Trends affecting the legal profession

EU flag fraying

In a competitive recruitment market where the standards keep getting higher and higher it pays to know your stuff. Here are the main issues you should be aware of.

The B word

As the website of magic circle firm Freshfields states, 'Brexit has blasted its way to the top of the boardroom agenda.' The effects of Britain's decision to leave the European Union are mindboggling for businesses and lawyers alike. Top barrister John Cavanagh QC (who left law school in 1985) recently called Brexit “the greatest political event of my professional career.” Brexit matters for lawyers for two reasons: first, because it raises the possibility of changes to literally hundreds of laws, rules and regulations which govern how the country is run (these you could call the direct, or legal, effects). Second, Brexit could cause a recession or at least a slowdown in growth, which would adversely affect commercial activity meaning less work for commercial lawyers (the commercial, or indirect, effects), unless you're a disputes or insolvency lawyer. 

“EU-inspired or mandated legislation is part of the bedrock of societal protection," barrister Philip Kolvin QC recently told the Local Government Lawyer. "I speak of health and safety, town and country planning, ecological protection, freedom of information, data protection, competition, discrimination, public procurement, indeed the very concept of proportionality which governs much of our regulatory system. Are these protections to be thrown onto a bonfire of laws? If not, which are to survive and which are to be replaced, and if so by what?” Lawyers working in the areas mentioned here, and others, will be in demand to advise clients on possible changes to EU-mandated rules and regulations in their area; this will itensify as Brexit negotiations continue and the shape of Britain's relationship with the EU crystallises. A key sector of the economy affected by Brexit is financial services, where the main issue is whether UK-based firms will retain their 'passport' rights to trade in the EU post-Brexit, and if and how businesses may move operations and staff abroad if Britain leaves the single market. 

'Brexit has blasted its way to the top of the boardroom agenda.'

Brexit's effect on the UK economy is not yet known, though data on businesses' investment intentions for July 2016 does not look rosy. Institutions from Goldman Sachs to the IMF have revised 2017 GDP growth projections to 0.2% and 1.3% respectively, well down from the 2% growth projected before the referendumUK M&A activity was down 68.6% in the first half of 2016 compared to the same period in 2015 to £58.2 billion, though it's possible that things may pick up again now the referendum result is known. “Things are considerably better than we'd expected,” a City partner reported. “There was a noticeable slowdown in work leading up to the referendum as things were put on hold. But things haven't fallen off a cliff since 23 June. They have picked up, though not to the extent they would have if there had been a Remain vote.” It's clear what the possible implications are: less economic activity would mean less work for commercial lawyers, especially in practice areas like corporate, banking, finance, real estate and projects. 

Brexit commercial awareness primers:

The effect of Brexit on lawyers
Brexit, business and the law
Brexit effects by practice area

 

The economy

As noted above Brexit has completely changed the calculus on what Britain's economic growth will look like in coming years. Add to this uncertainties over slowing growth in countries like China, Russia and Brazil and the rocky future of the Eurozone, and you'll understand why law firms' clients continue to face uncertain market conditions. The tightening of the public purse also means government funding – for instance, for energy projects – is as hard to get as ever. 

Recruiters want you to be able to understand the journey the UK and global economy have been on in the past few years and how trends in different sectors, and Brexit, may affect their firm.

Most big commercial law firms have seen revenues increasing in 2015 and 2016, though some continue to struggle. Firms are becoming increasingly innovative and are aware that their future success depends on prudent and efficient handling of finances, and gaining work by offering better-quality services than competitors. Recruiters want you to be able to understand the journey the UK and global economy have been on in the past few years and how trends in different sectors, and Brexit, may affect their firm. 

 

Trainee recruitment numbers

As a whole, the legal profession weathered the 2008/09 recession relatively well, but one lasting effect has been that recruitment numbers at most of the biggest commercial firms are down compared to where they stood seven or eight years ago. For example, the six elite City firms known as the 'silver circle' told us they were looking to recruit 305 trainees (to start in 2011) when we asked in 2008, but want just 240 (to start in 2019) when we asked this year. The same story is true outside the capital: five big national firms (Addleshaws, DLA Piper, Eversheds, Pinsent Masons and Squires) were in the market for 325 trainees in the 2008/09 recruitment cycle, but are looking for just 260 in 2016/17. The good news is that recruitment numbers at some firms are actually up in the last few years; this is reflected by the 9% increase in the number of training contracts offered in 2014/15 (to 5,457) compared to the previous year. 

