Minter Ellison's recent bombshell indicates that 35 staff would lose their jobs in the latest wave of redundancies, but news and rumours of salary freezes and graduate layoffs have also reached other firms in recent months. Richard Szabo reports.
When Allens Arthur Robinson recently announced its firm-wide salary freeze, it was simply due to a shrinking Australian legal market. Managing partner Michael Rose expects fewer firms to remain on legal services panels, and the focus to shift from billable hours to fixed fees. "We have predicted, and been preparing for, a downturn in the legal services market. No business is immune to one of the largest recessions in living memory," he said.
At the end of the day, firms are resorting to staff cuts because every 1% drop in revenue typically results in a 2.5-3% drop in firm profits. "Many city law firms have high fixed-cost structures, consisting of about 60% labour costs, 25% occupancy costs and 15% for other expenses. Occupancy is usually fixed and a 10% saving from the 'other' category is not going to make much of difference. So if revenue drops off, then savings have to come from the labour costs," says Joel Barolsky of Beaton Consulting.
Deep cuts
Blake Dawson's March review of its business, where it moved to lay off 89 staff (23 lawyers and 66 support staff), has perhaps been the most dramatic move so far. Earlier this year the firm had already retrenched at least four property and finance lawyers. "We believe that the measures we have taken will ensure the business remains competitive with the right mix of skills and experience for the current environment," a spokesperson from the firm said.
Minter Ellison's recent retrenchment of 35 staff (11 legal and 24 support staff) came swiftly in response to what its chief executive partner John Weber calls a recent "softening" in demand for legal services. "The next financial year is going to be tough for our clients and the firm; we expect parts of the market to be soft and partner incomes to be lower next financial year. We regret the reduction in staff numbers but the decision was made to protect the firm's position. We do not expect to have any further GFC-related redundancies," he said in a written statement.
Other firms have also had to make staff cuts. Deacons laid off 15 property and finance lawyers, DLA Phillips Fox retrenched 12 Australian and Kiwi lawyers, while Macpherson + Kelley made two commercial senior associates and one commercial junior lawyer redundant due to "poor performance" and insufficient work. HWL Ebsworth laid off 17 staff - six lawyers, two graduates, three property paralegals and six personal assistants. Hicksons Lawyers retrenched eight staff from across the firm, Herbert Geer has confirmed that it made "two or three" redundancies at its Brisbane and Melbourne offices, while Thomson Playford Cutlers (TPC) has laid off 19 legal staff and five non-legal staff in both Sydney and Adelaide offices. There are also rumours that Tresscox Lawyers' recent redundancies have affected more than one dozen staff, largely M&A junior lawyers.
Other firms have responded to the economic crisis by changing their graduate programme. DLA Phillips Fox has cut its graduate intake, from 66 in 2008 to 43 in 2009, across its Australian and New Zealand offices. TPC, on the other hand, has deferred its 2009 graduate intake to 2010, while Corrs Chambers Westgarth delayed the start date for 2009 recruits from February to April, and paid graduates A$2,300 in compensation. Macpherson + Kelley (M+K) opted to reduce its annual graduate intake from seven to four, while Minter Ellison and Middletons were both the subject of rumours regarding cuts in graduate and seasonal clerk numbers, but have dismissed them.
Some firms have responded by providing more flexible working arrangements, purchased annual leave and career breaks to cut costs. Allens has offered voluntary redundancy packages, which include up to one year's pay for long-serving staff, but the firm is resolute about having no redundancy targets. M+K has explored subletting surplus office space to reduce rent, bringing an annual saving of A$250,000. The firm has saved A$120,000 through reducing use of external consultants, and a further A$80,000 per year on other operational expenses, such as library, entertainment and sponsorships. Maddocks, on the other hand, has implemented firm-wide policies to minimise waste and duplication, changed recruitment processes to maximise the value of head-hunters, and more sparingly used external consultants, taxis, stationery, catering and subscriptions. "We have made cost savings in excess of A$1m," said the firm's CEO David Rennick. "We have also looked hard at discretionary spending and encouraged our staff to make sacrifices and do everything possible to ensure the business' survival. Our partners have said they are prepared to reduce profit expectations in favour of the long-term sustainability of the business."
Other lawyers appear to be going solo and working remotely as in-house lawyers. "We are seeing that happening a lot in the resources sector and the mid-cap of the sector has been quite hard hit. These companies are not looking to employ but get people in with contracts to assist," said Ken Jagger of Balance Legal. ALB
Visit the next page for a comprehensive table of law firm redundancies.
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