As a follow up to my previous post about how the economic environment is affecting law firm economic models, and the Wall Street Journal brings one more example: companies the likes of Pfizer, Cisco, and American Express are demanding that law firms ditch the billable hour structure in favor of flat-fee contracts.
Companies have long complained that legal fees are inflated by a business model in which law firms have high-priced junior lawyers who must be kept busy billing for work that could be handled more efficiently. With the recession, companies have the leverage to force changes, say some lawyers at both client companies and law firms.
And while this shift is welcomed by the companies, the law firms are facing new challenges:
The shift could further squeeze earnings at top law firms. The past 18 months have been brutal for some big law firms as work that hinges on vibrant credit markets, such as deal making, has flat-lined.
In fact, as reported on Above the Law, some law firms, in addition to the seemingly endless list that have laid off attorneys over the past year, are now turning to pay cuts for associates that are still employed. One law firm in Boston is cutting associate salaries by as much as 35%.
It certainly gives some business owners new leverage in the relationship with their lawyers. But is this new power reserved only for the biggest companies? How has the economy affected the way you work with your lawyer?