(Reuters) - Law firm revenue will take a hit and layoffs are likely on the horizon, as demand for certain legal work drops and clients take longer to pay bills as a result of the Coronavirus pandemic, industry consultants said.
Before the crisis, law firms had expected a “low single digit” revenue increase for 2020, but now revenue is expected to be “absolutely flat” or “lower single digit down” for the year, said Mehrnaz Vahid, the head of Citi Private Bank’s law firm group, which provides financial advice and services to law firms, in an interview with Reuters on Friday.
Firms “all expect collections to slow down, period,” Vahid said.
The rapid spread of the coronavirus, which can cause the sometimes fatal respiratory illness COVID-19, has in recent weeks forced courts, businesses and schools in the United States to shutter, with nearly one in three Americans now under orders to stay at home. There were 43,800 confirmed cases of the virus and 506 deaths in the U.S. as of Monday afternoon.
Corporate and litigation practice groups could be hit especially hard, as many mergers and acquisitions and other deal work gets put on hold, while litigators deal with court closures and trial delays nationwide, according to Vahid and Brad Hildebrandt of Hildebrandt Consulting.
Some corporate lawyers are being asked to work on restructuring or bankruptcy matters as those practice groups may see an unprecedented upswing in demand, as could employment lawyers, Vahid and Hildebrandt said.
But not everyone can be transitioned to new roles. Large firms are already considering layoffs, though they likely will not follow through with them until at least six weeks from now, when firms have a better sense of the financial impact of the pandemic, Vahid said.
Underperformers and those close to retirement age are the most likely to be impacted by layoffs, she said.
”There’s a lot of firms taking a hard look at these things,” Hildebrandt said in an interview on Thursday.
To be sure, it’s not clear how long the pandemic will last or how severe the economic fallout will be. Both Hildebrandt and Vahid said it is possible that firms rebound later this year, especially as the industry started 2020 off strong.
Nonetheless, many large law firms are already asking for additional lines of credit, though there’s no uptick in credit use, yet, Vahid said.
”[Firms] just want to make sure that they have the lending available to them, if they need it,” she said. “If the collections don’t come in on time.”