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by Vault Law Editors | March 30, 2009


by Anu Rao

Ancient history, innocent times: When Cadwalader laid off 35 associates in January 2008, the firm effectively pinned itself with the BigLaw equivalent of a scarlet letter. Associates sanctimoniously rampaged in the blogs: Cadwalader, we shun thee! Suffer thy sins come recruiting season!

A scant year later, we can but barely recall the shock of the Cadwalader culling, and the idea of associates wielding that kind of clout is clearly incongruous with the current hiring market. The succulent scandal of 2008 is the bitter reality of 2009, as firm after firm recalibrates its employee ranks. And after that Heartbreaking Thursday of Staggering Layoffs, where some 1,100 law associates lost jobs in a single day, the legal industry’s shock barometer is set disturbingly high.

Of fascination now is not the actuality of layoffs, but the gradations of skill and empathy with which they are conducted (sadly, we now have a large enough sampling to make such comparisons). After years of investment in their human capital — logoed beach towels, Willie Nelson at the Christmas party, fresh-baked cookies in every kitchen (and all those pretty web pages touting firm culture, smiling associates playing tug-o-war at the firm retreat!) — law firms are proving how much or little they meant those sweet nothings. How firms are comporting themselves in these unpleasant times reframes the old question: Is integrity just another luxury of a bull economy?

Grace under pressure

In November 2008, when layoffs were still a rarity, McKee Nelson set the industry a high standard of deportment. As one of the first firms to admit to cuts, McKee largely sidestepped PR fallout thanks to the decency of its conduct. A generous send-off (four months of severance and COBRA premiums) was certainly key, but in an industry where layoffs carried (note past tense) stigma, equally noteworthy was the firm’s emphasis on ensuring that departing employees left with unblemished records. The layoff announcement was unambiguous: “The affected lawyers and staff are talented professionals who have been valued members of our firm. All are in good standing and none of these layoffs are performance-based. We will miss our colleagues and are doing what we can to assist them.” Rather than a drubbing in the legal press, McKee Nelson received praise for its considered handling of painful matters. Lesson learned? Savvy firms include respect in that severance package. Respect, after all, costs nothing.

Money, I’m home!

Grace, dignity, decency. All well and nice, but it’s still about the Benjamins. In February 2009, Latham & Watkins became the first Vault Top 10 firm to conduct major layoffs, letting go over 440 employees. The shock of the Latham dismissals was topped by news of a more positive stamp — an unprecedented severance package. The firm set itself apart by tendering the most generous compensation to date, nearly double the standard amount: six months’ salary (up to $100,000), sweetened by six months of continued medical coverage. The firm is also dangling a $75K carrot before the incoming crew, encouraging them to defer their start date until October 2010 in order to work for public interest organizations. Associates' severance will cost the firm $15 million to $19 million, roughly 1 percent of 2008 revenue.Safe-guarding the prestige that Latham has spent decades accruing (and, as Above the Law coyly noted, the fact that it was also Vault’s Top 100 survey season) certainly factors in the firm’s munificence. Some speculate that Latham is also buying its way out of broken promises: just last March, Managing Partner Bob Dell emphatically assured his tribe, “There will be no layoffs.” But considering the end result, such skepticism seems measly. Perhaps Latham, after careful examination of its profit levels for the last years, just wants to do well by its own. Or, at least, show up its BigLaw neighbors.

Denial ain’t just a river in Egypt

In 2009, it seems rather pointless to couch layoffs in any way other than, well, the obvious: a drop in business. (Indeed, even if managers were mulling layoffs just to boost partner profits, a global economic crisis would seem a most convenient time and excuse to do so.) Predictably, associate-heavy firms such as Cadwalader, White & Case and Orrick all cited the dismal economy as their lay-off justification. Surprising then — or absolutely unsurprising, depending where one falls on the cynicism scale — are those firms that still resort to “face-saving” corporate spin.

