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City law firms retain more qualifying solicitors than before financial crash

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There’s good news and bad in the figures — retention is rising, but overall training contracts numbers are still shrinking

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The good news: the UK’s big law firms have continued to build on 2014’s reversal of a two-year dip in the numbers of qualifying lawyers retained.

The average figure for the spring 2015 round of nearly 84% for those firms that have reported so far is a welcome improvement on last year’s figure of 81%. And it is significantly better than the 78% in 2013, and the 79% in 2012.

Certainly current retention of qualifying solicitors at the big firms is a damn sight better than it was during the murky depths of the global financial crisis. When the developed world’s economy tanked nearly seven years ago, socially conscious law firms reacted by waving good-bye to as many NQs as possible. According to data dredged up from the Chambers Student archive, the 2009 average retention rate plummeted to 74%.

With the average now having recovered by 10 points from those dark financial crisis days — and surpassing the peak pre-crisis point of 82% in 2008 — can law students breathe a sigh of relief as they rack up pre-qualification debts north of £50,000?

The bad news: No, not really. While the newly-qualified retention rate average is increasing, it is doing so from a smaller overall pool of trainees. Figures for the magic circle are striking and are illustrative of the rest of the commercial law sector.

At the peak of the boom in 2007-08, the magic circle firms on average offered 120 training contract places annually. Those numbers are now generally down by 25% to an average of 90 places on offer each year. Linklaters and Clifford Chance are the exceptions, offering 110 and 100 places respectively. But Allen & Overy is down to 85, while Freshfields Bruckhaus Deringer and Slaughter and May each offer 80.

Indeed, the only firms of any size offering more training contracts now than in the gold rush days of the mid-2000s are those that have merged.

The overriding message is that the major City and UK commercial law firms are employing more of their qualifiers, but they are taking on significantly fewer trainees to get that qualifying position.

Yet there are some signs that the firms may have miscalculated and cut back too far on training contract places.

Legal Cheek understands that several firms are currently in the market for newly-qualifying lawyers from rivals. Indeed, sources at one City law firm have told us that trainees at that practice will be rewarded with a £5,000 finder’s fee if they refer a newly-qualified solicitor who is subsequently taken on.

But balanced against that is more bad news. The rising use of non-qualified paralegals appears to continue apace. The managing partner at a top-20 English firm this week told Legal Cheek that the practice had doubled the number of paralegals it employs in the last two years.

Back to this spring’s retention round — which firms are above or below the average?

Three stand out as hitting the magic 100% retention rate, but two are US practices, which historically don’t take on as many trainees as their domestic City counterparts. They are Wall Street old boys White & Case and San Francisco-based Orrick, with 13 and four NQs, respectively. The English firm is Nabarro, which retained all 10 of its spring qualifiers.

Of the City players taking on significant numbers of trainees, some big names were above the retention average: A&O hit 93%, as did Anglo-Aussie player Herbert Smith Freehills. Linklaters, Clifford Chance, Ashurst and the London office of US firm Reed Smith clocked up 91%.

Thames Valley outfit Osborne Clarke retained 88%, while Anglo-German giant Freshfields was the final big player to come in above the average, clocking in at 85%.

Big names well below the average tidemark included King & Wood Mallesons (which recently took over London stalwart SJ Berwin). That firm retained just 67% of its qualifying solicitors.

Also, CMS Cameron McKenna held on to just 62% and Berwin Leighton Paisner 61%.

Commentators will be keeping an eye on these laggards in the next retention round in autumn. Improved results will add weight to the growing sense that the junior City law recruitment market is genuinely back in business.

But when extra bodies are needed across the board, will it be paralegals or qualified solicitors who are brought in to fill the gap?

10 Comments

Don Amos (King of Caravans)

By 2020, Magic Circle firms will be offering less than 60 training contracts as compared to 80 today and 120 before the Crisis. They simply don’t need that many associates in London when the clients won’t pay associate rates for process work.
Meanwhile, Northshored teams will have grown dramatically and be taking the slack.

(7)(1)

Non-Oxbridge Pleb

‘the clients won’t pay associate rates for process work.’

