This blog post is Part 1 of our “Law in Lockdown” series where we reflect on how the legal industry has been impacted by COVID-19 and also provide an insight as to how competition in the legal sector has changed in response to the pandemic.


What are we observing in the legal sector during COVID-19?


Many of us began looking at these uncertain times as a stressful disruption to our daily business. We really need to shift this mindset. COVID-19 has brought about change but it also creates opportunity for the legal sector. The opportunity to come out of COVID-19 stronger depends upon how well any business can adjust to its new environment.


The changes you make to your legal team now have to be deliberate and be supported throughout your business. And not just be lip-service.


In 2009 when the world was climbing back from the global financial crisis, some law firms publicly declared a commitment to change. We saw many public declarations around greater efficiency and embracing technology. With the benefit of hindsight, it’s fair to say that the industry’s approach to service delivery and the law firm business model did not substantively change. Post -COVID the legal industry won’t have the same luxury.To retain a lasting competitive advantage, all firms will have to change the way they define and create value for clients because the business environment for those same clients has changed forever.


Accelerating competition from new law firms


Corporate law departments need to re-assess how they use outside counsel given that competition from law firms will accelerate as they move to remote working frameworks. What does that actually mean? Consider this example – Bob is a Partner at a mid-tier firm with a strong Commercial Litigation practice.


Bob’s practice is supported by Tina, Kim and Scott, 3 Senior lawyers each with 10+ years experience. Pre-pandemic Tina had entertained setting up her own firm and had discussed the prospect with Kim and Scott from time to time. Each of these conversations ended with the observation that setting up a new firm “would be too expensive upfront.” Just last month, Tina now says that she wants to start her own firm again.


Tina’s confidence this time around comes from the fact that the new firm will be fully-remote, ensuring that her firm can deliver its services at 1/3rd of the cost of Bob’s team. It’s no surprise that Kim and Scott both want to join the new firm which can deliver long-lasting and scalable cost savings from reduced overheads. Long term, more lawyers will want to join Tina’s firm and will do so for a reduced salary because Tina can offer the flexibility of working from outside major cities where living costs are significantly lower. This is a relatively simple example but the point is that COVID will see new firms popping up all around Australia and create more competition for existing players.


In late 2020, Altman Weil published a survey of major law firms that reflects the changing attitudes of big law in this new climate. Between March 2 and March 22, there was a 42% increase in leaders from these law firms saying that they would focus on significantly reducing overhead costs in a recession. There was also an 18% increase in those saying that they would reduce hiring of first-year lawyers in response to COVID.



There’s been a clear trend in the past 18 months of firms engaging tactics like pay cuts, layoffs, expense cuts but it seems these were only short term. Many firms cut salaries or denied bonuses in early 2020 only to announce an increase in profits later that year. This suggests that firms are not listening to clients whose own businesses may have contracted during the pandemic. No public thanks from a managing partner will soothe the pain for a client whose own business has shrunk as a consequence of COVID.


Firms have also transitioned to work at home, where many firm leaders never permitted flexible working previously. The result is that many law firms are already recalculating their office space needs. It is estimated that these firms will be able to save as much as 3.5% of revenue over time from renegotiating leases. It costs a mid-tier Sydney or Melbourne firm an average of $10,000 per employee annually for office space. At a time when many firms are imposing reduced salaries and hours on fee-earners, wouldn’t these same staff prefer to have company overheads reduced to ensure wage levels are preserved? These types of questions are being asked by many employers in the form of employee surveys. If you haven’t surveyed your employees now is a great time to start!


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