top dollar, retention because some in-house lawyers may be enticed to defect to law firms.

On the partner side, seven-figure incomes create volatility and departures of groups of partners, a consequence that is negative for law departments. Partners decamp for firms that dangle higher profit distributions and lose nimbleness as they become conservative.

This article raises some of the issues I have discussed elsewhere, namely, the intense pressure on attorneys at institutional law firms to bill hours and generate profits.  This pressure can lead to astronomical bills in employment cases.  Read this post for example.  This post, citing the same case, argues that companies should move their employment litigation to small and medium sized law firms. 

As a “small firm” lawyer, I happen to agree with that view.  But I also happen to think that it does not make economic sense for super-sized institutional law firms to handle single plaintiff employment cases.  In a single-plaintiff Title VII case, for example, the compensatory and punitive damages are capped at a maximum of $300,000 for a large employer.  Although the company may face additional liability for the plaintiff’s attorneys’ fees if he/she prevails at trial, should it really cost $500,000 to $1 million to defend such a case?

 

UPDATE:  A Law.com article on November 18 discusses the concern of GCs that law firm mergers will result in increased upward pressure on billable rates and hours.

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