Recession to end City’s legal sector pay war, recruiters warn
A drop in legal sector revenues is likely see the end of the pay war that has played out between the City’s top law firms over the past two years, legal sector recruiters have said.
Falling revenues off the back of a slowdown in new business will likely see lawyers’ salaries plateau or even go into reverse, as law firms seek to control their costs, the recruiters said.
Scott Gibson, director of legal sector recruiter Edwards Gibson, said law firms “will have to” cut their fixed costs, as he warned salaries boosts for newly-qualified (NQ) lawyers could feasibly go into reverse.
He explained a drop-off in work, largely as a result a slowdown in M&A activity, is set to hit the UK legal sector’s revenues.
Recent figures from the UK’s Office for National Statistics (ONS) show UK legal sector revenues have already begun to drop, having fallen seven per cent from October to November 2022.
This drop in revenues will in turn put a kibosh on law firms’ expansion plans, as they instead seek to cut their fixed costs. Staff salaries are law firms’ main expenditure, Gibson said.
Julie Norris, a partner at London law firm Kingsley Napley, said firm leaders will have a “particular eye on keeping expenses under tight control when costs across the piece are soaring.”
Gibson noted that in past recessions, salaries for NQ lawyers have dropped, as firms have sought to cut costs in response to slowdowns in work.
He explained that NQ salaries dropped after the dot com bubble and the financial crash of 2008 as thousands of lawyers also lost their jobs.
In both cases, the cuts followed significant increases in NQ’s salaries parking similar law firm pay battles.
Andrew Waters, managing director of legal sector recruiter Chadwick Nott, said the “consensus is [pay growth] cannot continue at this rate”.
The recruiter said he expects law firms to “be more conservative with recruitment” as he forecast a “slower first quarter” in 2023.
Waters warned a drop in revenues could also see law firms seek to boost their profits by charging “higher rates” or instead forcing their lawyers to work “longer hours”.
The comments follow news that profit-per-equity partner (PEP) rates in top US law firms have dropped for the first time since 2009.
Highly-profitable US law firms have driven up NQ salaries in the City as they take an “aggressive” approach to “luring in” top talent, Waters said.
The strength of the US dollar compared to British sterling has also put US firms in an even stronger position to pay top tier salaries to NQ lawyers.