2001: A Legal Perspective

Profession Strong In Spite Of Economic Downturn

The Texas legal market entered 2001 like a shooting star, coming on the tail of an active and highly profitable 2000, a year during which firms in Texas' major markets achieved unprecedented earnings and large firm associate salaries soared, in some cases as much as 25 percent. As the year advanced, however, even Texas began to feel the effect of the dot.com bust, which started in the spring of 2000. As the "Lone Star" state became trapped in the economy's gravitational pull, the Austin economy was hardest hit, Dallas showed significant slowing, and even Houston, with its strong energy base, became less robust. However, the Texas legal industry remained a bright spot when compared to other parts of the United States.

As 2002 begins, there are some notable commonalities among Texas' major markets: Corporate and securities work is down, and the ripple effect has touched collateral practice areas such as real estate, banking, and taxation. The "Big Tex" firms, as they have become known to large firm associates, are beginning to feel burdened by the mega-raises given in the spring of 2000 to quell the feared flight of associates to dot.coms and the Silicon Valley firms' Texas offices. Layoffs have already taken place in some out-of-state firms' Texas offices and most associates anticipated more rigorous year-end evaluations. Law firms still struggle with hiring issues, given that major firms across the nation really hire new classes of associates a year before they begin employment. Firms are generally reducing the size of entering classes a bit, since it's extremely tough to predict need that far in the future.

There is still demand for attorneys practicing general corporate, commercial, and contract law (principally from corporate clients). The continued growth of the deregulated energy industry is fueling much of this business. Additionally, both firms and companies are interested in adding experienced, generally mid-level, litigators. Firms are seeing an increase in the volume of litigation, and corporate law departments are continuing efforts to aggressively manage litigation handled by outside counsel in an effort to control costs. While the economy has slowed, the need for bankruptcy attorneys, a practice area that boomed during the early '90s, has not yet increased.

Intellectual property practice areas continue to be active, especially those related to computer and software licensing. IP attorneys who have undergraduate degrees in electrical engineering or computer science are scarce and in constant demand.

Both law firms and companies are continuing to add employment attorneys, not only because of both the increased federal statutes and regulations affecting the area, but also due to the potential of layoffs that can generate related litigation. Corporations continue to emphasize the role of in-house employment attorneys in management training and compliance development programs.

There have been some law firm layoffs of attorneys, and more stringent performance reviews will probably trigger some associates' decisions to look for other positions. And, even the strong performers may decide to look elsewhere as they project their potential for making partner in a weakened economy. If history remains consistent, some partner movement will occur in this economy, specifically by partners whose portfolios are not large enough to support high overhead factors or whose clients are resistant to increased billing rates. These partners frequently can maintain a similar income stream at a smaller firm, simply due to the lower overhead.

Houston is acknowledged to be the nation's energy capital, and as a result, it continues to be an attractive target for colonizing national firms. With the strong economic base and lower overhead, national firms can now open Houston offices without diluting profits. There has been, and will probably continue to be, strong demand for partners who control in excess of $1 million in portable business, to move to these new offices.

In the corporate area, Houston's American General was acquired by AIG and a number of the attorney positions were eliminated as the corporate headquarters moved to New York. The proposed merger of Compaq and Hewlett-Packard could also result in a significant number of layoffs or relocations, and certainly Enron's woes will hurt the economic outlook for the region.

Dallas, with its strong telecommunications, travel, and hospitality industries, felt the post Sept. 11 slowdown much more significantly than Houston did. The telecom industry was already suffering by the middle of the year, and post-Sept. 11 repercussions resulted in additional pressures on the industry. As was the case nationwide, the travel and hospitality industries really took a blow and many companies executed significant layoffs, some of which affected in-house counsel.

Austin was the hardest hit in 2001, with the full effect of the technology crash being very apparent. The Silicon Valley firms' Austin offices have been extremely hard hit and several laid off a noticeable number of professionals. Many of the tech companies that closed employed attorneys who are now having to re-tool or relocate. The large Texas firms and the local Austin firms, which did not base their futures on the technology boom, seem to be doing satisfactorily, although the revenues of 2000 seem very long ago for most. Some smaller firms have truly benefited in the current economy, choosing this as an excellent time to upgrade their talent. Many top associates, who previously only wanted to join nationwide or statewide firms, have made the move to smaller firms. Additionally, companies continue to selectively hire in-house attorneys in an effort to further reduce outside legal fees.

Companies and firms are beginning to ramp up their hiring of contract attorneys to handle specific projects or simply overflow until the economic outlook becomes clear. As legal employers continue to struggle with running more efficient operations, the demand for highly qualified legal assistants will continue to remain high.

Exactly what 2002 will look like in 12 months for Texas' law firms and corporate law departments is hard to say. Because Texas enters the new year with an economy stronger than much of the rest of the United States, we hope to see a quick recovery which will be the driver for increased employment of attorneys and legal assistants and profitability for the Texas legal community.

Lauren Eaton Prescott is vice president of Prescott Legal Search, the largest legal search firm in Texas. She provides senior level retained and contingency search, and divides her time between the company's three offices. She can be reached at (713) 439-0911.

LEGAL EMPLOYMENT