Wednesday, January 07, 2009

 

Looking more closely at the reduced hours v. layoffs proposal

Yesterday, we acknowledged that PAR's suggestion that law firms reduce the hours of their associates in lieu of lay offs has its imperfections. We're going to disclose those, but first we would like to look at the objections raised by others thus far.

First, in the article in the National Law Journal about PAR's proposal (Cost-saving option for firms: reduced hours, by Karen Sloan, Jan. 05, 2009; subscription required), the chair of Dickstein Shapiro, Mike Nannes, was reported to have said that having associates work fewer hours doesn't provide the same level of savings as layoffs. The example given in the article is that it costs a firm less to have three associates billing 2000 hours each than to have four associates billing 1500 hours each because the firm must pay for office space and benefits for the additional reduced hours associate.

While we don't want to disagree with Mike, we want to take a minute to look behind the example. The rent cost doesn't strike us as being a compelling argument because the law firm is likely going to have to continue to pay for that office under its lease whether the office is occupied or not, at least in the near term. The benefits issue is harder to argue with; while some firms pro-rate benefits or have part-time lawyers pay a portion of their benefits, the trend at large law firms is to pay full benefits to part-time lawyers. But the fact that the firm would have to pay for the benefits package of the fourth retained associate is not the end of the matter; we need to take the next step and compare the cost of that benefits package and the costs associate with laying off the associate and later hiring and training a replacement when the economy improves. Given that it costs firms $200,000 - $500,000 to replace a mid-level associate, the firm is likely better off just paying the fourth associate's benefits.

The second objection was also raised in the article. Douglas Richardson, a consultant with Altman Weil, posits that clients may feel they are wasting their money if a large number of part-time associates rotate in and out of their matters. The clients would be concerned, he said, about whether they were paying to bring more associates up to speed because of the reduced hours structure.

This objection also has an answer. Many clients limit the number of lawyers they let bill on their matters, so having a large number of associates working on one matter is an unlikely staffing scenario. More to the point, layoffs are more likely to increase the number of lawyers working on matter -- if the associate who is working on a matter is laid off, he or she will have to be replaced. And if there is another round of layoffs... One of the reasons PAR has proposed reduced hours in lieu of layoffs is to maintain stability in client service by retaining the associates who are performing the work.

Richardson's second objection is dead on. He says that it would be hard to convince associates to reduce their hours because of the perception that part-time schedules are career killers. PAR has spent years researching the stigma associated with part-time schedules and its solutions. It is an uphill battle, and while we see progress, stigma is still a very real issue at most firms. Stigma can be reduced by the way the firm implements the reduced hours program, and by implementation of the best practices PAR has detailed in its reports and its book Solving the Part-Time Puzzle (NALP 2004). We will outline some of these steps in a later post as a handy reference for firms that are considering adopting PAR's proposal.

There is another objection that has not yet been raised that we think has some validity. We'll discuss that tomorrow.

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