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London In-House Lawyers Caution Against 'Unsustainable' Law Firm Raises
Legal Week
June 13, 2008
In-house counsel have hit out at "unsustainable" raises in salaries for private practice lawyers, arguing that they will lead to an unwelcome increase in charge-out rates.
Their fears come after Legal Week research last week revealed that three-quarters of partners at leading London firms said they think fees will increase over the coming year, with nearly a fifth claiming clients should prepare themselves for above-inflation rises.
Most London firms have announced marginal increases in associate salary rates this year despite the slowdown in activity levels. The rises mean the salary for a newly-qualified lawyer (NQ) at some of the London's biggest firms now varies between 64,000 pounds and 66,600 pounds. Only a handful of firms -- including Norton Rose, Herbert Smith and Allen & Overy -- opted to freeze NQ rates, but all of them already pay within this range.
Which? general counsel Deborah Prince told Legal Week: "Business has to pay for [the raises] but it is not sustainable. Wages are going up and business margins are being squeezed.
"The rise in charge-out rates is inevitable. The only way is up. The legal profession never learns its lessons.
"If the current trends continue, in-house legal teams will grow. Companies might just decide to directly hire the people they need."
Prince's comments are echoed by other corporate counsel and reflect the views demonstrated in Legal Week's recent survey, which found an overwhelming majority predicting an increase in charge-out rates despite growing pressure from clients.
SABMiller's general counsel and company secretary, John Davidson, said: "If demand stays strong, the prices could continue to rise. However, if prices become too steep, clients could be forced to find cheaper alternatives. There could be discussions on changing the way rates are paid. Fixed fees, volume-ready closedowns or success fees could all be considered in more instances."
Financial Times general counsel Tim Bratton added: "The problem with charge-out fees comes down to the model. Just offering hourly rates may not be sustainable and the rates could become quite high."
