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Sweating bullets

|Written By Jeffrey H. Waugh

Job losses are everyday news these days. Look in any paper and you’ll find stories of how the failing economy is resulting in massive cutbacks. The legal industry hasn’t been on the front page though, at least not yet and not in Canada. But is there reason to be fearful of what’s down the road?

While Canadian law firms haven’t started with any major cutbacks, a look at the global situation may give us a taste of things to come. Massive layoffs are being announced on a weekly and sometimes even daily basis in the U.S. and U.K. legal markets. Internet sites like and are filled with reports of layoffs from firms all over the world. Salary freezes are common, as are withholding of bonuses or keeping tight control over any sort of increase.

DLA Piper, which reported more than $2.1 billion in revenue for 2007, laid off 40 staff in December, including 20 of their lawyers. Clifford Chance, the largest law firm in the world both by employee size and revenue, said late last month 100 to 120 lawyers plus 130 to 150 support staff in London are being let go in a bid to become smaller and more profitable. It had already sacked 20 lawyers from its New York office. “This is an action that we have taken very reluctantly and after a great deal of thought,” London managing partner Jeremy Sandelson told The Lawyer.

Prevailing market conditions in Canada aren’t looking all that rosy either. While there’s no doubt firms in this country aren’t suffering on the same scale as in the U.S. or U.K., there is still concern. While they may stand strong and say they’re optimistic about the future, firms can’t deny the economy is at the forefront of their thoughts when it comes to staffing decisions.

Stikeman Elliott LLP’s chief operating officer and managing partner of its Montreal office Stuart Cobbett, says, “We’re not planning any hiring cutbacks at the moment nor are we anticipating any layoffs. And we’ve told our people that.” Carol Chestnut, the director of associate and student recruitment at Stikeman’s Vancouver office, says she hopes the associates in her office feel fairly secure about their positions for now. While she points out that with 45 lawyers the office is relatively small compared to other locations and firms, they are still hiring. Recently they took on another litigator, and are now in the process of recruiting a corporate law associate. “We try to keep fairly good communication going,” she says. “There are the usual end-of-year e-mails sent by the managing partners thanking everybody for their hard work, and expressing cautious optimism for 2009.”

That cautious optimism is a theme echoed by other firms. In January, Cassels Brock & Blackwell LLP laid off 38 staff, none of whom it says were lawyers. “No further job reductions are planned,” noted Cassels Brock’s managing partner Mark Young in a press release. Andrew Tremayne, managing partner of labour and employment law boutique Emond Harnden in Ottawa says: “We’ve been through several downturns, recessions, boom-bust cycles, whatever you want to call them. And we’ve always emerged stronger with as many or more people than we entered those cycles with.”

Chestnut notes that she has discovered there are some terminations being made at other firms. “I have heard anecdotally that there are some firms that are laying people off. I have received two applications, in the last week I would say, from people who have been laid off from two different firms.”

“Everyone’s a lot more particular about hiring, and everyone is holding their cards close to their vests right now,” says Adam Lepofsky, president of legal recruiter RainMaker Group.

Hard evidence of layoffs directly related to current economic conditions is hard to come by. Firms in this country certainly aren’t admitting it. Most either declined to comment, while others spoke of recent hires being made instead. And then there are the firms that are simply positioned in a manner that will allow them to make it through the economic downturn with minimal disruptions. “Certainly here at Ogilvy Renault, we have not laid any associates off, nor do we anticipate doing so,” says Michelle Gage, director of student and associate programs at Ogilvy Renault LLP. “We are very fortunate in our diversity of practice here at the firm; it keeps us pretty well positioned to weather these kinds of economic storms.”

Gage says the firm’s diversity is allowing it to take advantage of the market conditions, rather than having to downsize in order to avoid being negatively affected by them. “We have strength in a lot of areas that are counter-cyclical,” she says, “whether its restructuring, bankruptcy/insolvency work, or employment and labour work — we’re in fact actively seeking to add an associate to our Toronto employment and labour group right now. So we’re not being impacted perhaps in the same way as our friends at other firms might be.”

