The article highlighted how large firms have been substantially increasing starting salaries to attract top law school graduates. In fact, salaries across the country rose during the past year due to keen competition for new legal talent. This is great news if you’re a recently-minted associate with top grades. The news is less rosy, however, for many junior associates or partners at these firms, and attorneys looking to break into the legal market without Law Review credentials. What often happens when salaries escalate is that the rate of expenses exceeds the increase in revenues. To reduce expenses many law firms and companies have turned to the strategy of hiring contract attorneys for specific periods of time to staff labor-intensive projects and then evaluate some of those attorneys for full-time positions.
Current Staffing Model Hurts Law Firm Profits
Traditionally, a large law firm will hire a group of associates at $85,000 – $90,000 a year based largely on law school grades. The associates work on the less sophisticated projects, such as document review projects and their time is billed to clients at $125 to $150 an hour. The unsophisticated, labor intensive work generates large legal bills that can upset clients because they do not perceive its value. In addition, when more sophisticated work is performed by a young associate, it often requires substantial reworking by a more senior attorney.
Over-hiring new associates at high salaries results in substantial losses for law firms because they are unable to generate enough paid billable hours to justify these salaries. In fact, attorneys at large Pittsburgh firms have confirmed that their firms lose money on entry-level associates. Several partners at Pittsburgh firms independently estimated that their firms lose in excess of $100,000 in an attorney’s first year for time write-offs, training, and redoing work. Who pays for these losses? First, partners bear the losses in the form of lower profits. Second, experienced and profitable mid-level associates bear the brunt of the losses in the form of negligible raises that leaves their salaries close to that of the entry level attorney. Third, clients incur losses if this work is billed to them at rates exceeding the value of the work performed.
Large firms often do not realize a profit on a new attorney until that attorney’s fourth year of practice. By that time, the fourth-year lawyer may be disenchanted because he/she is doing the significant work and being paid a salary not so different from a new associate. That same attorney may also be open to offers from other firms looking for a profitable attorney and either be recruited away from the firm that has borne the costs of training, or the law firm will be forced to counter the recruiting firm’s offer. If the lawyer leaves in response to an offer, the first firm incurs a tremendous loss and such a defection can cause other mid-level associates to become disillusioned with their salaries putting the law firm in an untenable position.
Illustration of Different Staffing Options
An alternative hiring strategy is: (i) to locate contract attorneys with good academic backgrounds for the less sophisticated work; (ii) hire them at hourly rates that equal a $45,000 – $50,000 salary per year (hourly rate $30 – $50 per hour); (iii) bill the attorney’s work to clients profitably at hourly rates of $50 – $100 or higher. Firms save money on salaries but costs are further contained if the contract attorney is hired through an agency because such an agency will pay the wage-related taxes and benefits and the majority of the recruiting costs.
A number of other benefits accrue to both law firms and individual attorneys. In the traditional setting, a firm must pay associate salaries whether it is boom or bust. With the use of contract attorneys, the firm can staff up for a big project and then release these temporary hires when the project is finished. Also, for less sophisticated work, it makes perfect sense for “quality” reasons to hire a contract attorney rather than a new associate. Contract attorneys hired for a specific project understand what they are there to do from the outset. This is in contrast to many new associates who harbor visions of being the firm’s next “big litigator” or “deal maker” and are disappointed to find themselves doing less glamorous and often mundane document review work. New associates who resent doing low-level work may not do the best job. But when you hire a temporary attorney to do document review work, you’ve hired a document review attorney — they know it and you know it; there are no illusions. In addition, if that temp is experienced, he or she will require far less training than a new associate.
The lower salary of a contract hire has another benefit: it gives the law firm the ability to hire, on a contract basis, an attorney they think may have long-term potential, but who does not meet the firm’s law school academic standards. The employer is thus given the opportunity to evaluate the contract attorney’s work product, work ethic, and ability to work with other members of the firm — factors not knowable from a law school transcript or a resume — before making a final decision.
Lastly, and especially for those interested in full-time work, the contract period provides great incentive to perform extremely well. Babst Calland Clements & Zomnir, P.C. has successfully used contract attorneys as a hiring tool. Says Ted Wesolowski, a member of the firm’s Operating Committee: “We have had very good success with the use of contract attorneys, and have actually hired some of these persons on a full-time basis. The contract attorney assignment system allows us to preview the quality of a person’s work, and to determine whether he or she is a good Œfit’ within our organization.”
Corporate clients that have hired contract attorneys for document review work have also been very pleased with the financial results. Michael D. McDowell is an in-house attorney with Allegheny Energy, Inc., and has litigation management responsibility for large, complex litigation. He estimates that his company has saved over half million dollars in legal fees in the past several years by utilizing contract attorneys to review documents in several large cases. McDowell says, “Given my experience with the availability and competence of the contract attorneys we have utilized in the past, contract attorneys would be my preference for basic document review in large document-intensive cases. Not only does this practice save money, since the contract attorneys’ fees are not as high as most law firm associates’ billing rates, but you get much more value from the lawyers in the law firm when they are free to focus their attention on the strategic components of the case.”
This new staffing paradigm is not appropriate only for large firms; but also for the small to mid-size firm. The small to mid-size firm will not have to detract from billable work to recruit, interview, or train a new attorney. They also benefit from hiring a temporary attorney, with experience and references, to handle a sudden surge in business, and when the business is gone, the firm does not have to worry about “letting go” a wonderful attorney – it hired a temporary attorney.
If this model strikes readers as New Millenium Science Fiction, they are wrong. Training young professionals at reasonable salaries on a temporary basis, has been used for years in the engineering field as a means of controlling costs and improving quality. National legal statistics also support the model, showing that, in 1998, 11 of the 250 largest law firms in the country had hired at least 5% of their lawyers on a contract basis.
Staffing Impact On Attorneys
Contract staffing makes sense for new attorneys as well. Rather than having a career largely determined by your first-year law school grades, contract work enables attorneys to build a track record and train themselves in more than one area of the law and at different organizations. Their careers can be determined by “on-the-job performance” instead of classroom performance. Working as a temporary attorney allows young associates to build skills and develop resumes with large-firm experiences while they search for permanent employment. It also gives attorneys the opportunity to work while they are between jobs. People can choose their assignments, and work as little as they want allowing attorneys a flexible lifestyle. They can act, paint, write, or raise a family instead of billing over 2,000 hours each year.
Use of contract attorneys will also benefit mid-level associates. Rather than using firm resources on hiring money-losing associates, the firm can focus on giving profitable attorneys raises.
Interim legal staffing is a proven and valuable strategy. It allows law firms to hire an attorney for a specific project at a lower salary and without benefits or taxes. This in turn lets the firm focus its resources on high potential “rookies” while staffing up on an interim basis for big projects and paying experienced, loyal attorneys the wages they merit and reducing costs to clients. Finally, it permits both the firm and the contract attorney to see each other on-the-job, allowing potential decisions about permanent employment likely to be more realistic.