Low cost lawyers might seem like a good idea, but they probably are not. If you’re looking for guidance on hiring a good lawyer, read this post.
And if you want to know about the problems of hiring a low-cost lawyer, read below.
The Harsh Economics of Law Firms
In today’s Wall St. Journal comes a story about large law firms cutting costs by hiring temp lawyers. These folks mostly review documents on computers, which is good for the firm because the computers keep track of the attorney’s efficiency.
In other words, this is the legal profession’s equivalent of a fast food worker.
The article says that this kind of temporary staffing is expected to increase by 25% over the next two years or so. And the typical lawyer temp makes between $40,000 and $50,000 annually, which is a lot less than “regular lawyers” make at the big firms.
The typical first-year associate bills (according to the article) at between $325 to $550 an hour in big firms. That means that, if they bill 1,800 hours per year, then they generate between $630,000 to $990,000 in revenue for that firm. The contract lawyers, on the other hand, only generate about $90,000 per year. Obviously, the law firm would rather pay their regular associates to bill for the work done by temp lawyers. But, just as obviously, their clients would rather pay the temp lawyer rates.
How this lower rate structure will affect associates?
My regular rate is $250 an hour, and I’ve been practicing law for over 20 years. I realize that the Wall St. Journal article is looking at New York law firm rates, but even in New Orleans, my rates are much lower than attorneys with my experience who work in big firms.
Business clients are going to keep looking for ways to pay lawyers less money, and they are going to keep pressuring them—especially now that there is such a glut of available legal talent.
Big firms can only cut costs so much because much of their costs are tied to long-term leases in prestigious buildings (and other expensive fixed costs).
It will be interesting to see how this tension between big firms and their clients plays out over the next two to five years.