By Jessie Yount | June 09, 2023 at 05:40 PM
Deferrals of incoming law firm associates have thus far been tethered to the hard-hit tech sector, yet legal consultants said they wouldn't be surprised to see more firms change course in the coming months.
Incoming class delays have been isolated to tech-oriented law firms, but several firms are considering similar steps, consultants said.
Tech firms have been acutely impacted as tech companies employ cost-cutting measures and ask more of their in-house lawyers.
Some consultants said deferrals are a useful talent retention strategy that help balance incoming and current talent levels.
The downturn in the tech sector is showing few signs of abating halfway through 2023, prompting some tech-oriented law firms to delay incoming classes. And some industry consultants believe more deferrals are coming as firms assess
their capacity and demand levels.
Most recently, Cooley offered some of its first-year corporate associates the option to defer another year, to begin with its class of 2024. Meanwhile, some associates were given the option to pivot to practices with more steady demand.
Two sources said some of those alternative practices included litigation, employment and finance.
Similarly, Fenwick & West said earlier in the month it delayed its corporate and tech transactions associates to January 2023. In early April, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian was the first large law firm to indicate it
would push back the start date for its incoming class.
One consultant, who spoke on the condition of anonymity, said that several firms have considered and run cost analyses on deferrals. While firms don’t want to be an outlier in this regard, “Fenwick and Cooley are examples of firms that are generally respected and give cover to others to push back,” the consultant said.
Other industry recruiters said they wouldn’t be surprised to see more deferrals, especially at firms that rapidly hired in 2021 and rely on deal activity tethered to the tech sector.
“There are several factors contributing to tech layoffs, including the economy, inflation, interest rates and over-hiring and COVID job correction,” said Jennifer Henderson, a co-founder of legal search firm Hatch Henderson Fivel. “During the
pandemic, the use of technology grew significantly as everything moved online. People were working remotely, shopping online and even ordering groceries. The tech industry responded by over-hiring because those companies had to produce, produce, produce. Now that that isn’t happening, the industry saw significant layoffs to correct for the over-hiring.
“The other factors are still present though, and might start to affect other industries, which may ultimately have an impact on law firms,” Henderson added. “I am not as certain as I was earlier in the year that things will quickly improve.
There may be more fallout (layoffs or deferrals) before things start to get better.”
Julie Brush, the founder and CEO of Solutus Legal Search, offered a similar take, noting that tech firms have been the hardest hit thus far.
“Tech companies are still doing layoffs, and they are consolidating a lot of work, that would otherwise be farmed out to outside counsel, to internal lawyers who are still there,” Brush said.
“Companies have hit the breaks on preparing for IPOs or have pushed their IPOs out a year or two-plus. That work is slowing if not going away in the near future,” Brush explained. “The other, more day-to-day work that has been passed
to law firms in the past is being migrated in-house, so in-house lawyers are being asked to take on more work and are being overtaxed.”
As a result, “I suspect many firms that are heavily reliant on the tech industry are down, and are trying to be prudent and maintain costs while the storm passes,” Brush added, noting that some other industries have started to show signs of some hardship, such as consumer brands and various segments of the real estate sector.
Recruiters generally agreed that while unfortunate, deferrals are likely a prudent business decision and certainly, a better alternative to layoffs.
Some recruiters added that deferrals can be a useful mechanism to retain talent, by keeping incoming associates in the queue while providing a meaningful amount of work and experience to current associates.
“Deferrals allow firms to retain the top talent they’ve recruited,” Henderson said. “And they can always bring them back sooner if demand improves.”
Henderson described Cooley’s decision as “humane” noting that by deferring associates, Cooley is holding their spots for a time when there is an opportunity to actually be given work. “It isn’t beneficial for these associates to start in a firm
where they won’t have enough work to do, and it doesn’t behoove the firm to have associates not getting training and experience,” she said.
Brush added that many firms are in wait-and-see mode as there is still a lack of clarity in the market. “Firms are going to be sure there will be enough work before opening the floodgates and bringing back their hires.”
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