The "2020 Report on the State of the Legal Market" showed that growth in firms' worked rates is tied strongly to which lawyer type is charging those rates
We discussed previously how the 2020 Report on the State of the Legal Market — published in January by Thomson Reuters Legal Executive Institute and the Center on Ethics and the Legal Profession at Georgetown University Law Center — detailed the evidence of a fundamental shift in the legal industry, specifically in areas of declining productivity.
Now, digging into the report further, we see that one of the major themes of the past year was the significant growth in the worked rate. Indeed, worked rates — those rates that a firm agrees to with particular clients for work on given matters — increased on average by 3.8% across all timekeepers and segments for the year, which represented more than half a percentage point jump from the year prior.
When looking closer by segment, however, it is evident that much of the significant growth in rates is consolidated at the top of the market. Am Law 100 firms increased their worked rates by an average of 4.7%, followed by the Am Law Second 100 firms with 3.6%, and the Midsize law firm segment with 3.0%. While this trend of larger firms being able to command higher rate increases was very much in line with recent history, we now notice that another trend — that of which particular lawyer titles had the highest rate growth — also showed some interesting results.
Over the last two years, the lawyer titles with the highest average worked rate growth has undergone some dramatic shifts. A few of the more interesting movements include:
Of Counsel — This category of lawyers fell from the highest average worked rate growth for the majority of 2018, to the lowest by the halfway mark in 2019. Indeed, clients appeared to be resistant to paying increasing rates for Of Counsel lawyers, who are often ex-partners who find themselves on the back-nine of their careers.
Non-Equity Partners — Speaking of partners, the past few years have seen an increasing number of law firms utilizing the non-equity, or income, partner rank. As it becomes harder and harder to ascend to the level of equity partner at many law firms across the country, more qualified lawyers than ever find themselves in this category. The result has been worked rates growing at an accelerated pace.
Associates — The raises that associate lawyers have garnered been much publicized over the past two calendar years. The prevailing wisdom held that clients, wise to the increased cost of the associates completing their work, would refuse to foot the bill for their higher compensation levels. It appears as if firms did not get the message from their clients, however, as since Q1 of 2019 the average worked rate growth among associates has not fallen below 4.0% and now represents the largest worked rate growth among all lawyer titles at 4.5%.
Early indicators in 2020 point to a continued rise in worked rate growth across the market, which begs the question: How much farther can rates continue to rise before hitting the ceiling, or have firms already smashed right through it?
For a complete discussion of the current state of the legal market, as well as exploration of how some law firms are choosing to adapt, you can download a copy of the 2020 Report on the State of the Legal Market here.