 

Since the recession firms have learnt to do more with less.

But it remains the case that since the recession firms have learnt to do more with less. With tighter budgets, clients are demanding greater value for money. They are no longer willing to pay for a junior lawyer to sit in a room photocopying if a temp can do the same for peanuts. The recession led many firms to tighten their belts and they've learnt to do more with less. New technology is also hitting demand for trainees. Many functions can be performed by legal software and globalisation means that firms can easily outsource low-level tasks to countries like India and South Africa. City firms are finding that even relatively complex legal and administrative work can be performed by staff based outside London in Northern Ireland or Scotland, or even in locations like Bristol, Sheffield or Milton Keynes. Elsewhere on this website you can read more about firms which recruit outside London.

We don't want to come across as the harbingers of doom: there are still literally thousands of training contracts up for grabs each year. The world will always need lawyers, and good graduates will always have a chance of making it in the profession. English law is increasingly popular overseas for doing business deals and resolving disputes (especially in the BRIC countries and the Middle East). For a structured career path that almost guarantees a solid lifetime income, the law is right up there with accounting and consultancy. But we certainly wouldn't want to encourage anyone to try to become a lawyer just because they think it's an easy way of getting a cushy job. It isn't.

We don't want to come across as the the harbingers of doom: there are still literally thousands of training contracts up for grabs each year.

Our point is: if you have a passion for the law and the right skills, then there's no need for doom and gloom. At the same time, the days when students could waltz into a top job by being bright, young and perky are over – forever. Applicants are expected to have exactly the right professional skills, need to know the firms they are applying to inside out, and must have a stash of solid life experiences as evidence of their professed skill set.

 

Law firm mergers

You may have heard talk of consolidation in the market. What this really means is that there are fewer law firms about. Some have gone into administration: many high-street outfits have ceased operations in the past few years, and some major law firms too have gone the way of the dodo. There are still firms out there in financial difficulty, with costs rising and profits plummeting. If you want an idea of which firms are having a rocky time of it have a look at recent revenue and profitability figures (big dips could mean a firm in trouble, though growing revenue is no means of success) and firms with low trainee retention rates.

More common than law firm failures are law firm mergers. A third of firms featured in the 2010 edition of Chambers Student have since undergone a major merger, and many others are considering the option. Firms including CMSOrrickMayer BrownEvershedsOlswang, BLP and Ince & Co have all recently considered or are considering a merger. 

third of firms featured in the 2010 edition of Chambers Student have since undergone a major merger.

Mergers happen for all manner of reasons. Some are genuine attempts to strategically expand a firm's areas of practice or gain a national presence; the merger which created Charles Russell Speechlys is an example of the former, while that which former Bond Dickinson is one of the latter. International and transatlantic mergers are common too: they aim to make firms which were previously merely international truly global. Quite a few Brits have paired up with US or even Australian outfits: Norton Rose recently merged with Texas' Fulbright and Ashurst with Australia’s Blake Dawson. Meanwhile, SJ Berwin became the first ever UK firm to join arms with an Asia-Pacific firm, King & Wood Mallesons, in 2013. Mergers happen among regional and national firms too: two examples include the 2015 tie-up between Midlands firms Shakespeares and SGH Martineau which created Shakespeare Martineau, and 2014's merger between Morgan Cole and Blake Lapthorne creating Blake Morgan.

Quite a few recent mergers have been tie-ups between a stronger firm and one which was in some financial difficulty. Examples of this include Slater & Gordon's takeover of Pannone, CMS's of Dundas & Wilson and Dentons' of US firm McKenna Long. In all these example, the firm mentioned first was the more financially stable of the two.

Quite a few recent mergers have been tie-ups between a stronger firm and one which was in some financial difficulty.

A merger can boost internal client referrals and offer economies of scale by sharing overheads. 'Strength in numbers' is the mantra. Reducing overheads can mean cutting the costs of everything from property rental to support staff and IT systems to trainee numbers. Yes, we said 'trainee numbers': while trainees' contracts are usually honoured when firms merge, merged firms do often cut back trainee and NQ recruitment numbers to below their would-be combined total after a few years. For more on this topic read our newsletter feature Law firm mergers: why do they happen?

 

Legal education and training

The Solicitors Regulation Authority (SRA) has recently been conducting something of a bonfire of the regulations when it comes to trainees and trainee recruitment. In part this is a reaction to the 2013 Legal Education and Training Review (LETR). An SRA spokesperson told us: “First, the changes are a result of our commitment to cut red tape. We sought to remove rules which did not relate to quality and standards in the profession. Second, in response to the LETR we looked at what changes we could make within the existing framework to allow more flexibility.” In other words, the aim is less bureaucracy and more flexibility in order to broaden access to the profession.  

