Since the financial crisis struck in 2007, in-house legal departments have focused on reducing costs, resulting in hiring freezes and layoffs. In 2010, the U.S. economy showed signs of stability, a return to growth and improved consumer confidence, but in-house hiring remained static. So a surge of confidence among legal recruiters and hiring experts, bolstered by a crop of promising legal hiring surveys, should come as a welcome change to both job-seeking lawyers and strapped legal departments.

While legal hiring survey results vary based on the pool of participants, they all point to gradual but real growth. Hildebrandt Baker Robbins’ 2010 Law Department Survey reports that 41 percent of law departments expect an increase in lawyers between 2010 and 2011, while only 8 percent expect a decrease. In contrast, between 2008 and 2009 one-third of participants reported a decrease.

Altman Weil’s 2010 Chief Legal Officer Survey reports 41 percent of respondents surveyed last fall plan to hire new in-house lawyers in the next year, while 32 percent plan to increase their paralegals.

In addition, a Robert Half Legal survey of legal professionals, released in December 2010, found that 31 percent of lawyers planned to hire full-time staff in the next few months, while just 1 percent planned staff cutbacks–a net hiring increase of 7 points compared to expectations for the fourth quarter of 2010.

The numbers seem to back up what many experts have sensed in the marketplace for some time now.

“For 2011, for the first time in a long time, I’m bullish on hiring, even beyond what a lot of the surveys are telling us,” says Mike Evers, founder of Evers Legal Search, based in Chicago. “I think we’ll see a bit of a pop in-house for the first time in a couple of years.”

Given the pyramidal hierarchy of most law departments, that could set off a slow chain reaction of job openings in a job market that has seen years of gridlock.

“Economic stability and growth tend to correlate with new opportunities,” says Martha Ann Sisson, a recruiter with Washington, D.C.-based Garrison & Sisson. “I don’t see that it’s going to trigger a hiring frenzy. Companies that have been doing the most hiring are the larger, more established companies. … But hiring starts, and there’s a domino effect.”

Signs of Health

Market activity, productivity, consumer spending and other economic indicators point to a corporate America that is recovering, if slowly. In the business press, stories about hot emerging companies in varied industries are beginning to outpace coverage of corporate bankruptcies.

“One predictor of healthy hiring going forward is looking at new companies coming online versus how many older companies are dying and going offline,” Evers says. “Looking back a couple of years ago, we saw a lot of the latter, and thankfully we appear to be through the worst of that.”

Law departments seem to be through the worst of it in terms of headcount, but understaffing is beginning to rear its head as a problem for in-house lawyers experiencing an uptick in workload. Companies are still cautious, typically only hiring for a replacement position or to support a business sector generating revenue growth. But legal staffing experts observe that many departments that downsized over the past few years are now at maximum capacity.

“Generally, people in-house are working longer and harder, and in many cases there are positions that have not been filled for overhead concerns, so people are making do with fewer resources,” Sisson says. “But I think as their companies get more confident in their own position in the economy, that will change.”

That has been the experience in the law department at Macy’s, which saw a decrease of five lawyer positions a few years ago during a downsizing. Since then, says Macy’s General Counsel Mitchell Borger, the department has been able to reinstate a few of those positions.

“We probably downsized too much,” Borger says. But he notes that by and large, increasing law department headcount can still be a tough sell. “You need to be able to justify it by showing cost-savings to the corporation,” he says. “If it’s in an area where it’s not easy to quantify savings, it’s often difficult to get senior management to buy in to increasing headcount, unless the business itself is increasing dramatically.”

Evers says he’s seen an increase in the number of departments hiring temps to fill in for lawyers taking extended absences, such as family or maternity leaves, which could indicate loosening budgets. It may not be a full-time staff attorney, but it’s a step forward. Evers also sees increased temp-hiring as a barometer for how stretched a legal department is. Law departments that are at capacity no longer have the resources to pick up the slack for even one absence.

“Often that’s jarring for general counsel to realize just how maxed out his or her resources are,” Evers says. “So many departments are so maxed out resource-wise that if someone leaves for a period of time it creates real stress for the whole team. That’s a very telling sign to me that hiring will be healthy going forward.”

Another good sign: The recruiters at Robert Half Legal have been busier since last summer, says Charles Volkert, executive director of the staffing firm, with more clients providing job orders on a full-time, temp or project basis.

“That’s continued to increase from the end of summer onward, so I’m cautiously optimistic about 2011,” Volkert says.

What Employers Want

With legal jobs in demand, the market is flooded with quality applicants. Both recruiters and general counsel report a large number of resum?s being submitted by high-caliber lawyers. That means companies can demand more of their hires.

“A trend I’ve seen is valuing a little bit more experience over less experience,” Sisson says. “The compensation point is roughly the same for someone with three to five years of experience as someone with 10 years of experience, so companies are recognizing the value of bringing someone on who is at the senior associate level as opposed to the junior associate level.”

Companies are also looking for lawyers with experience in certain practice areas. Unsurprisingly, 44 percent of respondents to Hildebrandt’s survey expect an increase in demand in regulatory work.

“As a result of the recent legislative and regulatory proposals generated by the Obama administration, the requirements governing corporate governance have risen dramatically,” says Vanessa Vidal, president of ESQ Recruiting. “Accordingly, in-house legal departments have been gearing up to respond to this era of heightened scrutiny, bolstering their internal capacity to handle these new demands and requirements.”

The Hildebrandt survey shows labor and employment, government relations and international just behind regulatory as specialties most in demand.

A reflection of the continuing effects of the recession, the Robert Half Legal survey respondents ranked bankruptcy/foreclosure as the area of law expected to experience the most growth, followed by litigation and health care.

