Latest news – American legal market insights; Guidance on crowdfunding risks; Salary rises likely in 2020

[Australasian Law Management Journal,Compliance & Risk Management,Finance & Accounting,General Management,Strategy & Leadership] January 18, 2020

US firms fare well, but headwinds looming

A new report, the 2020 State of the Legal Market, provides a timely snapshot of legal practice trends in the biggest market of all, the United States.

Produced by Thomson Reuters in conjunction with The Centre on Ethics and the Legal Profession at Georgetown University Law, it shows that most US law firms continued to perform reasonably well in the face of challenging market conditions. However, the results also highlight some worrying trends, including:

  • a continuing lacklustre performance in demand growth, which has been essentially flat to somewhat negative over the past decade;
  • continuing negative performance in productivity;
  • the increasing rate of growth for direct and indirect expenses, continuing a trend of the last three or four years;
  • singular reliance on rate increases to drive positive financial performance; and
  • limited resources to deal with any serious economic downturn in the future.

In terms of fees, clients have continued to push back on rate rises. However, the report notes that over the past seven years or so, client pushback does not appear to have become more aggressive. The collected rate realisation, as measured against worked (or agreed) rates, has remained remarkably stable.

Another positive is that technology transactions and licensing practices look to be a safe bet for firms seeking areas where they can still grow their rates at a time when clients are looking to reduce outside legal spending.

The report confirms that there is evidence of a highly disruptive emerging new model in the legal market that is radically transforming the delivery of legal services. While the traditional model of firms deciding how services are priced and delivered has been “remarkably resilient” and moderately successful in recent years, the research suggests clients have now taken “decisive control” of the market and are demanding improved efficiency, predictability and cost-effectiveness.

There has also been “widespread disaggregation of services as clients have increasingly opted to create virtual teams” comprising outside counsel, legal staffing firms, accountants and third-party project managers to handle particular projects. The rapid growth of alternative legal service providers (ALSPs), such as the Big Four consulting firms and other non-law firm service providers, is also becoming a major disruptor of the traditional law firm model.

Lawyers urged to alert clients to crowdfunding risks

Lawyers have been warned to be aware of the risks of crowdfunding and the professional and ethical issues they need to consider when navigating this complex issue with clients.

To assist the legal profession to deal with the emerging use of crowdfunding in litigation, the Law Council of Australia has released guidance for legal practitioners. Law Council President Arthur Moses SC said crowdfunding could be a useful tool to provide access to justice, but it was not without significant risks.

“Crowdfunding is not inherently unethical,” he said. “The crowdfunding of legal expenses has developed as a means to provide access to the courts and legal redress, particularly as the public funding of legal aid has been restricted by successive governments. However, like anything, the crowdfunding of legal expenses needs to be managed so that it is not misused. This involves striking a balance. Regulation that is too restrictive could have a dampening effect on access to justice.”

Moses said the Law Council had developed a Guidance Note for Australian Legal Practitioners that promoted an ethical approach to crowdfunding rather than limiting access. The note reminds practitioners to be mindful that their conduct in relation to crowdfunding does not discredit the profession. “Lawyers have ethical and professional obligations to which they must adhere when engaging in legal practice. These ethical obligations have formed the foundation for the Guidance Note. The Guidance Note does not dictate how clients should use their funds, it merely outlines relevant regulatory and ethical frameworks and how crowdfunding of legal expenses fits into those frameworks.”

In providing advice to clients, lawyers should tell clients about:

  • the applicable regulations specific to the crowdfunding model to be used (and any other applicable legislation or regulations);
  • the consequences of disclosing information about the case, including privilege/waiver of privilege, the law of confidential information, and the requirement not to disclose information provided by another party under compulsion; and
  • the risks and ramifications of making misrepresentations when seeking crowdfunding.

Practitioners should also address with clients how funds should be managed. This includes any surpluses and what happens if insufficient funds are raised, and the possibility and impact of adverse costs orders.

Beacon forecasts further salary hikes in 2020

A new Australian study predicts that lawyer salaries will continue to rise during 2020, particularly within litigation, banking, construction and corporate M&A.

According to Beacon Legal’s Private Practice Salary and Market Report 2020, lawyers experienced “record-level” salaries in 2019, and the consulting group expects 2020 to be a “great year” for solicitors seeking a new role and wanting to achieve further growth in their salary brackets. However, this means law firms will find it tougher to secure talent as there will be more opportunities – and higher signing bonuses – offered across the profession.

Beacon notes that the top-tier and large international firms recruited steadily last year, with most demand being in litigation, “which was by far the busiest practice area”. This was due to demand far outstripping candidate supply, particularly for those with regulatory experience. Demand for M&A lawyers was slower than in recent years, reflecting the reduced deal flow in the Australian market.

In 2020, lawyers moving between firms can expect lateral salary increases of between 10 per cent and 25 per cent depending on their level of seniority. Bonuses increased in 2019, both in dollar value and in the percentage of the firms which paid bonuses. Beacon said more lawyers were requesting bonus information from firms more regularly at offer stage, and firms were complying.