Tough economic times

When times are good, people need lawyers.
When times are bad, people need lawyers.

By Lesley Pritchard, staff writer

These are unsteady economic times. Real estate deals continue to collapse, pension funds teeter into trouble, and layoffs and bankruptcies fill the headlines.

The impact on law firms internationally has been dramatic. Those in the United Kingdom are still handing out a torrent of pink slips, laying off more than 2,500 lawyers and support staff. Figures from the US Department of Labour show the legal sector losing more than 5,000 jobs in the first three months of 2009.

The effect of the recession on lawyers and law offices in Canada is still unfolding, but it is evident the legal community here is not suffering the same scale of job losses as in the US and abroad. In fact, some law firms are experiencing a surge in business related to collapsing deals and insolvencies.

But there are still dark clouds ahead, according to the president of Canadian legal recruitment firm, ZSA Legal Recruitment. Chris Sweeney reports that “law firms are being very cautious in their hiring,” and “if you scratch beneath the surface, they are laying people off.” His company’s research suggests Canadian law firms can expect a drop in revenue of 10 to 25 per cent in 2009.

Jason Furlong, the Editor In Chief of the Canadian Bar Association’s National Magazine, has not heard of any substantial job losses in Canada but believes it is only a matter of time.

“I think it will hit,” said Furlong. “If Chris Sweeney is right, and some law firms are faced with a quarter of their business going away, that could be catastrophic for those firms.”

Some large firms in BC have already downsized, including the Vancouver office of Lang Michener LLP, which had to lay off 11 staff members in February. And it is not alone in its decision to make cuts, said Elizabeth Barclay, the firm’s human resources manager. “This is something that is happening at many law firms in Vancouver.”

Don Sororchan  
“In these times, managers tend to stop procrastinating on
staffing decisions that they were already contemplating,”
says Don Sorochan, QC.

Don Sorochan, QC, a partner at another large law firm, Miller Thompson LLP, has been involved in firm management through three recessions. He has noticed less work coming into the office in certain areas, such as securities and real estate. However, he has observed an increase in other areas, such as litigation, insolvency and corporate restructuring. Sorochan notes there has been personnel movement both in and out of the firm and describes Miller Thompson as always being on the lookout for strategic hires. “In these times, managers tend to stop procrastinating on staffing decisions that they were already contemplating.”

Abbotsford solicitor Ted Strocel notes the impact of a slowing real estate market has been felt for more than a year, long before some US banks buckled under the pressure of subprime mortgages. A lawyer with more than 30 years experience, Strocel saw conveyance work slow down considerably in October and November, and believes the real test will come this spring when real estate normally picks up.

As a result of the changing economy, Strocel is seeing what he calls “scary stuff.” He says buyers and sellers are engaging in transactions that are not properly secured. People are then bringing those shaky deals for him to look at after the fact. “I saw a lot of this back in the 1980s when real estate values plummeted; people would be desperately selling properties in exchange for the assumption of a mortgage, with the balance paid by way of promissory notes with no security.”

Strocel and his firm, Cascade Law Corp., have worked to try to recession-proof themselves, broadening the practice and striving to make it flexible enough to offer what is needed in a changing economy. Despite the firm’s best efforts, Strocel lays no claim to having the magic answer. “We are all in this together, and there is no question lawyers are being affected.”

Still others are finding new opportunities in the current economic turbulence. The administrator at one medium-sized Vancouver firm has noticed her office is “as busy as heck.” Ann Main at Camp, Fiorante and Mathews said the managing partner has told staff there are no layoffs on the horizon. The firm focuses on litigation cases, including class action lawsuits and workers’ compensation claims.

Lorna Pawluk, a sole practitioner in Vancouver, is not feeling the impact of a falling economy, at least not yet. Pawluk offers her services to a number of large companies as well as some government departments. Her practice focuses on occupational health and safety; if there’s a workplace accident she helps the employer meet their legal obligations.

“I am watching and I am going to be doing more business promotion than I think I normally would be doing — just contacting people and letting them know what I do,” said Pawluk. “There will be fewer workplaces because of the shrinking economy, but whether that’s going to translate into less work for me, I don’t know.”

At the same time, she wonders whether the recession is eventually going to have an adverse impact on prevention, the part of the practice she loves. Companies often come to her in advance of trouble, asking how to prevent workplace accidents. “Will they just cross their fingers because they just don’t have the budget, and then get into trouble? I don’t know, it will be interesting to see.”

Others believe this recession could have profound long-term consequences for lawyers and their clients. Meldon Ellis, a partner in a boutique law firm in Vancouver, predicts firms will have to be more responsive to the needs of clients who cannot pay the standard hourly billing rates that most lawyers charge. Ellis’ firm offers alternative forms of payment, including flat fees and contingency fees. In some cases, clients have paid an initial flat retainer of between $2,500 and $7,500 and then the firm gets a percentage of the monies recovered in litigation, minus the retainer. Ellis calls it value-based billing. “We’ve done a number of cases on that basis, and we’ve attracted a number of clients this way.” He expects to attract many more clients this way as well.

This recession, lawyers and law offices will face challenging situations and changing environments that may demand expertise gleaned from the past, as well as new and innovative ways of navigating the road ahead. The Law Society of BC will continue to monitor the economic environment, and the impact on lawyers and the public interest in the administration of justice.

What you can do in down times

  • Make the quality of your services unassailable. Appreciate that financial distress will cause clients — and others — to re-examine every step taken.
  • Use the Law Society’s practice checklists, and keep your personal and firm-wide systems in good working order.
  • Confirm your advice and instructions in writing.
  • Get organized, and avoid taking on more than you can handle.
  • Recognize your client’s need for other professional advice. Business, investment and accounting advice and services may become more critical to your client in risky times.
  • Manage your client’s expectations about your retainer, what the legal system can accomplish and the cost of legal services. Send letters that clarify your role. Be upfront about legal fees. Manage risky clients through defensive lawyering.
  • Be aware of the risk inherent in unrepresented third parties involved in your client’s transaction, and take protective steps, as needed.
  • Avoid conflicts. Resist the temptation to give in to pressure to save parties time or money by acting for everyone in a new venture.
  • Watch for frauds. It’s almost certain that the current economic downturn will create opportunities for new scams and schemes that will use or prey on lawyers. Learn the red flags of potential frauds and the fraud prevention steps by reviewing the extensive material produced by the Law Society and the Lawyers Insurance Fund.
  • Assess your own exposure to claims that exceed the compulsory policy limits, and buy excess insurance if you may be at risk.

Excerpts from the Law Society’s December 2008 issue of Insurance Issues: Risk Management, “Hard Times: Managing risk in a troubled economy.”