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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?