Trends affecting the recruitment market

You’re probably already aware that this is a tough time to try and break into the legal profession. Your prospects of finding a training contract, pupillage or indeed any other kind of job were far better pre-2008.

In the following feature we’ll examine just how this situation has arisen – a genuinely important thing to know. We’ll try and make it clear just what you’re up against. But we’ll also try to give you some advice to help you succeed despite the obstacles.

The recession and its effect on the legal profession

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You’ll be aware that the credit crunch of 2008 was followed by recession. Exactly how and why it came about need not detain us here. Subprime mortgage crisis, toxic debt, bankers bad, et cetera, et cetera. You know the drill – and if you don’t, you need to go away and do some serious catching up if you really have aspirations to be a lawyer.

The effect of the recession on commercial law firms has been severe. Some were hit worse than others, of course. Those with large property departments suffered as deals dried up. M&A and finance-related transactions also slowed from a torrent to a trickle, although some firms were able to beef up their insolvency practices and swear blind they’d been ‘financial restructuring’ lawyers all along. The collapse of major institutions such as Lehman Brothers automatically resulted in a slew of legal work, and the top British and American firms have raked in millions of pounds in fees on big restructuring and insolvency proceedings. Meanwhile, those firms that had always focused less on transactional work and more on litigation held up reasonably well.

None of this should disguise the fact that, in general, commercial lawyers had less work to do and many were made redundant. It’s hard to find any accurate figures for exactly how many lawyers lost their jobs in the mass layoffs of late 2008 and 2009, and in dribs and drabs since then – for obvious reasons firms like to keep redundancies quiet if they can. But it was definitely a lot.

Moreover, the recession has exposed just how fragile the finances of some firms are. The obvious example to cite is that of Halliwells, a Manchester-headquartered outfit which collapsed in the summer of 2010. Ill-advised over-optimism contributed to its downfall: the downturn exposed the weaknesses at its heart. Halliwells was a large firm bringing in millions of pounds in revenue. A logical and reasonable question to ask is: Will every firm that is featured in this year’s True Picture still exist in a year’s time? Answer: It is unlikely that any will go under in the spectacular style of Halliwells. However, you should be aware that there have been more and more law firm mergers during the recession. John Quinn, the outspoken founding partner of Quinn Emanuel, opined that the merger of US firm Squire Sanders and UK firm Hammonds was a case of “two rocks that think if they hug each other tight enough they won’t sink.” If this is a rather cruel observation, it is certainly true that many firms have decided that there is strength in numbers. For instance, it certainly makes sense for two firms with similar practices to merge, thereby reducing overheads and creating a stronger combined firm. This exact scenario happened with insurance-focused firms Clyde & Co and Barlow Lyde & Gilbert in 2011.

We’ve talked about the effect of the recession on commercial firms. The world of private law have their own problems to face. They must now confront ‘Tesco law’ and/or major changes being made to how the UK’s Legal Aid system works. You can read about Legal Aid in much more detail elsewhere on our website.

Longer-term consequences

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The economic future remains uncertain. There was much talk about the ‘green shoots of recovery’ in 2010, but as we write in the late summer of 2011 there are an increasing number of murmurings about this becoming a 'double dip' recession (meaning that the state of the economy may get worse again before finally recovering). Even the experts are reluctant to say how things are going to go, so we are certainly not going to make predictions. But if the worst does happen? Very broadly speaking, since the onset of the recession law firms have become more streamlined and have diversified their practices, so should theoretically be better placed to withstand further economic turmoil. But if banks and big corporates lose confidence again, the deal flow will dry up as it did in 08/09 and many law firms will feel the pinch.

The significance of the coalition government’s approach to cuts is massive. In March 2010, the Daily Mail reported that the public sector accounted for 53.4% of gross domestic product, compared to 40% when Labour came to power in 1997. The intention of the government seems to be a re-engineering of the UK economy from one that is quite so heavily state managed to one that is more private sector led. While the transition itself may gift some law firms new business, it may also take it from others, unless those firms themselves re-engineer their service lines. Of course the very process of re-engineering during a fragile economy could actually push the UK into the dreaded ‘double-dip’ recession scenario.

