While the plight of the hospitality, tourism and non-food retail sectors have been prominently reported by the media, the legal sector has largely flown under the radar. Few examples have come in of mass layoffs, reliance on the government’s bailout for PAYE employees and swingeing salary cuts.
But that doesn’t mean they are not happening. The updates this week from listed law firms – required to lay bare more of their financial decisions than conventional firms – give an insight into the kind of struggles many are facing.
There have been requests for staff to take pay cuts, board members agreeing to waive part of their salaries, and dividend payments cancelled. This has had predictably catastrophic effects for share prices across the board.
Considering these announcements are designed in part to appease (but of course, not to mislead) shareholders, the language and outlook is especially bleak.
Ince reported the pandemic is having a ‘significant effect’ on the group’s UK business, with clients’ struggles creating uncertainty about the timing of collection of fees. In general, firms which didn’t get their WIP down in recent years could find that oversight come back to bite them now.
The unreported picture may be even bleaker. I have heard one 80-person firm furloughing three-quarters of its staff. Another firm with 200 employees is preparing to lay off 65.
When the chancellor comes to open his chequebook to cover employee salaries up to 80%, he could find thousands of requests from people working in law firms.
The downturn has a knock-on effect too. One supplier of technology solutions to the legal sector lost £10,000 in monthly retainers from firms in a single day last week. These businesses help law firms grow and thrive, and without them any recovery will be more difficult.
Some areas of work will be more plentiful. No firm would glorify in it, but wills and probate will be a growth sector. Employment disputes too. Those that can ride out this period can take solace from the aftermath of the 2008 financial crash, when contractual and commercial disputes rose significantly. One litigation funder told me last week they were relaxed at present in the knowledge work would pick up significantly once the rest of the world begins to return to normal, whenever that may be.
In the meantime, firms must be flexible to reallocate staff and lawyers to areas of law still profitable. And directors and senior partners must take a principled and pragmatic decision to take their own financial hit. The highest remuneration of a member for 2019 at the 20th biggest UK firm was £4.3m. Those kind of figures are unjustifiable in the current climate. The legal sector isn’t the highest profile casualty from this virus, but the need for drastic action is no less pressing.
*The Law Society is keeping the coronavirus situation under review and monitoring the advice it receives from the Foreign & Commonwealth Office and Public Health England.