The lengths that firms will go to avoid any taint of unprofitability or diminished workload is consistently striking. Explaining firings under guise of “performance issues” is a favored strategy. In April 2008, Paul Hastings experimented with this tactic, quietly sacking associates in its San Francisco office. The ensuing flare-up made national headlines: A fired senior associate volleyed with a mass email to colleagues, encouraging them to question the firm’s assertions, and underscoring the firm’s falling profits and her own strong performance reviews. In March 2009, Paul Hastings once again laid off a number of employees, including 44 associates —this time stressing that the layoffs were due to the “worldwide economic downturn.”

Considering the PR hornets’ nest that Paul Hastings kicked over, one would expect other firms to take heed (“Note to self: scapegoating employees bad idea”). Guess not. In November 2008, Mayer Brown released a number of lawyers, also citing its “standard performance review process”. Howrey let go 10 attorneys in December 2008, also insisting that the terminations were “based on performance issues” and that reports of layoffs had “mischaracterized” their actions. Davis Polk has also reportedly conducted stealth layoffs since December: The firm maintains that “any associates leaving the firm are doing so for a variety of reasons: including to pursue other opportunities, or as a result of our regular review process.” And St. Louis firm Husch Blackwell resolutely refuses to use the term "layoffs", claiming the term wrongly implies that business is bad. As Chairman Dave Fenley insists, dismissals would have occurred "regardless of the economy," but the economy “reminded” the firm that they needed to cull the herd. Such disingenuousness was roundly mocked by ATL: “Is he saying that [Husch Blackwell] regularly carries around so much dead weight that he occasionally forgets that it is even there, and it took a global financial meltdown for him to actually pay attention to what was going on at his firm?”

Department of Redundancy department

Breaking up is hard to do — and for firms based overseas, even harder. In sharp contrast to the chilly American style (where you might, say, roll in on a Tuesday to find IT dismantling your computer), EU labor protections mandate a more “inclusive” redundancy process, not unlike relationship counseling. Within the UK legal industry, the process is proscribed. This usually equates to the firm announcing the length of the consultation period; stating how many redundancies are planned; and drawing up a list of criteria upon which staff are to be judged (not necessarily based on number of billable hours recorded, but also taking into consideration business development skills or unique knowledge). Among the topics such consultations are intended to address are ways of avoiding layoffs and reducing the number of positions cut. Of course, the existence of such processes can not ensure that bad faith negotiating will not take place (if “wiggle room” exists, lawyers will certainly find it), or that bad feelings will not arise. Exhibit A: DLA Piper. In comparison to Magic Circle rivals Linklaters and Clifford Chance, which ended their redundancy consultation processes by offering departing staff well above the state-mandated recompense, DLA Piper cheaped out, extending to its employees only the statutory minimum. In light of the firm’s 2008 revenue postings, the low-balling outraged employees. No surprise then that minutes of confidential consultation meetings were leaked to an eager media.

DLA’s London managing partner: “... it's apparent there has been some leaking to the press, copies of documents have fallen into the hands of the press which is disappointing, and unhelpful, so do you have any ideas how we can keep the information confidential?”

Employee Rep: “Maybe if you didn't present such an unreasonable compensation package....”

Divorce, American-style

In the US, while such consultations are not required, the Worker Adjustment and Retraining Notification (WARN) Act does require employers of a certain size to provide employees with advance notice of impending cuts — in certain circumstances. Among loopholes in the federal law is one for “unforeseen business circumstances” (say, sudden global recession), where an employer might not be tied to the same strictures. Among firms testing out the “unforeseen circumstances” proviso are Heller Ehrman and Thelen. (Both firms dissolved in 2008.) After failing to pay their former employees accrued vacation pay or provide 60 days’ notice prior to severance, as required under the WARN Act, the firms are now facing class-action suits filed by laid-off staffers.

The spate of lawsuits is a reminder to firms to proceed with integrity when they part ways with attorneys and legal staffers. Attorneys are more cognizant of their rights than the average laid-off Joe, and with their employment prospects already narrowed, they are showing an increasing willingness to stand up for these rights and haul their former firms to court. Lawyers, we shall assume, never go to bed angry. They’ll stay up and argue til dawn.


Filed Under: Law