Legal Market Trends 2023

The legal job market always moves rapidly but this year has been particularly chaotic with a range of factors that have pulled it in different directions. From the post-pandemic boom leading to a race for talent to the economic challenges driven by inflation and the cost of living crisis the year has been full of twists and turns and it will be interesting to see how the job market responds. Here are some of the key trends that we expect will play a key role in shaping 2023.

Economy

In the wake of the government’s financial statement last month, the economic conditions are likely to be one of the biggest influencers on the market. Through much of the last 18 months and in the wake of the pandemic, most firms have been in significant growth modes. We’ve seen increased headcounts, new office openings and firms acquiring businesses that complement their legal services such as planning consultancies and financial services arms. This rapid growth has seen a real battle for talent. Not just with hiring firms who have pushed their budgets to add lawyers at all levels but with firms fighting hard to retain staff and making counter-offers and promises of promotions to keep good people.

?I’ll come on to the topic of salaries in more detail shortly but all of this financial outlay on hiring and retaining has meant an increase in firms overheads. That’s been fine through most of 2022 and its important to stress that most firms we speak to are still in a relatively forward looking and optimistic mindset. However, its undeniable that we’re entering a cooler period where firms are going to be more aware of their bottom lines and where their revenue is coming from.

Thomson Reuters reported that last quarter saw a 0.7% drop in demand in legal services compared to last year. But, firms are very aware of the challenges of hiring good people so at the moment are more likely to keep hold of staff and wait and see how things evolve rather than making the sort of rapid cuts to headcounts that we saw back in the 08-09 recession.

?What I do think we will see in the short-to-medium term is that firms will be under pressure to control those expenses and in turn to protect equity payouts that will have been affected by inflation. So that will likely look like increased pressure and demands on billable hours and revenue and on client wins and client retention.

?It wouldn’t surprise me if we see smaller salary increases next year than this and a cooling in hiring junior lawyers. I expect we will also see an increase in clients expectations of their lawyers in terms of providing value for money. Clients already expect their lawyers to be subject matter experts and to have a thorough, deep understanding of their business. That’s evolved to become the norm. We’re seeing a continuing and growing trend for clients to expect more commercial and tech driven solutions to provide innovative and efficient solutions. This might put more demands on lawyers’ time and energy.

Salaries

To expand upon the point of salaries. 2022 has been a fairly significant year, especially in the key legal cities outside of London, such as Birmingham, Manchester and Bristol. For example, in Birmingham, in Spring, we saw a few of the largest firms suddenly jump their NQ salaries up by around 20-25% into the mid 60’s. This seemed to catch the market unaware and, I know from speaking to a few Business Managers in those big firms that even internally they hadn’t fully rationalised what budgets would need to look like to accommodate those NQ increases.

So the market has spent a lot of this year trying to re-balance with a lot of firms having to do 2 salary reviews over 2022. There have been a myriad of issues caused by this but the main ones are;

Firstly that salaries have seen a real concertina effect because obviously not every PQE level can get a 25% increase. So the gap has closed between PQE levels and that can make people at Associate or Senior Associate level feel potentially overlooked or under appreciated.

Secondly, that, in light of the economic conditions I’ve talked about, its likely that we’re not going to see similar jumps in salaries this coming year and that expectations will ramp up. I think we’ll also likely not see the same big salary offers and counteroffers being made to candidates but that will depend on how things evolve as we get into next year.

Mergers

One of the trends of the past couple of years has been a real cooling in the mergers market. From highs of 278 in 2011 to long-term lows of only 99 last year. Record demand for legal services has seen record profits and Partners wanting to enjoy those rewards. What we are starting to see and expect will continue to trend will be older partners and smaller firms being open to offers from consolidating law firms looking to scale up or increase their geographic footprint. There’s always a range of challenges in a dynamic merger market, more than we can cover today. But things like the integration of new firms, the restructuring of duplicated teams, redundancies in the selling firm preparing for sale; all need to be considered.?

Culture

I want to turn my focus now to culture and flexibility. For years pre-pandemic the world of work was moving pretty glacially to a more flexible way of working. But the pandemic forced businesses hands on a unilateral and global level to allow people to work from home and integrate their work and home life in a way that had never been done before.

We had this slamming together of worlds where business meetings would be done over Teams calls while trying to home school, networking was done online and the world slowed down so people could reconnect with hobbies, and the outside world. I lost track of the number of Linkedin posts I saw of lawyers on walks! ?

What was great about this is that people were allowed to truly be seen as both professionals and humans perhaps for the first time ever. With the pandemic easing, the genie is now out of the bottle and its been impossible for the world of work to revert to how things were before. Working from home has become a must have in candidate’s expectations but also, flexibility on how those hours are delivered.

What we’ve seen in the market is a difference firm to firm in what flexibility means. For some firms its written into policy, others have adopted a fully flexible diary. But we are starting to see a creeping back in expectations to the pre-pandemic world. Some of the London firms have increased their expected days in the office from 2 to 3 and inevitably with more face to face meetings with clients and networking happening then the pull back to the office is definitely there and stronger with some firms than with others. As we move into next year it will be interesting to see if firms continue to increase that expectation or if things settle at a new normal.

?Flexibility goes hand in hand with the idea of culture and values. The concept of culture really came to the fore in the market a number of years ago and probably started among firms who realised that they couldn’t necessarily compete with bigger firms on salary. There will always be a firm who can pay more but if you can bottle those intangibles of ethics, atmosphere, inclusivity, culture and values then suddenly you can attract candidates. And that proved to be the case, and candidates have responded by wanting to work for a firm with good values and where the culture is strong.

So it's now become a real thing and you only have to look at RollOnFridays Best Firms to Work At list to see the importance of good culture. Good culture doesn’t appear overnight and it can be destroyed incredibly quickly, especially if it isn’t authentic. Firms can’t pull the wool over peoples eyes by just saying they have a great culture it needs to be lived in, communicated from top to bottom and remain consistent and strong through good times and bad. Lawyers now have even more choice as to where, and therefore how, they work. Whether this be within private practice or making a move in-house or now looking at options within the Consultancy and fee-share model or looking at the Big 4 accountancies who are making some gains in market-share.

Conclusions

To summarise and try and pull all of these threads together. I think next year we’re going to see firms really having to juggle a range of conflicting challenge. Economic changes are going to impact client demands and expectations which in turn will impact revenue expectations and therefore the firm’s expectations of their staff. That may well lead to difficult decisions on staffing and salaries. And when difficult decisions are made, these can have a significant impact on a firm’s culture and their perceived values. There will be plenty of firms who manage to get this right – who communicate openly, share in any pain and continue to support and champion their people will be attractive employers. However there will undoubtably be firms who make mis-steps and who will risk struggling to hire or losing people to firms offering better alternatives either in private practice or in the ABS and in-house space.

?Our advice to the lawyers we’re working with is, in a challenging market, to always be on the front foot. That means being mindful of what your personal motivations are and taking time to reflect on where those are being best met. Are you prepared to overlook a bad culture for a good salary package? Or conversely, is work/life balance and good values of most importance. What pathways to progression are available to you and are they still open if firms need to slow their Partnership appointments?

?Finally, use a good recruiter to support you keep you knowledgeable and aware of the market changes. Yes it helps us if you decide to move jobs or hire but we’re here to advise and support however we can.

If you need any help or guidance in your career planning through 2023. Whether its with your current firm or a potential move elsewhere then please get in touch and I'd be delighted to support you.