Will Weakness In Commercial Litigation Market Mean Shrinking Office Space For Law Firms?

In what may be a sign of continued weakness in the commercial litigation market, one of Connecticut’s largest grossing law firms confirmed last Thursday that it is laying off as many as 40 people, including support staffers and attorneys.
Top executives at Day Pitney said the layoffs were spread firmwide, and include up to 10 attorneys. Day Pitney’s two main offices are in Hartford and Florham Park in northern New Jersey, with additional offices nestled between Boston and Washington, D.C.
The firm last had major layoffs in 2009, at the beginning of the recession.
The latest cutbacks come less than a year after the firm brought in its largest associate class ever, including 16 new hires in Connecticut. Stanley A. Twardy Jr., the Hartford-based managing partner of the firm, declined to say how many lawyers were being let go in Connecticut, where Day Pitney also has office in Stamford, West Hartford and New Haven.
“As the legal industry changes, we continue to evaluate and reshape our staff to better align with industry norms and client expectations for excellence,” said the statement, which was released by Day Pitney spokeswoman Xenia Kobylarz. “This reduction, which brings us more in line with industry-wide attorney/staff ratios, affects about 30 employees.”
The layoffs, she continued, “affect about 30 staff immediately and fewer than 10 attorneys. Those attorneys will remain with the firm until a date yet to be announced, in November.”
Day Pitney sources said the layoffs were focused on the commercial litigation practice. All of the attorneys who were let go were at the associate or counsel level, and were not partners, the sources said.
Law firm management consultant Peter Giuliani of Weston had not heard about the layoffs, but said the news was not all that surprising. “I’m hearing that clients [of all law firms] are continuing to put more push back on rates and staffing levels, and to some degree they are pushing back on the amount of associates that are working on their legal matters,” he said. “And the law firms are responding to that pressure.”
While he declined to speculate on the factors behind the Day Pitney layoffs, Giuliani expects more firms in Connecticut to consider possible staffing reductions in the near future, possibly because they hired more lawyers than they needed in hopes of a more robust economic recovery.
Practice areas that he predicted will be be affected include corporate litigation and real estate practices. “Real estate is down, although it seems to be clawing its way back. And I still see some weakness in the corporate practice area.”
Giuliani continued: “It may be that the fundamentals of law practice economics have changed, and we’ve got a new world we’ve got to get used to.”
Recession Cuts
The firm was created in 2007 by a merger between Hartford-based Day Berry & Howard and New Jersey-based Pitney Hardin.
In 2009, the firm had two rounds of layoffs. In February of that year, 66 paralegals and non-professional staffers were let go. Later, in May, some 31 support staffers and nine lawyers in the firm’s Connecticut offices were given pink slips, taking the brunt of firmwide cuts. Those layoffs, the firm said at the time, were prompted by declining demand for legal services, and “excess capacity” of personnel.
After the current round of reductions, Day Pitney will have just over 300 lawyers, down from nearly 400 at its peak. The firm had gross revenues of $185 million in 2012, based on research by The American Lawyer, an affiliate of the Connecticut Law Tribune.
The layoffs mark at least the four time this year that a large firm has tightened its belt. In June, Weil, Gotsahl & Manges announced it was laying off 60 lawyers and 110 support staffers from its New York and Boston offices. Also in June, national firm Jones Day laid off 65 staff members, including 45 IT workers and several attorneys in its Cleveland office. Earlier, in March, Patton Boggs LLP fired 65 staff members, including 22 associates. A firm spokesman confirmed today that 17 partners have announced their intention to leave the firm.
Other firms have been more stealthy about lawyer firings, Peter Zeughauser, a law firm consultant and founder of Zeughauser Group LLC recently told Blomberg News. “It’s been going on at a number of firms all year,” Zeughauser said. “It’s an indication of how pervasive the overcapacity in the industry is.”
Two factors distinguish this round from the layoffs back in 2009, when more than 1,100 lawyers lost their jobs in a single week following what was known as “Black Thursday.”
In 2009, Giuliani said, “those layoffs were a crisis response” to the Wall Street meltdown. Now, he said, the firms are reacting more analytically. “Either they didn’t cut enough in 2009 … or they hired too many people and the [profit] margins haven’t gotten back to where they were before the crisis.”
There are some firms, he said, “who feel those margins are not going to come back.”
 
Source: DBR