The legal profession’s headline story continues to be corporate resistance to traditional law firm billing rates and the movement away from hourly billing. Beyond the headline comes details of strained client-firm relationships, layoffs at law firms and a full-blown crisis for law school students who graduate into a market completely disinterested in entry-level hiring.

Under the press radar, disruption within BigLaw ranks is creating a talent shortage for in-house legal departments. I see you scratching your head, as you correctly observe so many experienced attorneys looking for quality employment. And if you are an in-house attorney who is looking for a job, spoiler alert: You will want to smash your computer before you get to the end of this column.

Two facts are colliding. First, law department hiring, as I predicted here in January, and as featured in a broader InsideCounsel story in March is, indeed, on the rise. And when 2011 surveys come out in 2012, I think the percentage increase will turn out to be much higher than anyone expected. Related to this first point, the desired target hire is primarily at what law departments deem entry level; specifically, attorneys with three to five years of experience. These are the “counsel” level positions that tend to pay at base rates of $100,000 to $150,000 per year depending a bit upon location and industry.

Secondly, the supply of desirable candidates at this level is very limited. Companies have stopped subsidizing the training of junior BigLaw associates. Law firms have no economic need or moral obligation to hire entry- or junior-level attorneys in vast numbers. Law schools are not yet willing to step into the breach and subsidize apprenticeships, which would be very costly. So, corporate associates with “BigLaw” pedigree are in short supply.

To be clear, there is no shortage of individuals who are three- to five-years removed from law school. Unfortunately, a large percentage of these attorneys have developed resumes with a heavy dose of temporary document review work or non-legal jobs. Folks fitting this description can now smash their computers as they read the next sentence. Law departments don’t want to interview anyone with that background.

Law departments are selectively hiring many of the corporate associates who were downsized by BigLaw within the past three years if they had at least a few years of experience before the layoffs hit. That has actually become a pretty good story of quality attorneys getting back on track. Two large categories of those BigLaw Associates are still out in the cold, however: litigators and anyone without the personal characteristics needed to win in an in-house interview process. So, the supply of desirable ex-BigLaw talent is just about exhausted.

Foreseeing this disconnect on low-six-figure in-house positions, I optimistically suggested in previous columns that unemployed senior attorneys would fill the holes. Plenty of experienced in-house attorneys with tremendous resumes would gladly take these counsel-level positions. I was naïve. Companies seem more afraid of hiring overqualified candidates than I can ever remember. This is especially true among companies that are coming out of long periods with hiring freezes or lack of headcount growth. General counsel of these departments have plenty of senior attorneys on board, and they want to fill the junior steps of their ladders. That does make sense when general counsel are looking at long-term career path and promotion issues within a pyramid structure.

An unexpected winner in this situation: legal search firms. Many of us navigated the dark days of the recession, but others shrunk or disappeared. When the supply of desirable candidates is small, we get called. To be clear, the waters remain very choppy for recruiters. Human resources departments often trump law departments and demand a self-sourcing posting strategy, especially for junior-level hires. So, recruiters are now getting many orders after and, only, if a company is unsuccessful on its own first. That’s not a great situation for law departments or recruiters, and I’ll write more about that next month.