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The mass cull of 12 February has set the tone for what is tipped to be a turbulent year. Jeff Jeffrey reports

Even in the darkest days of the dotcom bust earlier this decade, or in the recession of the early 1990s, there was never a day like 12 February in the world of US law firms, a day swiftly dubbed Black Thursday.

In the space of a few hours, some 300 lawyers – the equivalent of a mid-sized firm – were handed pink slips around the country. And by the close of business on Friday the 13th, more than 1,100 lawyers and staff had either been fired or asked to consider buyouts.

Washington, no longer recession-proof, took a fair share of the pain – with 149 staff at Hogan & Hartson offered buyouts and dozens more lawyers and staff at Holland & Knight, Dechert, Bryan Cave, and DLA Piper let go. All told, nearly 250 lawyers and staff in Washington were affected.

“Everyone was very shocked,” says one of the laid-off Dechert associates in DC, where at least four lawyers were let go. “There was a prior layoff last year, but we were still caught off-guard.”

Unfortunately, more surprises may be on the way. The layoffs last week are “going to accelerate the decision by other law firms to lay people off”, says Jerry Kowalski, a New York-based legal consultant.

Law firm leaders are not going quite that far, but they are not offering much encouragement, either. “Every firm is just going to take it one month at a time,” says Maureen Dwyer, Pillsbury Winthrop Shaw Pittman’s DC managing partner. “Every firm is looking within its practice groups for places to trim.” Steptoe & Johnson chairman Roger Warin adds that layoffs have to be an option in this economy. “If that is what seems to be necessary in terms of right-sizing to the volume of our work, it has got to be a consideration,” Warin says.

Millions spent

For the law firms cutting staff, it was an expensive week. DLA Piper is offering three months’ salary and outplacement services, Francis Burch, chairman of DLA’s global board, told The National Law Journal. Holland & Knight is offering two months’ salary with outplacement to affected employees, sources familiar with the firm say and Dechert is reportedly offering two months’ salary without outplacement counselling.

Marcia Shannon, of Washington DC’s Shannon & Manch, which provides outplacement services, says a transition package can range from $3,000 (£2,100) for limited assistance to $9,000 (£6,300) for a full transition package (which includes long-term career counselling). At even the lower prices, a firm such as DLA would have paid $240,000 (£168,000) in counselling alone for its lawyers, and severance likely topped $2.5m (£1.7m), based on the firm’s publicly reported associate salary figures.

That said, firms are banking on big savings. Thomas Clay, a law firm consultant with Altman Weil, says that between salary and benefits, laying off a junior associate can save larger firms more than $200,000 (£140,000) over the course of a year. Clay says for staffers, the savings are less, but still considerable at more than $100,000 (£70,000) over a year.

Using Clay’s numbers as a guide, firms that cut lawyers and staff last week will save more than $100m (£69.8m) in salary and benefits collectively. At DLA Piper, which announced the largest cut in lawyers last week, the firm may have saved at least $25m (£17.4m) in staff and lawyer pay if Clay’s numbers hold.

Hogan kicked off the dark week by announcing its buyout plan on 9 February. The offers were extended to staff with at least five years of experience at the firm. Hogan’s Gorrell says those people who accept the buyout will be given four weeks’ pay plus an additional week for each year they worked at the firm. Gorrell adds there are some staffers with as much as 40 years of experience at the firm – meaning if the most senior staff take the buyout, they could receive 44 weeks’ pay.

In exchange for severance packages, many associates went through a now-familiar process for firms: they signed nondisclosure agreements that required them not to badmouth their former employers. “You sign something that says you are not going to sue them or ask for anything else,” says an associate who was laid off in Holland & Knight’s Washington office. “Sometimes jobs suck, but these are really talented and smart people,” the associate says.

Overstimulated?

So why so much pain in a single week? Several theories are making the rounds. One holds that the rocky reception by the markets and Congress to the Obama stimulus package convinced several firm leaders that the downturn was not ending any time soon. “Numerous firms held off on layoffs in December and January because they were avoiding letting people go around the holidays and wanted to see how the economy played out leading up to and after the inauguration,” says Dan Binstock, managing director of BCG Attorney Search’s Washington office. “[The economic stimulus package] may have just been that last straw that some firms really were looking for in order to feel fully justified.”

Another reason may be that balance sheets for 2009 are already looking grim. With 2008 profits per partner already down at several firms, the need to placate partners – especially those with significant books of business – may be growing. “If you are looking through the short-term lens, some firms are doing this to increase their profits per partner,” says Altman Weil’s Clay. “It can prevent losing partners and help attract laterals.”

One bloody week – firms announcing cutbacks

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