Law firms cut pay and furlough staff as cash flow dries up during Covid-19 outbreak

Family, housing and criminal law sectors hit hardest as cases across the globe are postponed and property market stalls

Nearly 80 per cent of law firms in the UK plan to furlough staff and cut partner compensation, according to a survey by accountancy practice Saffery Champness. Getty Images

The legal world is being hit hard by the economic fallout from the Covid-19 pandemic, as lawyers are furloughed, forced to take pay cuts or unable to find work.

Government lockdowns aimed at containing the spread of the virus have forced even elite law firms to rein in their finances as the biggest slump since the Great Depression looms.

In the UK alone, nearly 80 per cent of firms plan to furlough some staff and cut partner compensation, according to a study of 200 practices by accountants Saffery Champness. The grave situation has led bar leaders across the G7 nations to discuss its impact on the global justice system, said Simon Davis, president of the Law Society of England and Wales.

“The story is very similar across the world because lawyers are no different,” said Mr Davis, who’s also a partner at London-based Clifford Chance. “They’re providing a service to clients and when they can’t provide that service, they find that law firms suffer.”

Firms and divisions specialising in family, housing and criminal law have been hardest hit due to court cases being delayed and the real-estate market stalling, Mr Davis said. But he warned that things could get worse if lockdowns continue, with clients unable to pay bills on time.

“It’s all about cash flow,” said Jeremy Boyle, managing partner of London-based Summit Law. “The whole world is scared.”

Among the list of high-profile firms to make cuts is Hogan Lovells, which is furloughing up to 30 employees and delaying bonuses for lawyers in the UK and Asia Pacific. It ceased recruitment in March and is participating in a number of government business-support programmes in the UK, Belgium, France and Luxembourg.

Norton Rose Fulbright is trimming its working week across Europe, the Middle East and Asia for some employees for the next 12 months and is asking some staff to take a pay cut of up to 20 per cent.

“It is prudent to take pre-emptive action to protect our people and our business,” said Peter Scott, Norton Rose’s managing partner for Europe, Middle East and Africa.

London’s so called magic circle of prestigious firms – where partners can earn millions of pounds and recently qualified attorneys more than £100,000 (Dh459,368) – have also had to make tough changes.

Linklaters isn’t paying out its partner distribution in June and is postponing salary reviews, while Slaughter & May is suspending discretionary distributions to its partners in order to retain money in the business.

Allen & Overy is phasing its profit distribution to its partners and deferring certain investments and recruitment.

It’s the same grim picture in the US. Many big firms there are cutting associate salaries and some are furloughing staff. Many are also announcing large delays or reductions in partner profit distributions.

Baker McKenzie said it would cut the salaries of US lawyers and high-paid staff by 15 per cent starting on May 1, warning that while the length of the pay cuts are unknown they could last through the end of the year. The firm said the pay reductions would help avoid layoffs.

In France, big players such as August Debouzy, Bredin Prat or Gide Loyrette Nouel haven’t made any cuts, in stark contrast to their Anglo-Saxon counterparts both now and after the 2008 crisis.

”We’re very protective of our most treasured good: people,” said Mahasti Razavi, managing partner at August Debouzy. Another reason is that most French lawyers are independent professionals rather than employees.

Still, Ms Razavi said some law firms have decided to postpone the payment of partners’ bonuses owed for the previous year while others have reduced amounts to be paid.

In Germany, the local bar association has called for lawyers to be given frontline status like health workers, allowing them to get benefits such as childcare so that they can do their jobs while the nation is largely shuttered.

The immediacy of the current crisis is the opposite of 2008 where banking woes took time to cascade into the broader economy, according to Jeff Bronheim, a partner at Cohen & Gresser in London.

“From one day to the next airlines, and most hotels, have all basically stopped operating so if you’re a firm that does aircraft leasing work or holiday resort development work, you went to zero on that,” Mr Bronheim said.

He says his firm has not laid off or furloughed anyone yet and its senior lawyers continue to work on cases but there remains the nagging uncertainty about clients struggling to pay their bills.

“The question is whether the billable hours will translate into bills paid,” said Mr Bronheim. “We will really see the impact in about six weeks.”

Amid the gloom there’s an upside for those specialist staff, such as employment and insolvency attorneys, left with the job of sorting out some of the mess left in the pandemic’s wake.

“While it hasn’t gone mad yet we expect to see a tsunami of insolvency,” said Mr Boyle of Summit Law. “A lot of businesses have been caught in the headlights.”