With revenues down and collection times up, the number of law firms that are starting to consider the benefits of a two-tiered approach to associate attorneys is growing rapidly. Firms are finding that a two-tiered associate structure can be an efficient profit model in that the second tier of "nonpartnership track associates" are paid sometimes as much as 50 percent less than the first tier of "traditional associates," but may be billed to clients with rates that are only 25 to 30 percent less than those of the traditional associates. In other words, if a nonpartnership track associate bills 1,800 hours, the firm makes a larger profit and the clients pay less money than if a traditional associate were to bill the same number of hours.
The concept of separate tiers of partners has been around for awhile, and over the past decade, most of the nation's largest firms have already converted to a multi-tier partnership structure. However, the application of a multi-tier approach to associates is a recent development that is quickly gaining favor among many of the nation's larger law firms and some smaller regional firms. When implemented correctly, a second tier of nonpartnership track associates can benefit the firm, its clients and the attorneys.
Most clients are well aware that not all legal work requires the most-expensive associates. As clients continue to reduce budgets and require firms to control their legal fees, many firms with single-tier associate structures attempt to appease cost-conscious clients through the use of short-term solutions, such as temporary or contract attorneys. This type of "alternative staffing" increases the efficiency of how firms manage client engagements and generally has been well received by clients thanks to reduced legal bills.
While alternative staffing structures may seem a panacea at first blush, firms continue to face challenges attempting to manage these attorneys both domestically and internationally. Firms often find themselves responsible for the overhead to supervise and house the alternative staff attorneys, while clients are loath to let firms mark up the cost of what these attorneys are directly paid for their time. Despite the initial projection of cost savings, many firms find that the hidden costs of alternative staffing, including fixing mistakes and redoing work to maintain firm quality standards, substantially reduce the benefit of the initial expense reduction. Depending on the client relationship, the firm may even need to eat some of the extra hidden costs.
A relatively new movement is to create a second tier of nonpartnership track associates with lower salaries, lower billing rates and lower billable-hour requirements. Law firms are still cautiously testing the waters to see how to best utilize these attorneys. And unlike the case with alternative staffing, the concept is too new for clients to either suggest or require a second tier of associates.
Generally, nonpartnership track associates are given the least nuanced, routine legal work. In some cases, these associates have even become the unofficial firm experts in transactional due diligence and litigation document production. By reducing the billable hours that traditional highly paid associates spend on this type of work, firms have found that a two-tiered associate structure is an excellent way to restore value to clients while maintaining a profitable, leveraged firm model.
For firms that do not have sufficient work to keep their existing traditional associates busy, a second tier of associates will likely cause some internal conflict by taking away valuable billable time. The two-tiered associate model will work best for those firms where the traditional associates have plenty of billable work. In the long term, a firm evolving to a two-tiered associate structure will not need to hire as many traditional associates. Those remaining traditional associates will have a more satisfying career focusing their time on complex legal work and developing the necessary expertise to eventually become partners.
In order for a two-tiered associate structure to be successful, it is of utmost importance that both the law firm and the nonpartnership track associates find the relationship to be a win-win situation. This approach seems to work best with attorneys who are not straight out of law school and have at least a couple years of legal experience. In some cases, the nonpartnership track associates may not have the educational pedigree of the traditional associates and would, therefore, not normally have been given the opportunity to work at a major law firm. In other cases, the nonpartnership track associates have attended the same top law schools and undergraduate institutions, but are simply looking for a more reasonable work-life balance without the pressures of working toward partnership. A position as a nonpartnership track associate should be considered a career path with the potential for a better work-life balance, albeit at a lower salary. If there is a pretense for marked advancement, then a nonpartnership track associate will have unrealistic expectations and risk disappointment. While some nonpartnership track associates have had the experience of transitioning at a firm to become higher paid traditional associates, this is the exception, not the rule.
If implemented correctly, a nonpartnership track associate should be considered a full-time member of the legal team. While his or her focus may be on the least nuanced aspects of law, the contribution nevertheless will be an important part of any corporate transaction or major litigation. The goal is for the nonpartnership track associate to work toward building the law firm franchise, no different than any partnership-seeking associate. If everybody does their part, the law firm will remain in business by continuing to provide clients with economically efficient legal services, which will mean continued job security for all attorneys, including the nonpartnership track associates.
In an age where many associates do not have a desire or expectation to become partners at their respective firms, a position as a nonpartnership track associate allows them to continue to practice at a prestigious institution without the exceptional time commitment that is expected of traditional associates. Moreover, clients appreciate the prospect of paying less per hour for this second tier of nonpartnership track associates, some of whom have a similar pedigree and experience as traditional associates.
Given the relatively high billing rates of traditional associates at major firms and the recent layoffs across the country, a move to a two-tiered associate structure can allow firms to increase profit margins, provide clients with a reduction in their legal fees and offer many attorneys a very satisfying way to continue their legal career at a law firm.
Justin T. Miller, J.D., LL.M., CFP® is regional director of the Legal Specialty Group at Union Bank's The Private Bank.