Young, qualified and out of work

Devoid of a functioning crystal ball, a perennial problem faced by law firms is predicting the number of trainees and newly qualified lawyers (NQs) needed.

And despite 65 per cent of The Lawyer UK 200’s top 20 law firms posting NQ retention rates above 80 per cent for March 2012, questions remain about the fate of those trainees that pull the short straw in qualification rounds.

Has the market picked up enough to allow them to walk straight into a similar job, or is it just a matter of time before they join the long queue outside the local job centre?

Unfortunately, recruiters specialising in this field point to the latter outcome, and for the most part advise trainee solicitors to grab any opportunity they get with both hands, regardless of location or department.

“The risk NQs run in qualifying and turning down a position is a Titanic-type scenario,” warns Edwards Gibson partner Scott Gibson. “For those who are left in the cold too long, the lifeboats may get there eventually, but chances are the people will already be dead.”

While it is fair to say that 2011 looked a little brighter than the credit crunch years, with a slight rise in the number of NQ jobs available, recruiters are quick to point out that the level is still far from the 2007 high.

“The real boom market was 2007, when there were effectively more jobs than candidates,” explains Taylor Root director Alex Wiseman. “In 2008, it was still busy but the words ‘credit crunch’ had become quite well-known, and at the end of the season we saw Lehman Brothers collapse. The NQ market hasn’t really recovered.”

Numbers crunch

Indeed, the NQ market has had a tumultuous journey through the recession. As Wiseman points out: “A bad economy is bad news for the lower end of post-qualification experience [PQE].”

As the economic crisis continued longer than anticipated, law firms had to come to terms with the fact that 2007’s easy ride was not going to be repeated in 2008. When 2009 began, half of the UK’s commercial law firms halted recruitment as the crisis took its toll, with many ­abandoning their trainee ­recruitment programmes all together or ­deferring their entry dates.

Arguably, NQs took the worst hit, as ­retention rates plummeted and the number of vacancies for NQs could be counted on one hand.

“What we’ve seen in the last few years is a drop in revenues,” says Gibson. “There have been small increases this year but not massive rises in business, and while that’s going on and there’s no real growth, supply and demand suggests there’s less need for NQs.”

NQs’ value sits relatively low down when compared to those that have between three- and five-years’ PQE. Changes in salary levels do not help, with NQs becoming ­disproportionately more expensive as the pay gap narrows between them and senior associates.

The average salaries in City firms last year, according to Chadwick Notts (see table, page 27), indicate that in some cases the salary gap between NQs and three-year PQEs can be as little as £5,000.

“The problem is that people are not that valuable at NQ level,” concedes Gibson. “Partners have said to me that NQs are not worth what they’re being paid even now, especially compared to three- to five-year PQEs.”

For US firms the outlay is even greater, with salaries of £90,000 and above.

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Up temp

A further problem with the NQ market is a shortage of roles in popular core areas. To tackle this a number of firms have increased their number of temporary contracts for NQs in order to accommodate trainees in their desired departments.

“The external NQ market has been pretty tough for the last few years, so where possible we try to keep our talented trainees on, even if it is only temporarily,” says Field Fisher ­Waterhouse graduate recruitment manager Amelia Goodwin. “Sometimes, this temporary position will turn into a permanent role in time, but otherwise we’re at least allowing our talent to experience their chosen area as a qualified lawyer, which can go on to help them in the future.”

Chadwick Notts director Charles Elderton says there has been a steady build-up in the number of temporary NQ contracts in the past 12 months. “It’s becoming more common, as we’ve certainly seen a growth in what you might call fixed-term, locum or temporary contracts for junior lawyers,” he says. “It’s win-win for employers in a sense, as they get the resource but without the worry about work drying up.”

Elderton adds that there has also been an increase in the amount of firms that bring NQs in on a daily rate, which means they can remain on recruitment consultants’ books.

“I certainly don’t think that was around at the junior end a few years back,” he says.

Outside influences

The other issue is the increased use of legal process outsourcing (LPO) by law firms, which Gibson anticipates will have an impact on the NQ role. Figures ­provided by management consultancy OMC Partners (see Lawyer 2B, Winter 2011), show that firms could make big savings by using legal, ­paralegal and business services in locations away from London.

For example, an NQ lawyer in London earns between £45,000 and £65,000 ­compared with £7,000 to £10,000 in the Philippines, or £8,000 for an LPO lawyer, resulting in a saving of close to 90 per cent for the firm.

In a recent interview with Lawyer 2B’s ­sister magazine The Lawyer, White & Case global chief operating officer Greg Dolan, referring to the firm’s foray into non-legal business process outsourcing (BPO) in the Philippines, revealed that costs were roughly 10 per cent of the equivalent in the firm’s main office locations, and that was without ­considering tax incentives. (Government ­payroll taxes are 1 per cent of salary in the Philippines compared with 13.8 per cent in England and Wales.)

The BPO process also made the firm’s ­workflow more efficient rather than just saving money directly, claimed Dolan, who said ­overheads, salary costs and process flow were equally weighted factors. The firm is set to pilot LPO in the Philippines this year.

Paralegals also pose a threat to NQs as more law firms lean towards hiring cheaper non-legal staff.

Focused flexibility

With both external and internal pressures putting the number of NQ jobs available in jeopardy, what can NQs do to ensure their applications make it to the top of the pile?

Gibson says that one of the errors people make is signing up to a series of recruiters

and making a stack of applications for NQ roles, especially when they are not ­certain about which firm or department they want to work in.

“The danger is that a whole spectrum of applications are sent across the entire marketplace,” he says. “I would suggest that people speak directly to recruiters and make sure they know what’s happening with their details.”

Wiseman says that getting to the interview round is often the easy part, as long as the NQ has a good CV. “Once we’re satisfied here we will look further,” he explains. “We need to see meaningful training that goes beyond the realms of a normal trainee experience – it must be more than mundane work.”

Gibson and Wiseman highlight flexibility as key. “In some cases departments can ­overlap,” Gibson insists. “For example, if you want to be in employment but get put in corporate, the best thing is to do a couple of years in ­corporate, perhaps move in-house and do a mixture of work, and then move into employment.”

Wiseman agrees. “You must be ultra-­flexible. Consider more than one practice area and all sorts of firms. Also, consider international opportunities, particularly offshore and in the Middle East as well as regionally.”