Two of Canada’s biggest law firms are cutting lawyer salaries as the industry moves to rein in costs amid falling workloads in some practice areas and growing fears that clients will struggle to pay their bills.
Borden Ladner Gervais LLP, the country’s largest firm, is implementing unilateral pay cuts for non-partner lawyers and other legal staff, with reductions ranging from 10 per cent to 15 per cent, according to sources with knowledge of the firm.
Norton Rose Fulbright Canada LLP, fourth-largest in the country according to legal publication Lexpert, has announced a 10-per-cent cut for all employees.
The Globe and Mail spoke with partners and associate lawyers at multiple Bay Street firms but is not identifying the sources as they are not authorized to comment publicly.
BLG and Norton Rose, which both have offices across the country, are implementing deeper cuts for partners, who are co-owners of the firms and typically receive monthly “draws” of a percentage of profits. BLG has also begun temporary layoffs of some support staff.
The salary cuts come as the novel coronavirus pandemic has already caused deep economic pain and law firms face the prospect of lean months ahead. There was a flurry of advisory work in March related to the COVID-19 crisis, with certain practices such as employment and health law particularly in demand. Further down the road, firms expect to see work related to restructuring and refinancing as well as mergers and acquisitions of distressed companies.
But there are worries that April and May could slow down dramatically, as M&A activity grinds to a halt and litigation remains on pause with regular operations at many courthouses temporarily suspended and courts prioritizing urgent matters.
In separate statements, BLG and Norton Rose both said the decision to cut wages temporarily was taken as part of a pro-active approach to the crisis and is meant to ensure the continued financial security of all employees as well as the firms themselves.
“BLG is implementing a variety of temporary adjustments, including compensation reductions, which follows the advice we are providing to many of our clients to ensure a strong future once this crisis has passed,” said Leanne Cherry, chief talent officer at BLG.
She said the layoffs are also temporary, and that the firm is providing continuing benefits and access to employee assistance programs. “Our goal is to keep as many people as possible employed under these difficult circumstances. We will do our best to get as many people back on the job as soon as possible.”
“Every firm member is doing their part, including partners, who will bear the heaviest financial burden over this period and who are united in doing so,” Norton Rose communications director Barbara Timmins said.
“We have a strong underlying business and are winning new mandates as we continue to help clients navigate this tumultuous period. However, we believe being pro-active will better protect us and better position us in the long run. The measures are designed to be temporary and we will be reviewing them on an ongoing basis.”
Other major corporate law firms, including Torys LLP; Blake, Cassels & Graydon LLP; Osler, Hoskin & Harcourt LLP; Fasken Martineau DuMoulin LLP; Stikeman Elliott LLP; Davies Ward Phillips & Vineberg LLP and McCarthy Tétrault LLP, are also considering expense cuts – and reduced partner compensation in some cases – but so far have not cut associate lawyer salaries.
Top-tier firms, which have long-standing relationships with Canada’s biggest companies and financial institutions, face fewer concerns over clients simply not paying their bills, but the nature and pace of work is still changing and firm leaders are considering all options. Firms could also turn to lines of credit or even make capital calls of their partners.
Law firms have four major expense buckets: partner compensation, employee salaries, rent and technology costs. There has been little prospect of lowering lease costs as commercial landlords have so far prioritized rent relief for retailers, restaurants and smaller businesses that have been hard hit by forced closings. Technology, which includes IT services to support lawyers and staff working from home, is also largely non-negotiable.
Imposing unilateral wage cuts does come with some risk of employees making claims of constructive dismissal and seeking severance packages, says Hena Singh, a partner at boutique employment law firm Singh Lamarche LLP in Toronto. Such claims arise when the employment relationship has changed so significantly that the employee has effectively been fired. But Ms. Singh said salary decreases in the range of 10 per cent to 15 per cent are usually considered small enough to be “safe” and noted there is a low chance of associate lawyers departing over these cuts.
“The job market for lawyers is tough, especially for junior lawyers,” she said.
Firms are also scrambling to work out how to handle the incoming wave of law students that typically join them for summer employment beginning in May. Landing promising young lawyers is seen as a key recruitment tool and firms are balancing that long-term goal with expense concerns as well as the logistical challenge of bringing new employees on when physical offices are shut.
Editor’s note: This story has been updated to indicate many courthouses have temporarily suspended normal operations but courts are not closed.
Sign up for the Coronavirus Update newsletter to read the day’s essential coronavirus news, features and explainers written by Globe reporters.