Our friends at Clio recently released an update to their ongoing analysis of COVID-19’s impact on the legal industry. The report offers real time updates and insights on how lawyers in various practice areas and different regions of the country are being affected. The data continues to be updated in real time and you should definitely check it out – link here.
What lessons can we draw at this point in time in terms of how lawyers are getting work done? Here are three of my takeaways.
#1 – Lawyers are Opening New Cases
Nearly every lawyer I’ve talked to will tell you the same thing: March and April were rough on business no matter what practice area or where you live. The good news is that Clio found an uptick in new cases – which they call matters – in May and June. Early July saw a slowdown but it’s too soon to know if that was due to the usual seasonal downturn around July 4 or if the slowdown this year is caused by a spike in coronavirus cases nationwide.
I’m glad to see the numbers going up for opening new cases. However, the year over year data on “monthly billings” is a whole other story. The average firm billed 23% less in May 2020 than May 2019. In June, firms billed 13% less than in 2019.
Adding to the stress of lower monthly billings year-over-year is the fact that many clients, understandably, are not able to pay their legal fees. Clio reports that in May about 25% of firms reported forfeiting revenue because clients couldn’t pay. That number increased to 28% in June. This is a trend line I certainly hope doesn’t continue to grow.
The current economic environment means that as consumers inevitably have legal problems they are going to want predictable, affordable ways to get the legal help they need. I anticipate this will result in many consumers asking attorneys to agree to do work on flat fees or other alternative fee. Will this result in the end of the dreaded billable hour? Time will tell.
#2 –Layoffs in Legal
Knowing that the volume of new cases is still down, monthly billings are also down, and many clients indicate they are unable to pay it is no surprise to see that many law firms have had to deal with layoffs. Thus far, about a quarter of firms have had to lay off staff. About the same number already say they expect to have to implement more layoffs in the future.
For the firms lucky enough to get PPP loans the funds have certainly have been helpful. However, PPP loans are only going to get firms so far. More law firm cuts could still be coming later in the year and/or early 2021 depending on the course of the pandemic.
All too many lawyers are handcuffed by fixed overhead – long term leases and equipment. Not to mention their own law school loans. Laying off staff is unfortunately a quick way to shed payroll expenses to free up cash to cover the overhead they can’t get rid of.
All of this data can’t help but make me wonder how many lawyers aren’t paying themselves right now to keep paying their staff. It’s somewhat common for me to hear from lawyers who can’t afford to pay themselves (or pay themselves much) during so-called “normal” times let alone a pandemic.
#3 – There’s Still Work to Be Done
Despite layoffs, there is still a lot of legal work that needs to get done. Especially as the courts have figured things out and found ways to keep their caseloads moving. Plus, the Clio data found that consumers are no longer as likely to delay work on legal problems.
While many lawyers are reporting layoffs, there are some firms are in the fortunate position to need to hire new or previously furloughed staff.
For firms who still have a steady – or growing – book of business the good news is that there are a vast variety of options for them to get the help they need. Yes, they can make a traditional full-time in-office hire. But its understandable that many lawyers could be hesitant to commit to adding to their overhead with a full-time hire in this economic environment. Outsourcing to freelance lawyers aka virtual associates can be a more flexible, affordable way for modern lawyers to get the help they need – when they need it.
If you enjoy digging into data and figuring out the best options to run your own law practice, I hope you’ll join me and Dan Lear for an upcoming Facebook Live session on Thursday, July 28 at approximately 2:15 pm Pacific time. Once the session is recorded we’ll come back and add a link here.
