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Saturday, May 25, 2024

Firms Navigate Labor Market in Flux

A few months ago, there weren’t enough associate- and partner-level attorneys to go around much of the Los Angeles-area law firm market.

Lately, the market for associates has cooled off a bit, while partners remain competitive among firms — for now, that is.

Adam Bass, president and CEO of Buchalter. (Photo by Ringo Chiu)

“We tried to dial it back and maintain fiscal discipline because we believed this was a temporary situation and that the market would swing back,” said Adam Bass, president and chief executive of downtown-based Buchalter LLP. “I don’t think we anticipated it would swing back as quickly as it did, but our estimation was correct. We didn’t over-hire and we feel like we came out of it pretty well. As a result, we don’t have to let anyone go.”

Unfortunately, some major firms have in recent weeks announced layoffs, following years of substantial growth and lateral moves in the L.A. market. And yet despite those layoffs, some experts foresee plenty of opportunities for those lawyers now looking for a new employer.

“What we’ve seen is that law firms have gotten really smart about how they approach their growth,” said Greg Hamman, the chief data officer at Decipher Investigative Intelligence, a firm that researches lateral law firm hires. “Those firms that are laying off, I think you’re going to see those firms grow in other ways that are more in line with what we’re seeing in the market.”

Whichever firms are growing, they’ll certainly have options to think about as they move forward. “There’s an opportunity to pick up some good folks who, last year, wouldn’t have been available,” Bass said.

Many years of growth

Broadly, Los Angeles has showcased a healthy market for law firm associates and partners for the past six years.

From 2017 to 2021, lateral partner moves in L.A. firms averaged 249 a year, according to Decipher. The pandemic year of 2020 marked a significant dip in partner transfers but bounced back in 2021 with 261. And there was even more growth in 2022, with 272 lateral moves.

“On the partner side, we had a pretty good year lateral-wise,” Bass said. “In ’22, we opened an office in Denver and brought some folks in there and grew across the firm in our existing office locations as well.”

L.A.’s growth in partner laterals in 2022 was not as significant as other regions — up 9% from the five-year average and just 4% from 2021 — but that’s most likely because it didn’t drop off as dramatically.

Adam Bass, president and CEO of Buchalter. (Photo by Ringo Chiu)
Adam Bass, of Buchalter LLP, in the firm’s downtown offices.

“I would say there is still a substantial demand for partners, particularly any partner with a meaningful book of business,” said Scott Alderton, managing partner of Sherman Oaks-based Stubbs, Alderton & Markiles. “Most firms are trying to consolidate and grow so I would say there’s still a high demand for quality partners.”

At any rate, a 9% increase itself is “nothing to sneeze at,” according to Hamman.

“It’s generally held that 2021 and 2022 were massive years in terms of lateral movement,” Hamman said. “When you look at L.A. specifically, L.A. had a pretty good 2018 and 2019, too. It’s one of the few markets that has weathered a few years of intense partner movement.”

Associates have shown even more dramatic numbers according to Decipher.

L.A.’s five-year average of associate laterals from 2017-2021 was 665, with the high of 921 in 2021 representing a 43% gain over the low of 507 in 2020. That high mark rose again in 2022, with 953 associate laterals in L.A.

“L.A. is one of eight markets — and one of three major markets — to see a major increase in associate movement in 2021 and 2022,” Hamman said. “Even with that 3% growth (from 2021 to 2022), in the context of tons of negatives in that column, L.A. had a pretty darn good associate movement in the last year.”

How quickly things change. As recently as the fourth quarter of 2022, law firm managing partners would likely have talked about the highly competitive associates market.

“You have to look at it as an evolutionary process,” Alderton said. “If we were having this conversation four or five months ago, I’d be saying that’s absolutely true and the competition for associate talent is at a critical proportion. I think that was generally true not only in our market but across the United States.”

Finding opportunity

As some firms went on hiring sprees, others took more modest growth paths. In some cases, they’re even still hiring — the downtown branch of Mayer Brown, for example, recently moved to a new location that nearly doubled its individual office footprint, with the intent to fill those.

In any case, plenty of firms that did hire throughout the last two years have avoided the layoffs so far. To lure associates and partners in lateral moves, firms have dangled signing bonuses and other benefits. Bass said Buchalter didn’t make “crazy deals” with anyone and follows a formulaic approach to compensation. In hiring, the firm is focusing on what fields — litigation, for example — are in demand right now, and all of the layoffs are presenting an opportunity here, one that other firms would do well to take advantage of.

“From my own perspective, I would say I was having a hard time hiring anybody other than junior lawyers a few months ago,” Alderton said. “We aren’t currently hiring, but I’m seeing from headhunters and recruiters many resumes from junior and even senior lawyers.”

But even if a firm isn’t hiring, Alderton said they’d be wise not to close the door to potential opportunities.

“Talent is a very, very important component of having a quality law firm,” he said. “We’re not necessarily looking for associates right now, but if I was presented with the opportunity to hire a mid- to senior-level associate, I would take a hard look at them.”

Culture plays a role in attracting that lateral talent, Bass said, because those associates and partners feel more engaged as people and less like a cog in a machine.

“We try to have a culture where folks are feeling rewarded and happy to work,” he said. “We found that gets people to stay for the long haul. You have to have the right compensation system to have things make sense.”

Hamman agreed that office politics plays a huge role in incentivizing young lawyers to join a firm or stay put at one.

“The return to office stuff has just been a battle for the last two years. I don’t think there’s just one solution that has been successful,” he added.

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