California firms bared more of the brunt of the economic slowdown in 2022, in a reversal of the outsized gains in revenue and profits witnessed in the prior year. And they continue to face headwinds in 2023, including a shift to lower-rate practices, excess capacity and tech layoffs.

Gross revenue increased 1.3% last year compared to 2021, below the national average of 3%. Total expenses rose 10.4%, leading to a 7.9% decline in net income and an 11.5% drop in profits per equity partner, according to Wells Fargo Legal Specialty Group’s year-end survey, which collected responses from 24 firms headquartered in California.

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