“If this goes on for just two or three months, we should be OK.”
That’s the mantra being chanted at big law firms in France about the government-ordered lockdown to stop the spread of COVID-19.
The next sentence is less sanguine: “If it goes on longer than that, we’ll have to regroup.”
As the coronavirus restrictions that started on March 17 enter their fourth week with no fixed end in sight, the French economy is operating at just 65% capacity, according to Economy Ministry estimates. Economists estimate that every month of lockdown cuts 2% to 3% off the gross national product.
So far, big French law firms have yet to announce some of the more dire measures adopted by their U.S. and U.K. counterparts, such as associate layoffs or partner distribution cuts.
Managing partners at larger French firms say they have figured in a very slow April, and they are prepared to take May off the calendar as well.
“Nobody is expecting this to be a great year, but we are not pushing the panic button,” the co-managing partner of a Big Law firm’s Paris office told Law.com International.
One reason for the big firms’ relative confidence lies in their size. Lawyers and recruiters say that in this downturn, as in previous ones, the best positioned to ride it out are the bigger French firms and the French offices of international firms, which have the cash flow and diversified practices to carry the firm through a few bad months without cutting into the bone.
Boutique firms with practice areas in high demand during a downturn, such as restructuring, labor and tax, are also on drier ground, while litigation and M&A boutiques may struggle sooner and longer, and small firms and solo practitioners are already struggling, lawyers and recruiters said.
“At a time like this, small is not beautiful,” said Julie-Isabelle Binon, manager of TeamRH, a legal recruiter based in Paris.
Another reason for big-firm optimism is that the French government has opened the floodgates for businesses, promising upward of €350 billion ($377 billion) in aid ranging from paid furloughs to zero-interest bridge loans to delays in paying taxes, social charges and office costs.
The idea is to keep companies afloat and workers employed, even if at a slower pace, the better to restart the economy quickly once the restrictions are lifted, a strategy that worked in Germany after the 2008 financial crisis. Several other European countries, including Austria, Denmark and the U.K., have enacted similar bailout packages.
What’s good for law firm clients is also good for law firms. As companies incorporated under French law, law firms can tap into a range of government-provided crisis benefits—“free money,” as one law partner put it—to offset fixed costs and keep things afloat.
French firms can also reduce salary costs by putting administrative staff on furloughs, or what the French call “partial unemployment,” and have the government pick up 80% of their gross salary and benefits.
Many bigger law firms say they are not furloughing their nonlegal staff yet, in part, because people are needed to direct phone calls, help with research, and staff bare-bones reception desks while the office remains open.
“If you furlough someone, they aren’t working,” one managing partner said. “We have plenty for them to do.”
Likewise, paid trainee programs for law-school graduates, the equivalent of summer associate programs in the U.S., though much more modestly paid, are going ahead as planned, firms say. A new crop of these “stagiaires” is expected in July to replace the group that started in January and has been working remotely since March.
The Ordre des Avocats, which oversees standards and discipline for French lawyers, has issued guidance that law firms should continue to take stagiaires—“our future colleagues”—unless it is impossible to do so.
Partners who received semiannual profit distributions in January, based on last year’s results, are not expecting big payouts in July. Many are dipping into their own pockets to keep staff and trainee salaries whole.
“We figure that the partners can take a small hit better than staff and stagiaires can take a 20% pay cut,” said the co-managing partner of a Big Law office in Paris.
Where the legal math gets trickier is with associates, who do not benefit from the same protections as salaried staff.
While some French law firms, notably Fidal, hire associates as employees, the vast majority of associates at firms in France have the status of “profession libérale,” similar to independent contractor. They share costs with the firms but do not draw a salary or benefits. Their compensation is based largely on the business they bring in, and they pay their own health care and other social charges.
The system works reasonably well in good times, especially for lawyers with an entrepreneurial bent. But economic downturns leave these lawyers exposed, recruiters said.
Because independent contractors are not employees, they do not qualify for furlough pay. And those who have not incorporated separately as a small business, or “microenterprise,” do not qualify for government benefits aimed at helping small businesses survive.
The National Bar Council, or CNB, which represents 70,000 French lawyers, has lobbied aggressively to increase crisis benefits for independent contractor members, with some success, though not nearly enough, argues Christiane Féral-Schuhl, president of the group.
“In its laudable efforts to help large sectors of the French economy, the government has left lawyers and other profession libérale members on the side of the road,” she said in an interview.
Law firm partners told Law.com International that letting associates go would be a last resort, and that firms had an arsenal of strategies they could use, including redeployment of work among teams.
Bigger firms also have marketing budgets and staff that can be deployed to ramp up efforts to generate new work, recruiters said.
“I see emails every day from big firms, French and international, promoting their teams that can help with coronavirus advice,” Binon said. “I’m getting nothing from the smaller players.”
Nobody expects the government’s bailout measures to last indefinitely at their current level, and how long the economy remains locked down is, ultimately, up to the virus.
But while the endgame is impossible to predict with certainty, there are some milestones to watch for.
“July is the crucial month,” Olivier Chaduteau, managing director of Day One, a consulting firm in Paris, told Law.com International.
“If business can reopen by, say, mid-June, firms will have time to secure enough work in July to carry them through the summer, since nothing gets signed in August,” he said.
“But if everything is still shut down in July, clients are going to say, ‘See you in September.’ And that’s going to be a problem.”