A recent Bloomberg Law by Roy Strom, “Big Law Attorney Billing Rate at 15-Year Low, Wells Fargo Says,” reports that big law firms face pressure to downsize as attorneys bill hours at a historically low rate, a Wells Fargo & Co. survey of 66 of the largest US law firms shows.  The first quarter data shows attorneys billed at an annual pace of less than 1,600 hours, the lowest figure in at least 15 years, said Owen Burman, managing director of the Wells Fargo legal specialty group.

Firms including Cooley, Gunderson Dettmer and Goodwin Procter have already laid off lawyers this year, and “I would not be surprised to see more announcements of that sort,” Burman said.  Corporate transactions have dried up in the wake of frenzied hiring during the pandemic, causing demand for lawyers’ time to drop.  Demand fell 1.5% from the year-ago period while the number of lawyers rose nearly 5%, according to the survey.

The drop in productivity squeezes firms’ bottom lines.  Profits per partner fell 4% last year, Wells Fargo reported earlier.  While law firms remain highly-profitable businesses that can choose to invest in a recovery by keeping lawyers employed, less than 1,600 annual billable hours is “not something firms have historically accommodated,” Burman said.

The big associate classes scheduled to join firms, along with attrition that has been below expectations, will add pressure for firms to shed headcount, he said.  The 66 of the 100 largest US law firms that responded to the Wells Fargo survey saw revenue increase 4.7% from the first quarter last year.  That is largely thanks to rate increases and healthy collections from work done in 2022.

Firms will shed lawyers while at the same time adding talent in key areas, said Kent Zimmermann, a partner at law firm consultancy Zeughauser Group.  “Targeted right-sizing will continue to pick up with a focus on lawyers who underperform expectations for years,” Zimmermann said.  “Simultaneously, firms will continue to invest in teams of lawyers who are highly productive in doing the work and bringing it in at rates that drive increased profitability.”