Volkert says companies have been keeping more corporate compliance work and contract and lease review in-house, using project professionals to get through the often data-intensive work.

More specialized work is being brought in-house, as well.

“Large legal departments are starting to hire more specialized attorneys in areas such as tax, intellectual property, employee benefits, and labor and employment,” Vidal says. “Perhaps this will also help drive down demand from the law firm side as well. Of course, legal departments will continue to use outside counsel on bet-the-company matters, or highly specialized matters, but work handled in-house will continue to increase.”

Susan Hackett, general counsel of the Association of Corporate Counsel, has observed that one task more law departments seem to be bringing in-house is hiring, housing and supervising their own contract lawyers and paralegals, whereas in the past they would be more likely to ask their law firm to take on that role.

But while law departments are seeing greater efficiency and cost-savings, doing more in-house has put pressure on thinly spread attorneys.

“It’s a tough environment in-house right now,” says Stephen Seckler, found of Seckler Career Coaching, which advises lawyers. “Traditionally the perception is that in-house jobs provide a better lifestyle and less pressure, but as legal budgets have been trimmed, that’s changing.”

Insourcing Inroads

The good news is that corporate America’s recovery means handling work in-house won’t always mean lacking the necessary resources–in the coming years, it could lead to increased in-house hiring. When companies were highly profitable, sending work to outside counsel wasn’t necessarily a hard sell–it was expensive, but considered a safe way to operate. Insourcing really hit its stride during the financial crisis, as law departments were forced to rethink their operations.

“This is when the ‘more with less’ solutions arose in in-house legal departments across the country,” Vidal says. “When the smoke cleared, companies came to the realization that their legal departments could in fact do more with less. Ships were not sinking, and companies were able to continue operating in a safe and now more efficient manner.”

That’s a profound change in law department mentality that has touched even areas of law that would traditionally go to outside counsel. Macy’s, for example, now handles certain kinds of repeat litigation internally (see “Hands-on Litigation”).

“Litigation was one of the places people didn’t want to insource, and now it’s one area where I see a marked increase, even if it’s not the majority of departments,” Hackett says.

Vidal believes that based on the success companies are having with insourcing legal work, the strategy may be here to stay. In any event, companies aren’t flocking to outside counsel as much as in the past. Twenty-nine percent of respondents to Altman Weil’s Chief Legal Officer Survey reported last fall that they would decrease use of outside counsel in the next year. And companies that still rely on outside counsel are doing so much more carefully by doing some preparation in-house before sending out the work.

Karen Guest, CLO of newspaper publisher Lee Enterprises, says she still relies on outside counsel due to Lee’s small legal department, but she uses them “in a more controlled manner than in the past. Rather than sending an entire matter out, we may contact outside counsel with specific questions.”

In 2009, Husqvarna General Counsel Earl Bennett began making changes to his law department that included hiring two new lawyers and assessing what work could be performed in-house.

“If it’s a defined task that’s sufficiently repetitive and you can give sufficient work to an inside person, it’s still the most economic way to go about it,” he says. “There’s also a higher level of transparency in terms of how, what and why you’re doing something, and that has economic value.”

Repetitive work can be done more consistently across matters, Bennett notes. In addition, tasking lawyers with more direct functions leads to better control and responsiveness, and it’s easier to supervise their work than that of an outside law firm.

There’s also the knowledge factor–while law firms are responding to corporate demands for more efficiency and economic responsiveness, that still doesn’t address the enhanced client and industry know-how of an in-house attorney who is inside the company every day.

“It’s that X factor that you get with an in-house attorney–it’s the knowledge of the business, being able to be more pre-emptive in their advice, and structuring or preventing a transaction purely on the basis of their knowledge of how something might play out,” Sisson says. “In a law firm it can be hard to see all of that because you only get a snapshot. In-house you see the whole movie.”

It remains to be seen whether the trend continues as companies recover, but many recruiters see a shift in how companies think about staffing legal matters.

“If we get to where companies spend more money on in-house lawyers than outside counsel, it would be a very significant evolution,” Evers says. “As in-house lawyers get better at articulating their own value proposition, and as GCs continue to get better at speaking the language of finance and managing budgets, they’ll be successful in advocating for growing the in-house piece of the pie. That will have significant implications for the legal profession as a whole, and good implications for hiring of in-house counsel.”

While the in-house job market is heating up, there’s still a disparity between the number of job openings and the number of applicants. So while they’re optimistic, recruiters caution job-seeking lawyers to continue being patient.

“If you are gainfully employed, hold on to your job for now,” says Vanessa Vidal, president of ESQ Recruiting. “Keep an eye out for opportunities, and feel free to apply if you see something of interest, but do not become discouraged if you get turned away. The candidate pool is as wide as it is deep; the competition is unlike any we have ever seen. That said, this is a good time to update your resum? and to expand your skill set.”

For lawyers seeking in-house jobs despite the difficult environment, the usual advice still applies, says Charles Volkert, executive director of Robert Half Legal. He echoes Vidal’s advice to continue increasing and sharpening legal skills.

Networking remains key to getting a pulse on the job market. “The best way to stay current on what’s happening in the local marketplace is to be well in tune with colleagues out there, whether by attending legal- and community-related events or speaking at various conferences,” Volkert says. “It’s a great way to hear about opportunities you wouldn’t hear about otherwise.”

Volkert also suggests working with trusted recruiters as a way to hear about those opportunities, noting that often Robert Half Legal is the only one to hear about a certain client’s hiring needs.

“In-house positions are not as prevalent, so it’s important to be networked through a recruiter … [to ensure] the recruiter is talking to the right candidate and the candidate’s talking to the right recruiter,” he says.