The legal field finished 2021 strongly. Despite the COVID-19 pandemic, law firms were able to persevere. Many adapted to working remotely, which allowed them to cut their overhead and increase profits. The lessons learned after a year of remote work will likely result in:
- More money being budgeted for better/newer technology
- More work arrangement flexibility
- Increased inter-firm collaboration
- Greater focus on attorney timekeeping
The Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute released its annual Report on the State of the Legal Market on January 11, 2022, which shows that even though there’s an increased demand for legal professionals, this demand alone could begin to threaten the positive growth.
The purpose of the annual report is to show the performance of law firms across the U.S. and breakdown what law firms need to focus on to move their firms forward.
The 2021 report shows a soaring demand for legal services. Demand for legal services is so high that you have to look back 14 years to 2007 to see any similar demand. This was after a disappointing end to 2020, which was caused, in large part, by corporate law practice and real estate law. Neither of these practice areas had yet recovered from the losses they saw in 2020.
That said, through 2021, both areas regained their losses and rose higher than their pre-pandemic earnings.
One area that hasn’t rebounded from the pandemic is litigation. To try and regain their levels, law firms have been raising billing rates over the last year. This, coupled with realization rates that have also risen, has left many law firms still seeing profits.
Although an increased demand for legal services allowed law firms to flourish in harsh conditions, it also created a new demand for attorneys. More demand for attorneys’ time has caused lawyers to change their work preferences and compensation rates.
Demand for lawyers and increases in compensation are great; however, the legal industry still faces challenges. Oftentimes, these challenges are intangible factors and can have the most significant impacts. Take, for example, adapting to hybrid working conditions and operational efficiency.
Another challenge that law firms face also stems from the increased demand for lawyers. In 2021, there was a rise in demand for lawyers, so the headcount rose. However, the headcount increase offset productivity growth. Through November 2021, productivity did improve over the 2020 numbers, but the improvement was only 0.3 percent over lawyer demand in 2019.
With the boom of legal talent, it’s expected that the legal field will experience a significant amount of turnover. The problem with a high turnover rate is it’s costly for law firms. This is mainly because law firms have to pay vast sums of money to entice talented attorneys to join their firms.
During the height of the COVID-19 pandemic, people still needed legal counsel amid the national shutdowns. This meant that law offices needed to find a way to provide their services. Many did this by adopting hybrid working procedures. Now that we are moving into normalcy, many businesses are finding that their customers/clients—and workers as well—like the flexibility of a hybrid/in-person mix.
Attorneys can be expensive. Find out what fee arrangements are available, how you can keep costs down, and what states limit the fees an attorney can charge.
