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The legal industry is grappling with layoffs as the global economy faces headwinds, causing dealmaking demand to slow down. This week, leading law firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian announced it is cutting 10% of attorneys, paralegals, and staff in its U.S. offices in response to current macroeconomic and market conditions. According to its website, Gunderson Dettmer is recognized for their work with emerging tech and life sciences companies and investors and has more than 400 lawyers.
The tech industry has seen waves of layoffs since last year, as large companies like Amazon, Meta Platforms, and Microsoft shed tens of thousands of jobs amid an uncertain economy. Gunderson Dettmer’s managing partner, David Young, cited “economic headwinds” facing public and startup technology and life sciences companies after years of growth. However, Young said that the firm still has confidence in the sector. A firm spokesperson confirmed the layoffs, but no further comment was made.
The market has shifted amid rising interest rates, high inflation, and recession fears. As a result, many law firms raced to hire lawyers in 2021 and early 2022 to keep up with booming global deal making demand. However, large law firms are now advising on fewer deals with a smaller combined value, as mergers and acquisitions activity fell to its lowest level in over a decade in the first quarter of 2023, according to data released by Refinitiv on Tuesday.
The total value of globally announced M&A deals in Q1 2023 was $580 billion, representing a 44% dip compared to last year and a 23% decline compared to the previous quarter. Cooley, Goodwin Procter, Stroock & Stroock & Lavan, and Shearman & Sterling have laid off lawyers and staff since late last year, citing a slowdown in work. Firms, including Davis Wright Tremaine and Perkins Coie, have also let go of business professionals.
Other firms have also trimmed their attorney ranks. Kirkland & Ellis made unspecified cuts this week that it described as a result of “performance-based decisions.” Jeffrey Lowe, global practice leader of the law firm practice group at legal recruiting firm Major, Lindsey & Africa, said he expects to see more law firm layoffs heading into the second quarter of 2023, after a first quarter that likely was not “gangbusters for anybody.”
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Lowe added that he does not see layoffs as a sign that any particular firm is in trouble. Instead, firms are looking to cut costs as the economy slows, particularly given their aggressive growth earlier. In 2021, U.S. law firm hiring skyrocketed, with lawyer moves between firms up 111% nationally, according to National Association for Law Placement (NALP) data. However, hiring decreased nearly 12% overall in 2022, as associate moves declined by 20% compared to 2021, NALP said. Partner hiring saw a nearly 6% increase.
According to Young, at Gunderson, incoming associates who graduate from law school this spring may have start dates deferred on a case-by-case basis. The firm had delayed start dates for incoming lawyers in the fall from Oct. 31, 2022, to Jan. 17, 2023.
In conclusion, the legal industry faces challenges as the economy slows down and global dealmaking demand falters. The widespread layoffs result from firms looking to cut costs as the market has shifted amid rising interest rates, high inflation, and recession fears. While the legal industry is still confident in the tech and life sciences sectors, there is a general sense of caution as the economy remains uncertain.