So some firms are doing fine and still looking to hire. But Lepofsky says he knows there are others that have been quietly letting people go since November. Some of that is due to normal factors at play every year, but part of it can be attributed to the economy. “Some of that is due to the economics, and some of that is the natural attrition . . . [associates] that aren’t fitting in, or lack a level of competency, partnership track, and those sorts of things,” says Lepofsky. “So with normal variables, that yearly attrition is always in play, from about November to February. The reason for that timing is that bonuses and raises are announced usually mid- to end of February . . . [and] those that they want to get rid of, they want out before that time because they don’t want to pay their bonuses.

“So there’s some of the normal, run-of-the-mill attrition, and there is definitely that which they’ll chalk up to that, but will be a product of what we’re seeing economically,” he says. “The firms have slowed down.”

Lepofsky says 2008 was a very good year for law firms still running off the fumes of 2007’s successes. “But it’s what’s in the pipeline, or what’s coming down the pipeline, which is what we’re looking at.” This sort of thing has happened before, says Lepofsky. In referring to the tech bubble burst of 2002, he says “there was quite a purging on Bay Street of associates and those that weren’t on partnership track and partners that weren’t producing at a particular level. And that will happen again, and it is inevitable.”

It may be hard to identify them though. Lepofsky offers some reasons for firms trying to keep their downsizing quiet. “Firms generally don’t want to get on the radar screen like a Clifford Chance . . . did,” he says. “They try and avoid being pegged by the media as laying off.” He says layoffs right now are being done under the guise of performance issues or not fitting in with the firm’s team, but in reality, the market is playing a role. “They’re all going to be very quiet about it . . . and that’s all about the image and protecting it, it’s all public relations,” says Lepofsky. “They don’t want to be seen as the firm or one of the firms that are in bigger trouble than somebody else, that they’re not doing as well as someone else.”

“It’s the stealth purge,” he says.

Guy Joubert, president of the Canadian Bar Association, agrees that you can’t argue with the fact that firms are starting to feel the effects of a failing economy. “I think, generally speaking, there is no doubt that the legal profession is starting, and is experiencing, the effects of the downturn,” says Joubert. While he’s quick to point out things aren’t as severe in Canada as the are in the U.S. and U.K. markets, he says “obviously things may change in the future.”

The fear of layoffs, real or imagined, likely means most associates are paying close attention to their numbers and working hard to stay busy and remain a valuable asset to the firm. “It’s inherent in the Bay Street associate, any major law firm associate, and for that matter almost every lawyer, that when they’re not busy or ‘busy enough,’ they are especially paranoid, nervous, [and] uncomfortable,” says Lepofsky. “Lawyers inherently need to be busy, need to feel busy, need to [do] things. If they’re not, or if they sense they’re not, then absolutely they’re nervous, scared, apprehensive, all that sort of stuff.”

Joubert says: “I think it’s fair to say that the legal profession will be impacted, and there will be some areas of law that will be impacted more than others.” Certain specializations are positioned to weather the storm better than others. “In restructuring and insolvency areas, there would likely be an increase of activity there, litigation there could be an increase of activity, and even potentially in the labour law area,” he says. “If all of the sudden Canadians are faced with layoffs that they feel are unjustified — there are unjust dismissals and those kind of things.” Lepofsky notes: “On the positive side of it, litigators are doing pretty well, and in the next few months . . . we will see more and more insolvency/restructuring lawyers starting to do very well. So the firms that have solid groups, and have a good bench in the lending, real estate, insolvency, [and] refinancing arenas, will be doing just fine.”

Gage confirms they are seeing that trend at Ogilvy. “Bankruptcy and insolvency practitioners are extraordinarily busy right now. Employment and labour lawyers also tend to get very, very busy during a downturn in the economy,” says Gage. “Obviously the work that they’re doing tends to involve things like layoffs, and perhaps plant closures, that kind of thing — but it certainly makes for busy practices for those folks.”

