For Junior Lawyers, the Gravy Train Is Slowing

For years, companies have complained about major law firms billing hundreds of dollars an hour for work by their youngest lawyers—essentially having clients pay novices to learn on the job. "This is one of the biggest problems today in the legal delivery system," says Jeffrey W. Carr, general counsel of FMC Technologies, an oil and gas equipment company in Houston. "Not only are they not providing value, we're also saddled with the cost of training them."

Finally, some law firms are starting to respond. Starting this fall, freshly minted law grads at Howrey, a firm that focuses on litigation and intellectual property work, will enter a two-year training program. During their first year, they will be permitted to bill clients for no more than 700 hours out of about 2,000 hours that they will log in total; the cap will rise to 1,000 billed hours in their second year. And when they do bill, it will be at about half of Howrey's current rates—or about $150 an hour for first years—says Richard A. Ripley, a partner who will oversee the program.

The new lawyers, known as associates, will spend the rest of their time shadowing senior Howrey attorneys, working on pro bono assignments, learning trial skills, and even serving externships with judges or in clients' law departments. "Over the past 10 years, there's been increased client resistance to staffing junior associates on cases, particularly when they see the salaries escalate and the billing rates increase year after year," says Ripley. Some clients, Ripley says, have told the firm: "You can't staff a first-year associate on my team." With the advent of its training program, Howrey, based in Washington but with 17 offices around the globe, is trimming starting pay for first years to $125,000 from $160,000.

Tipping PointThe move by many of the nation's top firms in 2007 to raise pay for first-year lawyers to $160,000 proved to be a tipping point. Salaries for all other associates were also raised, and higher billing rates quickly followed. That was too much for many companies. "Clients just went over the edge," says Susan Hackett, a senior vice-president at the Association of Corporate Counsel.

While previous howls of protests had failed to halt the steady upward march of legal fees, this time something else made fee cuts nonnegotiable: The economy fell off a cliff. Saddled with huge excess capacity, many law firms have offered substantial discounts even for the work they do have. In addition, they have rolled back compensation, laid off droves of lawyers, and furloughed others.

Howrey says its training program, which it calls "First Tier," was not a response to the financial crisis, and that plans to implement it were developed well before the economic swoon. Others familiar with the firm support this. Instead, First Tier is the next step in a series of moves Howrey has taken in recent years. Other changes have included farming out high-volume, lower-skill work to lower-paid contract attorneys, and, more recently, moving associates off of lockstep salary increases as they make the seven- or eight-year march to partnership.

Lasting ChangeCollectively, Howrey's initiatives represent a major departure from the way most big firms do business. Drinker Biddle & Reath, which has 12 offices in the U.S., announced in May that, instead of deferring start dates for new attorneys, as many firms have done because of the recession, it will put new grads in a six-month apprenticeship—at reduced pay and billing rates.

Hackett of the ACC applauds the new approach. For clients, she says, it's not about saving money, "it's about making sure that the money you do spend is for services that you value." Peter Zeughauser, a onetime general counsel who is now a law firm consultant, says Howrey is ahead of the curve. But he predicts that the recession will force other firms to similarly restructure the way they train, compensate, and charge for associates. "That's going to be the most significant permanent change coming out of this downturn," says Zeughauser, who has consulted for Howrey, though not on First Tier.