It’s Friday the Thirteenth today. Although I am not a superstitious person, I also am not into avoiding the obvious. And the obvious to me is that some good news is a good thing on Friday the Thirteenth. Even if it comes with some bad news as well.
According to Above The Law and based on a Thomson Reuters’ 2023 Report on the State of the Legal Market, “the average number of hours worked per month YTD across all lawyers last year” has tanked. Thomson Reuters does its annual state of the legal market review in January of each year as a look-back on the previous year, and that means that the study addresses the average number of hours worked per month by all lawyers across the profession in 2022. That number was at a two-decade low. 119 hours worked per month to be exact.
The report states that “In the latter part of 2022 and continuing into the new year, multiple challenges have emerged to threaten law firm profitability, including falling demand and productivity, rising expenses, changing client preferences, and economic turmoil.” That is a lot to unwrap.
Especially interesting is the decline in 2022 in profits per equity partner (PPEP), something that is VERY important to law firm management and leadership. The explanation is that the decline is related to the reduction in transactional work, which had become the driver of demand throughout 2021 and the early part of 2022.
What was not addressed at any length in the report is that many law firms continued to add new lawyers at sometimes unprecedented rates during that same time frame. So the additional bad news for associate lawyers is that layoffs may increase as firms struggle with budgetary constraints.
But there also is some good news hidden in all of this. The good news is that law firms may be forced to adjust to more realistic billable hour requirements to protect the talent they have and be prepared for the economic upsurge and increased demand for legal services which, predictably, is in the future.
For example, if a firm has become accustomed to requiring 2200 billable hours a year from associates, that computes to approximately 183 billable hours per month. And that is billable hours, not hours worked as addressed in the Thomson Reuters report. There is a very big difference between 119 hours worked and 183 hours billed.
Any serious adjustments to those billable hour requirements, based on realistic economic expectations, could help bring firms into healthier workplace balances. Such improved workplace balances would enhance the health and well being, both physically and mentally, of the talented young lawyers at the bottom of the leveraging models. And firms might finally understand how important that kind of healthy balance is to maintaining a satisfied and successful workforce.
I would like to think that there is some opportunity for these kinds of adjustments and improvements that have been deemed necessary in the past by many law profession observers. But such an end result would require equity partners and other law firm leaders to take the long view and protect talent at the risk of the huge PPEs they have become accustomed to. That would be a major leap forward for the profession.
Waiting and seeing is all we can do. There is a lot on the line.