Here are some of the main changes that have been made: 

  • Paralegals can now qualify as solicitors without getting a training contract if they have done the LPC and fulfilled certain training criteria. Recently a paralegal at Bates Wells Braithwaite became one of the first to do this.
  • Training contracts are now referred to as 'periods of recognised training' by the SRA. Law firms still use the former term.
  • The SRA has withdrawn from the voluntary graduate recruitment code of conduct. “It was not enforceable, it was not a regulatory task and it was disingenuous,” the SRA told us. “The SRA being a signatory could have given the impression that the code of conduct is a regulation when it is not.” The Junior Lawyers Division and two graduate recruitment associations remain signatories, while the Law Society has stepped into the SRA's place as a supporter of the code.
  • The SRA is no longer the guardian of partial exemptions to the GDL for mature and overseas students. Providers now deal with these themselves. The SRA only deals with full exemptions.
  • Rules surrounding part-time LPC study and part-time traineeships have been relaxed, so part-time study and training can now be undertaken in any desired format. 
  • There is no longer a specifically stated requirement for trainees to undertake both contentious and non-contentious work. However the SRA's 'practice standard skills' mandate experience in both transactional work and disputes, so in practice this rule remains the same.
  • Students are no longer required to enrol with the SRA (which used to cost £80).

And the SRA is not done yet. The biggest change to help it achieve its stated aim may be yet to come. In December 2015 the regulator announced plans to introduce a final general exam for all aspiring solicitors, the Solicitors Qualifying Examination (SQE), to be taken at the end of the training contract. Speculation abounded that the requirement to do the LPC could disappear (perhaps as a result some law schools have recently abolished or altered their LPC provision). The SRA has since run a consultation on the topic and, after strong criticism from all parts of the profession, announced it will be delaying introduction of the SQE pending further consultations. A decision on whether to go ahead with these major changes is due in spring 2017 and could affect qualifiers from 2020 onwards, so keep your eyes peeled for further news.

One development which has been helped along by the SRA's changes is the trend for more legal apprenticeships. These take many forms: from Freeths' one-year pre-training contract scheme, to Mayer Brown's six-year 'articled apprenticeship' which is run in conjunction with the University of Law and covers undergraduate studies, the LPC and the training contract. Other firms which offer apprenticeships include Eversheds, DWF, Kennedys and Addleshaw Goddard.

'Qualifying as a solicitor is not easy. Many trainee solicitors finish their training with debts. There is no guarantee of getting a job either as a trainee or as a solicitor.'

Despite the SRA's efforts to ease access into the profession and the appearance of apprenticeships, the path to becoming a lawyer remains a tough one.  The Law Society doesn't mince its words about the risks: "Qualifying as a solicitor is not easy," intones its website. "Many trainee solicitors finish their training with debts. Others are not able to finish their training because they cannot get a suitable training position. There is no guarantee of getting a job either as a trainee or as a solicitor." We couldn't agree more. Be warned that the biggest LPC providers like  BPP and the University of Law are profit-making businesses and have a vested interest in more graduates studying with them.

So: you should consider your options very carefully before parting with any hard-earned cash to pay for law school. Most trainees we interviewed for this guide secured their training contracts before starting law school, and all other things being equal this is the course we advise you to follow. Starting law school without a training contract lined up will always be a calculated gamble. Elsewhere on this website you can read more about How to fund law school.

As an added incentive most commercial firms will pay all or part of your LPC fees as well as a living allowance; smaller non-commercial firms do not usually do this. See our Table of salaries and benefits for full details. We should also point out that your future is in your hands: whether you land a traineeship or NQ job depends on how hard you work at getting the right experience, learn what firms are looking for, and target the right employers. For more advice on this topic read our feature How suitable are you and what do recruiters want?

 

Public spending cuts

Unless you've been living in a cave for the past six years, you will have read about the range of public spending austerity measures which have been sweeping the nation. With the Conservatives now forming a majority government most of these cuts are set to continue and deepen. The cuts have been affecting law firms in various ways.

First, firms that work for clients in sectors which rely heavily on public funding – healthcare, housing, local government, transport, education, infrastructure, charities – have found some of their work drying up. In addition, increases in court costs are affecting firms. For example, rises in Employment Tribunal fees have led to a decrease in low-value work, meaning that small to mid-size firms are doing more non-contentious employment work if they can. 

