Employment Practices Stagnate Amid BigLaw Power Plays

November 16, 2015

LAW360

By Jacqueline Bell

Boston Growth in employment practice groups has stagnated, according to an analysis by Law360, as many large law firms fighting for global dominance weigh whether their money might be better spent on practice groups with bigger profits.

The Law360 2015 Largest Practice Groups Report, which compiles data on the number of partners in key practice groups in top law firms, showed that between July 2014 and August 2015, growth in employment practices at full-service law firms was essentially flat: 0.10 percent. Boutique firms that specialize in employment law showed some modest growth in the overall number of partners, with a 1.61 percent increase.

Lawyers have been grappling with a slowdown in demand for litigation services. While 2016 is projected to bring the first increase in corporate litigation spending in five years, much of that increase in spending is expected to come in the form of high-stakes legal work, and top-ranked law firms will be vying for a piece of those complex, premium-billing litigation matters.

The struggle to beat out rivals for top-tier jobs — and increase a firm’s standing in the global legal market — will force law firm leaders to carefully consider which practices should receive the largest capital infusions, said Larry Watanabe, founder of legal recruitment firm Watanabe Nason LLC.

In that type of cost-benefit analysis, a firm’s employment group is often not the highest priority, in part because the practice faces intense rate competition for much of its day-to-day work and partners often can’t bill at premium rates without the risk of losing clients.

“Because many of those vying for the top 25 spots must focus on profit and revenues, they must opt to build out higher-margin practices to maintain a competitive edge. Employment is not one of these areas,” Watanabe said. “Many of the largest 200 firms have been reticent to grow, as many are trying to assess the sustainability of demand while weighing rate pressures of the practice.”

Other, more typically lucrative practices still showed a clear trend of growth in Law360’s analysis. For example, intellectual property practices at full-service firms experienced 3.04 percent growth in the number of IP partners between July 2014 and August 2015, and IP boutiques showed a 1.49 percent increase.

While some high-profile employment work can be extremely lucrative — think sprawling class actions — full-service law firms face intense competition for much of the work coming in the door from boutique law firms, smaller regional employment powerhouses or other midsize firms that can deliver more flexible fees, which are attractive for corporations trying to keep a lid on legal costs.

The 2008 recession was a game changer for many top tier employment practices, industry analysts say. As companies struggled, employment partners had to get creative to keep business coming in the door, said Danice Kowalczyk of legal recruiter Laurence Simons LLC.

“When the economy crashed, labor and employment became one of those practice areas that did a great job of reshaping itself by leaning toward new, novel, alternative fee structures,” Kowalczyk said. “Partners did this to keep their books of business intact.”

But not all big firms were entirely comfortable with this shift, and over time, some employment partners at the top tier full-service law firms have been slowly moving to boutiques or other midsize firms, another factor that has limited employment partner growth at large law firms.

“For any partner at a BigLaw practice, they need to have clients that are comfortable with those higher-priced fees,” Kowalczyk said. “And if not, they may need to rethink the direction of their practice and possibly take their practice to a boutique, or another midsize firm.”

Despite these shifts in the market for employment law services, there are individual firms and regions where employment law practices are currently on a hot streak. Law360’s 2015 top 10 ranking of the biggest employment law practices includes several firms that have gained a significant number of employment partners, such as DLA Piper, which added 17 employment partners between July 2014 and August 2015.

“There definitely are big law firms known historically for this type of practice, and they’re still going to invest, still going to support that talent, and keep that expertise they’re known for,” Kowalczyk said.

Some boutique employment firms were also busy adding laterals and promoting from within to boost the ranks of their partners.

Jackson Lewis PC added 15 over Law360’s 2014 count and was very aggressive in the lateral market, gaining on rival Littler Mendelson PC. Constangy Brooks Smith & Prophete LLP added 10 partners, also poaching from Littler, among other firms.

California, a hotbed of fierce employment battles because of its unique combination of laws and regulations, also remains a tight market for top employment law talent, according to Valerie Fontaine, a partner at the legal search firm Seltzer Fontaine Beckwith, who said her firm has been busy filling positions for employment attorneys with California expertise.

“California labor and employment law is an animal unto itself,” she said. “It’s more active here.”

Recruiters also say big, full-service law firms, even those cautious about growing partnerships, are keeping their eyes open for chances to snap up high-profile partners or groups, which can lead to big, sudden swings in a practice group’s head count if the situation presents itself.

“That’s what this market is now. All of our law firm clients are telling us they are opportunistic. They want to know about top talent in a range of practice areas,” said David Garber, president of Princeton Legal Search Group. “If a group of lawyers has a self-sustaining business and loyal clients, there are going to be multiple opportunities for that group.”

Employment practices at large law firms may not be growing, but they also aren’t losing ground. The practice area can be a steady and reliable source of income for law firms — and one that’s largely resistant to economic fluctuations.

Many law firms also use the employment practice as a vital part of their full-service business strategy. Since demand for employment services is constant, it’s often a practice that law firms use to get clients in the door and then cross-sell them on the full range of a firm’s services, especially the premium-priced practice areas.

“It is good to have that as a service area, even in the firms that don’t emphasize it,” Fontaine said.

In the coming year, there will certainly be firms eager to grow their employment practices or even just fill in personnel gaps in regional offices, but many will have to carefully weigh their options, assess the market, and make some tough calls about whether their war chests would be better spent on increasing the diversity of their legal services or improving other potentially more lucrative practices in order to give them a leg up, Watanabe said.

“There will be firms able and willing to continue and commit the build-out of their employment practices, but they will be firms already well-positioned in the upper tier,” he said. “2016 will separate those firms willing and committed to the practice versus many which will continue to bow out of expansion.”

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