They won’t, but the MC don’t do most of the process work. The commoditised low level stuff is farmed out to less quality law firms. I foresee far fewer TCs outside of the best City and US firms, with those mid and lower tier firms run by a few MC trained partners at the top, commanding legions of paralegals who conduct the routine mundane work. Graduates hoping to become lawyers will have to train at a top firm, one of the places that brings in the real quality work and genuinely needs excellent lawyers.

As a side point – this story in the article above is surely good. The last thing we want are piles of NQs who can’t get jobs. Higher retention rates are good. Fewer training contracts is unfortunate, but only sad if there are lots of NQ jobs that are going unfilled.

(4)(1)

Don Amos (King of Caravans)

Not sure re. giving process to others. That was true in the past, but the pattern now seems to be to try and keep the process work by creating new business models that can support lower rates.
re. lots of TCs then no jobs. Higher retention rates are very good (though are a function of offering less TCs in the first place), but we still have never really dealt with the fundamental problem: the UK produces far more young people with legal qualifications (of some type) than can ever gain associate positions. This creates more paralegals who then offer clients the chance to demand their services. This in turn undermines the TC model.
One might say ‘let the market decide’ and it is, because the regulated market for legal work is now insufficient to meet client demands on price for process.

(5)(2)

Non-Oxbridge Pleb

My experience has been that the MC absolutely are now farming out the commoditised work and focusing on everything else. It’s not that they won’t do it, but they aren’t going out looking for it, and clients aren’t asking them to do it. I completely accept that we may have heard and seen is ifferent things from different people and that FF might have a different strategy to Links and Slaughters.

(1)(0)

Left Behind in the City

“I foresee far fewer TCs outside of the best City and US firms, with those mid and lower tier firms run by a few MC trained partners at the top, commanding legions of paralegals who conduct the routine mundane work.”

Because only MC trained partners are able to run law firms / instruct paralegals? And what you’re describing is a support office for a law firm – not a law firm in itself.

(1)(0)

Left Behind in the City

“Graduates hoping to become lawyers will have to train at a top firm, one of the places that brings in the real quality work and genuinely needs excellent lawyers.”

Again, it’s not correct to think that only “top firms” (by what measure?) do “real quality work” and need “excellent lawyers” – you do realise that the vast majority of legal work in the City is not in fact done by the MC and that it is nonetheless of a very high quality? This is the kind of legal work that keeps the economy ticking-over on a day to day basis just as much as the larger deals that the MC firms are so very adept at handling.

(1)(0)

Non-Oxbridge Pleb

I do agree with you, actually, and I’m sorry for being too City focused. I think that TC numbers will shrink more in those kinds of firms as more of their work can be done by paralegals, but yes there will definitely still be smaller law firms.

(0)(0)

Left Behind in the City

Well, paralegals can only do work up to a certain level, but there’s a huge gulf between that level and the partners. I don’t believe it’s cost effective for partners to do that work in all but very specialist areas – certainly not in corporate, finance or litigation.

TCs levels may drop, but firms do need a solid middle of associates no matter what, even boutique firms that are “partner led”.

I think that what some firms will do is stop training and then poach associates from other firms, although that’s risky when the market looks like it’s picking up.

But you’re right on the general point that TV numbers will fall until we see an expansion in work.

(0)(0)

Anonymous

Just because their retention percentages are up doesn’t mean there are more NQs. As mentioned in the article, there are significantly less trainees in firms now, so the total number of NQs is also likely to be lower despite the higher retention rate percentages.

Once you factor in how easily these retention stats are manipulated, I fear the actually figures are a lot worse than what might be suggested by the headline % figures.

(1)(0)

Left Behind in the City

It seems that there are more NQ jobs now than even a few years ago – not necessarily though at the firm where trainees trained at which might explain the lower retention numbers for some of the bigger outfits.

I got the sense (from bitter personal experience!) that if you weren’t kept on in 2009 to 2012 there was a risk you could fall out of the law (or the City, if that was where you trained), but that seems to be less of a possibility now.

(0)(0)

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