The public funding of litigation through legal aid is being severely cut.

Meanwhile, the public funding of litigation through legal aid is being severely cut, with the Ministry of Justice aiming to trim the legal aid budget by a quarter. Combined with other funding changes, this is squeezing lawyer fees in areas like crime, housing, family, employment and personal injury.

While larger commercial firms which practise in these areas are not affected (their clients pay privately), the cuts are affecting recruitment at smaller firms. For example, Fisher Meredith, a London firm with a significant legal aid practice, has halved the number of trainees it employs in the past few years and cut solicitor numbers by two-thirds.

Reforms brought in by the 2012 Legal Aid, Sentencing and Punishment of Offenders Act have seen whole areas of practice removed from the scope of legal aid (especially in the family, immigration and housing fields) and cuts to legal aid practitioners' fees. In protest, barristers and solicitors have organised strikes and taken to the streets to demonstrate. Various judicial challenges to the manner in which cuts have been implemented were also launched.

In a partial climbdown, the government announced in January 2016 that a new planned tranche of cuts to police station duty solicitor contracts and lawyers' fees is to be shelved. However, the impact of those cuts already in place is significant and will continue to have an effect on the industry: there's been an increase in the number of litigants in person and a decrease in available work for lawyers acting for your average man in the street.   

For more on this topic, take a look at the Solicitors' Practice Areas, and read our feature on Legal aid cuts and reforms.

 

The Legal Services Act

The Legal Services Act 2007 has now fully come into force. In a nutshell, the Act aims to liberalise the market for legal services: non-solicitors can now become partners in law firms and so-called Alternative Business Structures (ABSs) allow lawyers to team up with other professionals to offer services. ABSs also allow firms to seek external investment. More than 300 ABS licences have been granted so far, with legal services now offered by the Co-op, the AA, Eddie Stobart, Admiral and KPMG.

 So far this influx of new legal service providers has not led to a massive upheaval in the way people get their legal advice. Notably,  no supermarkets have so far gained an ABS licence, despite the Act being dubbed 'Tesco law' because it potentially allows legal services to be bought alongside groceries at your local superstore. In part the lack of change is due to existing legal practices adapting well to deregulation and using the new rules to their advantage. National firm Irwin Mitchell is one of the most innovative players on this front, having gained five ABS licences in late 2012. Many thought Irwin Mitchell would also become the first UK law firm to trade publicly on the stock market, but ultimately that honour went to Gateley whose June 2015 IPO valued the firm at £100 million. Read our feature on Alternative Business Structures for more.

 

Pay and prospects

In November 2015 the Law Society introduced a recommended minimum trainee salary of £20,276 in London and £18,183 outside. This replaces the SRA's previous minimum salary requirement, abolished in summer 2014, which was lower. The Law Society's minimum is only a recommendation though and not enforceable. We know for a fact that some trainees earn less. Low salaries mainly affect regional firms and small general practice and legal aid firms

By contrast, and despite the profession being under pressure, lawyer salaries at major commercial firms both in and outside London remain generous and continue to go up. A salary war in the US, instigated by market barometer Cravath raising its starting salary to $180,000, has prompted some top American firms in London – including Weil Gotshal, Akin Gump, Latham & Watkins, Vinson & Elkins, Sullivan & Cromwell, Davis Polk and Kirkland & Ellis – to raise their salaries with a nod to their US pay scales. The going rate for an NQ at these London branches tends to be £100k or over and although several top British firms, including the magic circle, have responded with their own NQ pay increases, there's now a £20-£40k difference between the top American payers and the magic circle.

For a more detailed analysis of trainee and NQ pay at different types of firms and in different regions read our feature How much do trainee lawyers earn?. For more information on individual firm pay, check out Table of salaries and benefits.

Lawyer salaries at major commercial firms both in and outside London remain generous.

Once you're a trainee you should be well placed for the future. The number of trainees who stay with the firm they trained with varies from employer to employer, but on average the firms we surveyed in 2016 retained around 80%. There was a noticeable dip in retention in 2009 and 2010, but for the last five years retention has hovered around the 80% mark. It is notable that the figure is not lower this year – a sign that the Brexit vote has not immediately led firms to decrease their uptake of lawyers, though who knows what will happen in the future. On our website you can find further Retention analysis and Retention stats for every firm we've covered in the True Picture since 2001.

 

Your next step
>>> How suitable are you and what are recruiters looking for
>>> Law School