We speak to dozens of managing partners and other senior lawyers in the course of our research. They know the UK and world economies will deliver real challenges. However, they have an even more immediate concern: clients have seen the light on the level of fees law firms have been charging. With tighter budgets, clients are now demanding greater value for money. They are no longer to willing to pay hundreds of pounds for a junior lawyer to sit in a room photocopying when some temp kid could do it for a tenth of the price. Law firms are being forced into a re-examination of their business models and many are discovering there are more efficient ways of providing their services. As a first measure, they are exploring alternative billing models: for example, charging one fixed fee for a job, rather than by the hour. But that’s just the start…

The spinning jenny did for cotton workers, offset lithography decimated the print trade, video killed the radio star and new technology may well end the need for firms to employ legions of trainee solicitors. An increasing number of the functions performed by lawyers are now capable of being performed by legal software packages. Of course, there are tasks where human beings are still required, but paying a trainee £50,000 (or even a paralegal £20,000) is often not the most economical way of getting them done. As one senior partner of a major national law firm told us, clients will be happy to continue to pay lawyers for their legal expertise but not for processes that can be done by cheaper non-qualified staff. Globalisation means firms can easily outsource low-level tasks, such as document review, to countries like India or South Africa, where they can be completed by equally bright staff for much less. Several firms are already doing this: Eversheds is the prime example, but several top City outfits and other national firms are also outsourcing to a greater or lesser extent.

The Legal Services Act

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The Legal Services Act was introduced in 2007 to much controversy within the profession because of its radical new ideas: the Act permits non-lawyers to invest in and operate law firms. The reforms have been phased in slowly to allow the profession time to adjust, but change is almost certainly on its way. From March 2009 solicitors were permitted to form partnerships with non-solicitors such as barristers, legal executives or other professionals including HR and IT personnel. These Legal or Multi Disciplinary Partnerships (L/MDPs) mark a liberalisation of the partnership model. Nevertheless, a stake in a law firm is still only available via the holy grail of partnership, and under MDPs and LDPs at least 75% of partners still have to be lawyers.

The second wave of reform is more radical still. Alternative Business Structures (ABS) could split the legal services market wide open. Lawyers will be able to team up with other professionals to offer a range of services to clients; accountancy or banking, for instance. Imagine you are a large PLC: your law firm could now handle your annual accounts as well as contract disputes. For individuals, a high-street practice could find a house, secure mortgage arrangements and handle the conveyancing – all under one roof.

ABSs will also be able to seek external investment. It’s early days, but there are indications that several law firms are preparing to dip their toes into this pool of opportunity; National firms Pannone and Irwin Mitchell have confessed themselves keen to take advantage. Those with expansionist instincts should be able to tap into reserves of private capital to fund lateral hires, office renovations or additional branches. ABSs also open the door to the possibility of law firms floating on the stock market. ‘Going public’ is probably best suited to firms whose legal services are ‘commoditised’, that is, non-complex services such as personal injury, wills and probate and conveyancing that can be standardised though investment in technology and processes. Australian PI, family and probate specialist Slater & Gordon was the first to take the plunge when it floated on the Australian Stock Exchange in 2007. Its profits have soared and its enhanced war chest has enabled it to acquire smaller firms across Oz. The SRA began to accept ABS license applications on 3 January 2012, and had received 65 applications by January 19th.

While the potential benefits of external investment are clear, the main concerns focus on the influence investors could wield over the management of firms and the potential ethical consequences. After all, investors will want a good return on their money. Furthermore, welcoming outside investment means surrendering some executive decision making. This marks a hugely significant cultural shift in the profession.

Mr Justice Darling commented 90 years ago that “the law courts of England are open to all men like the doors of the Ritz Hotel.” Arguably this observation still rings true today. The Act aims to redress this issue by making legal services as accessible as the obligingly open doors of your local supermarket – quite literally – by allowing almost any company to offer legal services. In the not-so-distant future it may be possible to write your will at a bank or buy divorce services alongside your weekly groceries. The prospect of so-called ‘Tesco law,’ regarded only a few years ago by some observers as comical or dangerous, isn't as far off as you may think. The AA is among the organisations that already offer limited legal services, generally focusing on personal injury. The Co-operative is planning on shifting all its members' personal injury cases (currently handled by an outside law firm) in-house, as well as offering such services to the wider market.

