Almost half of US lawyers see no rate increases in 2022, Wolters Kluwer report shows
Some 27% of law firm timekeepers saw no increase, while 13% saw average rates go down
In-house legal departments are fending off rate increases at some of the largest US law firms, with 40% of law firm timekeepers across all firms seeing average fees stay the same or fall, according to a Wolters Kluwer report.
Between July 2021 and June last year, 32% of timekeepers at AmLaw 100 firms saw no rate increases, compared to 27% for all firms, according to Wolters Kluwer ELM Solutions’ latest LegalVIEW Insights report.
Some 13% of timekeepers at firms of all sizes saw average rates decrease over the same time period, either because they lost a high-paying client or onboarded new clients at a lower rate. Just over a fifth of timekeepers (21%) were able to increase rates by 10% or more.
Nathan Cemenska, director of legal operations and industry insights at Wolters Kluwer ELM Solutions, said: “What this suggests is that timekeepers working at some of the industry’s largest firms are willing to work for less than what many of their clients have already resigned themselves to paying.”
He added: “The pricing power wielded by some of America’s largest firms is not immovable, and can be successfully challenged by corporate legal departments willing to adopt a comprehensive approach to better understanding their legal spend and rate management practices.”
Practice areas that handle more bespoke work were more likely to push through rate increases than others. Government relations saw a median rate increase of 12.9%, while commercial and institutional finance saw a 5.3% increase. By contrast, insurance defence, real estate and general liability saw no rate increases on a median basis. Financial companies continue to pay the highest rates of any industry, with median hourly rates of $806. Insurance defence clients pay the lowest hourly rates, with firms charging just $180 on average.
Associates saw the biggest rate increases, on average 62% higher than rate increases seen by partners on a mean basis (7.8% compared to 4.8%). That could in part reflect large firms being able to leverage their bigger pool of associates in an effort to boost profit margins, said Cemenska. AmLaw 50 firms bill around 50% of their hours through their associates, compared to 35% for firms outside of the AmLaw 100.
Meanwhile, the Thomson Reuters Law Firm Financial Index for Q422, which was published earlier this week, recorded its worst quarterly score on record, with the index now declining for six quarters in a row as client demand wanes and productivity levels drop.
However, the report suggested that a continued improvement in macroeconomic conditions could lead to a recovery in demand for transactional work.
“Law firms are at a bit of a crossroads as they face weaker demand and inflationary pressures,” said Paul Fischer, president, legal professionals. “Our Financial Insights data notes that firms are moderating their expense growth and generally maintaining their headcount, so they could be well positioned for improved profitability if demand picks up later this year.”