UK braced for downturn as redundancies hit US

The turmoil in the US legal market hit a new peak last week when Chicagobased firm Sonnenschein Nath & Rosenthal announced that it was cutting 31 lawyers and 93 support staff from its core real estate and litigation practices.

Sonnenschein overtook former Pinsent Masons ally Thelan Reid, which had laid off the most staff with 111 axed.

The list of firms making cutbacks is growing rapidly and includes Bingham McCutchen, Cadwalader Wickersham & Taft, Dechert, Heller Erhman, Holland & Knight, O’Melveny & Myers, Sidley Austin and Thacher Proffitt & Wood.

The frightening amount of staff cuts in the US is heightening expectations that similar redundancy rounds will hit the UK soon.

Tony Williams of legal consultancy Jomati said: “We’re probably three to six months behind the economic curve in the US, while law always tends to be a lagging indicator.”

Several UK firms have already made significant job cuts this year. Olswang was the first to make redundancies, then came Dickinson Dees in its real estate practice following the troubles at its client Northern Rock, and last month Bevan Brittan announced 40 redundancies.

The larger City firms, however, have so far avoided significant layoffs.

One magic circle partner said: “First firms will halt recruitment and then they’ll make decisions based on performance as well as relocating lawyers to more lucrative jurisdictions in the network. Only then will redundancy become an option. It will happen in the UK, but it won’t be as pronounced as it’s been in the US.”

Norton Rose global head of banking Stephen Parish commented: “We’ve seen a few smaller firms announce redundancies and I think it’s possible we’ll see more, but
larger UK firms have the ability to relocate lawyers in a healthy global network. If work subsides we can easily give people opportunities in the Middle East, which is thriving.”

In the US several firms have claimed publicly that all of the cuts they have made so far were entirely performance-related. Paul Hastings, for example, which cut 22 associates earlier this year, claimed the cuts were the result of annual performance reviews.

Thacher Proffitt cut 11 per cent of its lawyers when it laid off 40 associates late last year. Cadwalader was the first major firm to publicly make cuts in 2008, with 35 layoffs in January.