If this trend continues it will probably mean less work for ‘real’ firms that offer the same type of services. By far the boldest step forward has been made by QualitySolicitors, which in Spring 2011 linked up with WHSmith to offer legal services in some of their branches. Although it won't be possible to sell your house while purchasing the Sunday papers, QualitySolicitors' employees will be able to book appointments with lawyers, offer conveyancing quotes and wills services.

All these changes are being introduced in the name of increased efficiency and greater competition, each designed to benefit consumers. And yet surveys in recent years suggest that many members of the public are wary of Tesco Law while large sections of the profession it as a big threat to profitability. So, while high-street practices may find themselves competing against well-known companies that can take advantage of economies of scale, consumers may decide they still prefer tried-and-tested local firms. The key issue may turn out to be the pricing of services, which in turn could affect the demand for lawyers and the salaries they command.

In short...

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Law firms have had to re-evaluate what they do, where, for whom, and at what price. They need to be leaner and meaner. As a general rule (though there are exceptions) they are cutting back on their recruitment of junior lawyers. And all at a time when law schools are working overtime to churn out more and more GDL, BPTC and LPC students, many of whom have paid for a qualification they will never use.

So should you give up on a legal career?

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Well, no, not just yet. We make no apologies for painting such an uncertain picture of the future, but of course the world will always need lawyers. You should, however, consider your options very carefully before parting with hard-earned cash to pay for law school. See our feature on How suitable are you and what do recruiters want? to assess your chances. Briefly, though, the brightest graduates will always attract attention from firms. The best candidates will even find themselves with the luxury of being able to choose between several offers. But even if you are not one of those, of you with decent grades As one training partner affirmed to us this year: “If you're genuinely good enough, if you have a good CV, work experience and grades, you will eventually get a training contract, although it can take some very good students a couple of years.

That same partner did go on to add: “If you have average or less than average grades, you're really going to struggle. I sometimes feel no one bothers to warn students early enough about that.” It's a bare fact that a 2:2 degree is less and less likely to get you anywhere in a professional career. Yes, there are always exceptions, but they are just that – exceptions. So work your socks off at university.

How else can you boost your chances of securing a training contract or pupillage? Firstly, by mastering the art of making applications. Common sense suggests that if you apply to 100 firms, you are more likely to get a training contract interview than if you apply to ten. In this case, common sense is misleading. Recruiters are incredibly adept at spotting copy-and-paste applications. You will almost certainly meet with more success by targeting a dozen or so firms that you really want to work at, researching them properly and spending a great deal of time perfecting your application to them. Quickly dashing off as many application forms as you can and changing the firm name on each identical cover letter is a waste of your time. We bang on about this again in our feature on Making successful applications.

Secondly, get as much legal experience as you can as soon as possible to demonstrate your commitment to the profession. By as soon as possible, we mean NOW.

Pay and prospects

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Lawyers’ pay remains excellent – for now. While some firms made salary freezes or cuts in 2009, most lawyers are pretty well-paid when compared to the rest of the UK population.

Minimum trainee salaries are set by the Solicitors Regulation Authority: as of 2011 they were £18,590 in Central London and £16,650 elsewhere. However, in 2012 the SRA decided to scrap the minimum salary, so from August 2014 it will be possible for firms to pay trainees the national minimum wage for adults (currently £6.08 an hour or about £11,000 a year). The reasoning behind the decision is that this more firms will be able to afford to take on trainees; however, as you might expect, the move has provoked howls of protest from some quarters, including the Junior Lawyers Division.

Of course, no top commercial firm will suddenly start paying its trainees six quid an hour. The average starting salary for a trainee in Central London was the much healthier £34,470 according to the last Law Society report in 2010. The lowest average starting salary is in Wales, where it’s £17,657. We'll see how far this drops after 2014.

Finally, those who do manage to get a training contract should be well placed for the future. Over 82% of qualifiers at our True Picture firms were retained in 2008: the highest NQ retention rate we’ve ever recorded. There has been a noticeable dip in retention since that high-water mark – but not nearly as bad as the legal press might sometimes have you believe. In 2009 and 2010 roughly 75% of trainees stayed on at the firm that trained them, and this year our data shows that 80% of qualifiers were retained by our True Picture firms. You can go elsewhere on our website for further analysis and retention stats for every firm we’ve ever covered in the True Picture since 2000.