It’s Deja Vu All Over Again As COVID-19 Presents Law Firms With Same Financial Issues Faced During The Great Recession

With almost daily report of law firm layoffs and/or reductions in compensation, it looks like the COVIS-19 pandemic is going to have the same effect on the financial health of the legal industry as did the Great Recession in 2007-2009.  And if what happened in the Great Recession is any indicator, law firm clients will need to scrutinize more closely their legal bills.

One reason for closer scrutiny is because of what happened in the Great Recession with regards to staffing cuts. In the Great Recession, the support staff rather than attorneys bore the brunt of law firm cutbacks. This was because law firms were reluctant to let go of the attorney talent they worked so hard to attract and invested so much to develop. So the only other place to turn for savings in a labor intensive business is to support staff.

As I have blogged about before, cutting back support staff and increasing the ratio of attorneys to support staff will save law firms money. But, it also almost invariably means increased costs for law firm clients.

Keep in mind that just because staff support are laid off does not mean that their work goes out the door with them. It is highly likely that at least some of their work was being done for bill paying clients. And now that work must now be done by others. This means  either the remaining support staff (who may already have more than enough to do) will do that work or (more likely) the work will flow upwards to the attorneys to do.

If attorneys are forced to take on some tasks that departed staff previously did, this will invariably cause billing issues. And on top of that, my experience and observation has been that attorneys often do not do those tasks as efficiently. Thus, clients may get hit with a double whammy as attorneys may not only inappropriately bill at attorney rates for paralegal tasks, but they may also bill for more time to complete those tasks.

Then there is the issue of “drop in billers” also known as “transient billers” in bill review parlance. They are those billers (attorneys or paralegals) who mysteriously drop in and bill for a few hours during the course of a month or two and then mysteriously drop out, never to be heard from again.

At many law firms now, there may be an increased need to keep more idle hands busy (and paid for). Thus, pressure may be placed on those attorneys in the firm who still have bill paying clients to divide up tasks to provide work for idle attorneys to do. I know for a fact that this happened in the Great Recession.

I recall being at the CLM Annual Conference in Scottsdale during the Great Recession and talking with a group of insurance defense attorneys.  They shared stories about getting pressured by their firm management to find things for their idle business attorneys to do in the insurance defense attorneys’ files. One lawyer in the group groused, “it’s not like a transactional attorney is suddenly going to know how to depose an IME doctor.”

But even if drop in billers are experienced and otherwise well qualified to take on work in your matters, there is still a problem. Simply adding more staff to do what less staff could do invariably winds up adding more time to complete joint tasks and adds more cost.

And then there is the issue of attorneys, who now have more time on their hands, overworking their files or engaging in “make work” projects.  This is referred to as “task padding” and according to some experts, it is actually more prevalent than “bill padding” or billing for more time than was actually spent on tasks. See, Wm. Ross, Kicking the Unethical Billing Habit, 50 Rutgers L. Rev.   2199 (1998)(“Many lawyers prefer (task padding) . . .   because they believe it is harder to prove the uselessness of a task.”); Lisa Lerman, Lying to Clients, 138 U. Pa. L. Rev. 659 (“The most common [type of deception], by far, is make-work”.)

The bottom line for now and until things in the legal industry return to financial normalcy is for law firm clients to be especially watchful and scrutinize even more closely their legal bills. Clients should be alert to inappropriate staffing including any sudden increases in staffing as well as attorneys billing for paralegal tasks and also alert to any increase in tasks that are not events driven.

Finally, the COVID-19 pandemic has apparently created a boomlet of sorts for some law firms. A neighbor of mine is a partner in a small law firm. He told me that normally his firm gets about 1-2 new divorce cases a month. During March, they got in 18 new divorce cases!

Stay safe.

 

 

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