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DLA Piper Cuts 121 in Second Round of Layoffs
The Recorder
July 09, 2009
In a sign that legal industry layoffs are not abating, DLA Piper cut 21 associates and 100 staff on Wednesday.
It's the first big firm to conduct a second round of layoffs this year. The attorney cuts amount to less than 2 percent of its U.S. lawyer headcount of 1,380.
The firm has taken several steps this year to control costs, including cutting partner and associate salaries. In February, DLA cut 80 associates and 100 staff in the United States, and 30 attorneys and 110 support staff in the U.K.
It said last month it is considering ditching lockstep associate promotion.
Consultants and managing partners have expected more layoffs at the nation's top firms despite a brutal first quarter during which thousands were laid off. May and June were relatively quiet, but as the recession drags on, it appears DLA's first cuts were not deep enough.
"Unfortunately economic weakness has continued, demand across the legal sector remains soft, and it is increasingly clear that major improvements in the U.S. and global economy will not occur before 2010," said a firm memo sent to associates. "While the firm's financial position remains strong, a tightly managed cost structure is essential to compete effectively during these uncertain times."
A firm spokesman said management had no comment beyond what was in the memo.
Consultant Peter Zeughauser expects DLA will not be alone.
"It's nothing special about DLA, it's just an indication of what's to come," said Zeughauser, of the Zeughauser Group. "I think you'll see other firms turning to similar measures."
Firms were initially reluctant to conduct layoffs, he said.
"They are so accustomed to a talent shortage. The idea that they will be able to hire people back when they need them, they are not as comfortable with that as other businesses," Zeughauser said.
A managing partner of a national firm who declined to be named said late summer and fall will be the next layoff season.
"I think the recovery will stall," the managing partner said. "Firms will act decisively to protect from a huge hit to profitability. They'll trim in late summer or fall so they can prepare for a rebound next year. The smarter firms will cut associate compensation, because it's a better long-term solution."
More than a dozen firms in the Am Law 100 and Second Hundred have cut associate salaries from their high of $160,000, but the trend is not yet widespread, as many firms fear losing dibs on top talent to competitors.
A recent managing partner confidence survey by Citi Private Bank indicated that while most managing partners surveyed held a less pessimistic view of the economy than six months ago, they also expected more layoffs to come.
Consultant Richard Gary said while he had no direct knowledge of impending layoffs at another firm, it seemed "logical" to him that more would come.
"That DLA Piper is doing a second round doesn't come as a surprise to me, and I'm sure there will be other firms," said Gary, of Gary Advisors. "There probably isn't a large firm in the country right now where people aren't nervous about their futures."
Gary said the layoffs are an indication of a shift away from an old business model that relied on unsustainable increases in billing rates and lawyers who worked longer and longer hours. "Large law firms have been pushing billing rates and billable hours for a long time," Gary said. "They've been trying to squeeze as much as they possibly can out of the old business model. And the softness of demand is bringing a number of those firms back down to earth. We are seeing reality set in here."
