Law360: Lateral Hiring Dipped In 2023, With Signs Of A 2024 Comeback

Xiumei Dong | January 8, 2024, 3:08 PM

Despite an upswing in lateral recruitment during the fourth quarter, the legal industry still closed 2023 with about 18% fewer hires than in 2022, according to industry data provided by Firm Prospects, which has been showing signs of recovery since the latter half of 2023.

In the final quarter of 2023, the 3,500 firms tracked by Firm Prospects hired a total of 4,891 attorneys, representing an increase of 8% from the previous quarter's 4,541 attorney moves, and a climb of nearly 12% from the 4,383 lateral hires made in the same period of 2022.

However, this increase didn't fully offset the year's earlier decline, with the legal industry concluding 2023 with 17,598 attorney hires, which was an almost 18% decrease from 2022 and an even steeper 22% drop from the hiring frenzy seen in 2021.

"I think we'll see a slow and steady increase in 2024, but unless the deal work really increases, I don't think we'll see a big jump back to 2021, 2022 numbers," said Adam Oliver, Firm Prospects' CEO and co-founder.

Taking into account uncertainties tied to external factors such as interest rates and geopolitical events in the Middle East, Oliver reiterated that he anticipates "a slow and steady" uptick in lateral hiring throughout 2024 but cautioned about predicting a significant jump unless deal work returns to the levels seen in 2021 and 2022.

Law firms recruited a higher number of attorneys across all partner, counsel and associate tiers in the fourth quarter, with the steepest increase in hiring seen for associates and partners, at about 5% quarter over quarter.

However, compared to the figures from the same period in 2022, the number of associate laterals hired dropped by almost 8% to 2,550. The associate rank also saw the most significant decline in lateral moves over the entire year of 2023, falling 29% from 12,714 hires in 2022 to 9,058 moves last year.

In contrast, partner and counsel lateral hires increased by 58% and 25%, respectively, in comparison to the fourth quarter of the preceding year. Looking at the entire year of 2023, law firms' partner lateral hires surged by almost 10% year-over-year, reaching 4,445.

Meanwhile, counsel lateral moves contracted by 13% in 2023, to 2,560 lateral hires.

Since firms typically hire associates to address specific needs in busy practice areas, Michelle Fivel, a founding partner of legal recruiting firm Hatch Henderson Fivel, explained that law firm hiring for associate candidates tends to fluctuate based on demand for legal services.

Partner hiring, on the other hand, is more indicative of a firm's strategic plans and overall health, Fivel pointed out, adding that it also serves as an indicator of the firm's attractiveness to successful partners with a significant book of business.

"2023, particularly the first half, felt fairly sluggish as far as lateral associate movement was concerned," Fivel said, noting that firms have been taking longer with their recruitment process and conducting more detailed analyses before hiring.

This trend continued into the fourth quarter, Fivel added. However, with associates often pocketing their year-end bonus by January, she predicted that more of them will make moves in the first quarter of this year, with increased activity on the transactional side as firms anticipate a rise in deal volume.

"I personally think you can pretty closely tie deal volume to lateral associate movement," Fivel said. "I think the pace of deals directly impacts how a law firm's management feels about the health of their firm and their willingness to bring timekeepers on board."

According to Firm Prospects' data, law firms' hiring for attorneys in corporate practice ticked up by 7% during the fourth quarter compared to the previous quarter. However, the annual hiring for corporate practices in 2023 was still about 42% lower than that of 2022, as the demand for deal work slowed over the year.

Other high-demand practice areas, such as banking and real estate, have also experienced a noticeable drop in hiring over the past year. On the other hand, lateral recruitment in litigation has been steady, with only a 2% decrease compared to 2022.

"Traditionally, when you look at hiring trends between litigation and corporate, it's kind of an even split. But in 2023, much more [of] the hiring was within the litigation space, and there was a lot of demand for litigation," said Jackie Bokser LeFebvre, managing director of legal recruiting firm Major Lindsey & Africa's associate practice group.

As the court system continues to settle into post-pandemic normalcy, LeFebvre anticipates that the active hiring trends in litigation observed in the fourth quarter of 2023 will continue into 2024. However, she also expects a steady increase in corporate hiring, especially when compared to the earlier part of 2023.

"I don't anticipate a floodgate of activity like we saw in 2021, But I do think that we're going to see more of a return to normal lateral hiring patterns," LeFebvre said, also anticipating a potential bifurcation in the market regarding salary and bonuses, with differences between firms that have adopted new scales and those that haven't.

In early November, Milbank LLP kicked off the bonus season with an announcement of base pay raises for the new year that bolstered the starting salary for first-year associates to $225,000, rising to $425,000 for the class of 2016.

However, later in the month, Cravath Swaine & Moore LLP surpassed Milbank's salary scale by offering larger payouts to senior associates, prompting several BigLaw firms, including Milbank, to match the new standard. While top-earning firms leverage this opportunity to attract talent, legal recruiters caution that intense salary competition could strain attorneys at firms struggling to keep up.

Firm Prospects' data showed that lateral partner hires among AmLaw 200 firms dropped by over 28% in 2023 compared to the previous year, with lateral associate hiring experiencing the steepest decline at 35%.

Among these firms, the hiring of counsel candidates declined by 26% in comparison to the previous year, whereas partner moves saw a more modest decrease of 4% over the same period.

"Partners who have significant practices want to make sure that they're at the best, most profitable, most stable, most active firm possible, given a lot of volatility that there has been in the last couple of years," said Lauren Drake, partner at recruiting firm Macrae Inc.

Drake noted that her firm observed an uptick in partner lateral activity around Labor Day. However, due to the partner recruiting process, which is typically lengthier compared to that for associates, she expects this surge to be reflected in the first-quarter hiring numbers this year.

"In addition to the process taking a lot of time, we've got more and more people waiting to get a significant payout at their current firm before announcing that they're leaving," Drake added, explaining that the complexity of addressing deferred compensation has become a more frequent and intricate topic in partner hiring discussions.

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