Market News

Good News, Associates. The COVID Recession Isn’t 2008 All Over Again

By Dylan Jackson for

If there’s a positive thread to be gleaned from the pandemic, it is that associates are facing brighter futures and a far less volatile job market than that of young attorneys who stared down the 2009 financial crisis. And those at elite firms may even see their compensation boosted as firms look past survival and toward the talent war.

Those who were around a decade ago see fundamental differences not only in the tenor of the pandemic-induced recession, but also in how firms—many of which were scarred by lessons learned—are conducting themselves.

“Associates are in a more favorable position this year,” said Tim Corcoran, a law firm compensation consultant.

By most accounts, the Great Recession, a crisis precipitated by the collapse of the financial industry, was a bloodbath for the legal talent market. After quiet stealth layoffs made their way through the industry, the mass layoffs began in earnest with Latham & Watkins, which laid off 190 associates—10% of the firm’s attorney ranks. The move was so jarring it inspired a new verb to describe being laid off: “Lathamed.”

The layoffs throughout Big Law were so prolific that while starting salaries at most Big Law firms stayed steady, so few jobs were available in Big Law that median compensation for associates dropped by 20%, from $130,000 to $104,000 between 2009 and 2010, the National Association of Law Placement (NALP) found. In a span of a few months, more than 3,500 jobs evaporated, and 9% of U.S. associates lost their jobs over a nine month period during the recession, NALP executive director James Leipold said.

Among market leaders, starting associate salaries stayed flat for nearly a decade. After rising from $145,000 to $160,000 in 2007, starting salaries did not rise again until 2016, when Cravath, Swaine & Moore set the market rate at $180,000.

Associate compensation levels would not return to pre-recession levels until several years after the crisis. But more importantly, experts say, firms that cut deep into their associate ranks fundamentally damaged their talent pipelines for years to come.

“The 2008 to 2010 layoffs left many firms very short of corporate associate talent for many years,” said Paula Alvary, a founding principal of law firm consultancy Hoffman Alvary & Co. “When you don’t hire a very big class in two or three years of deep recession, four or five years later you don’t have enough fourth- or fifth-year associates who have deep experience.”

This time, firms avoided mass layoffs, instead implementing furloughs and pay cuts. Many leaned heavily on reducing partner draws. While many firms are still quietly laying off their staff and attorneys, pay cuts have since been restored at many firms.

Unlike restoring cut positions after layoffs, restoring cut pay doesn’t cost firms the brain drain and expenses associated with hiring and training new attorneys.

“This is the first time I’ve seen multiple firms freeze partner pay in the first round,” Corcoran said. “It’s definitely a gesture that they know they can’t starve their business of talent.”

But this crisis strategy aimed at retaining talent can not be solely attributed to more apt management from. The contours of the 2020 recession, which is driven by a pandemic and various shutdown laws, is fundamentally different than that of the Great Recession, which came on the heels of the total meltdown of the financial industry.

In fact, many Big Law firms are anticipating a flat year or even a growth year for partner profits. With their workforces working remotely, they experienced cost savings in business development, travel and other expenses related to being in the office. Some have also looked at ways to cut expenses long-term, by restructuring staff ranks or reducing real estate obligations.

Michelle Fivel, a partner in the associate practice group at Major, Lindsey & Africa, said that although associate hiring has slowed significantly, she is placing more people and seeing revived interest in mergers and acquisitions, private equity and real estate talent.

“Most of the associates I speak with are extremely busy,” Fivel said. “The Bay Area never really saw a slowdown, and firms with tech clients seemed to weather this thing better than those in New York City in particular.”

As evidenced by the fall bonuses offered at some top-tier firms, law firms have moved past survival mode and are looking toward retaining and recruiting talent. As the pandemic intensifies the stratification of law firm finances, those who can afford to make investments will look to further separate themselves from competition.

“I think the firms with the most work and the deepest pockets will ensure that they’re the most attractive by offering the most compensation but it’s not clear to me whether that will be bonuses or moving the base” salaries, Alvary said. “They want to solidify their reputation as a destination firm.”