Joubert says there are also regional factors at play. “For instance, Manitoba’s a relatively stable economy because it’s diversified,” he says. He gives the East Coast and Ottawa as other stable regions, given their high density of publicly funded, public sector organizations. “And so there may be some regions that may not be as impacted as others,” he says. “Alberta is one region that is a resource-based economy, and then there could be some implications there that might be more serious than other parts of the country. There’s no science behind this, but it’s reality.”

Joubert further points out that associates are an extremely valuable resource to firms, and they can’t do the work without them. There are plenty of reasons to want to keep high-performing associates on for as long as they possibly can — until the economy picks up again. Many resources have gone into training and development. A report conducted by Catalyst pegged the investment that’s put into a third-year associate at $315,000.

“I think law firms in Canada appreciate the fact that, with respect to the associates that they have now, that they’ve invested a lot of time in mentoring and training those associates,” says Joubert, “and I think before law firms will look to laying off associates, they’ll look at doing other things, and maybe perhaps even a salary freeze so that they could keep those associates.”

Getting rid of associates too quickly could lead to bigger problems down the road, explains Joubert. “Because if they lay off associates, the danger is there that all of the sudden there would be a void in their lawyer compliment. And when the economy starts to pick up, there’s a ramp-up period which could be difficult for law firms to recruit new lawyers to fill in those gaps, in a period of time that could be very, very competitive.”

Gage says her firm makes a long-term commitment when it goes through the process of hiring and training an associate, so it wants to keep that person with the firm for as long as possible. She says she thinks a part of that attitude comes from the differences in the labour market between Canada and other parts of the world.

“Speaking more broadly about the differences in the market, I think the models are very different, particularly as between New York firms and Toronto firms,” says Gage. “My sense is that a lot of the New York firms tend to view associates as more of a fungible commodity than certainly we do here at Ogilvy Renault. We make a long-term investment in people, that’s our approach, it’s very much a long-term one. Hiring associates, training them, bringing them up to speed is an expensive proposition, and it makes sense to us that if we make that kind of investment in people it’s certainly our hope that they will want to be with us for a while, and we want them to be with us for a while. It’s less of a volatile personnel market, at our firm at least.”

Joubert says firms take all of these factors into account when looking at decisions to terminate positions. “So I think, generally speaking, law firms are aware of that and they’re aware of that brain trust that they have, and that they’ll make every effort to keep that in place because they still have to service clients,” he says. “And while client needs may decrease in some areas, there’s potential that they’ll increase in other areas, so they still have to service clients throughout this.”

Gage says the associates at her firm don’t appear to be showing a great deal of concern over the longevity of their positions right now. “We’ve completed our review cycle, people have already received their compensation information for 2009, so I think that gives people some sense of security that if decisions were going to be made, we would have communicated that to them by now.”

If established lawyers are in a safer position, things may not be quite as rosy for articling students looking to move into an associate spot. “If law firms are focusing on trying to keep their associates and stabilize their staff and lawyer compliment, they may not necessarily take on as many students to start off with, and they may not necessarily keep on as many students as they have in the past,” says Joubert.

Articling students might not be feeling as safe as associates. “I know that the articling students, looking at hire-back decisions which will be made this spring, are probably experiencing some anxiety,” says Gage.

Chris Donald, one of the managing partners of Saskatoon-based Robertson Stromberg Pedersen LLP, told Canadian Lawyer his firm was beginning to show some additional restraint with its new hires. “[Five] months ago, if the right person had come along, we’d have snapped them up right away. Now we’re saying ‘hold on a second, better be a little careful here.’ Caution is creeping in.”

Caution appears to be the theme of the year for law firms across the country. There’s no doubt that hiring activity is slowing. While we haven’t witnessed massive layoffs and job cuts yet, there’s no telling what’s to come. “It involves some crystal-ball gazing, to some extent,” says Joubert. Associates will want to make sure they’re doing everything in their power to find new business for the firm and prove themselves as a valuable part of the team.

“Who knows what 2009 will bring,” says Gage.