Hire Profits in Law Firm

With clients putting pressure on law firms to keep rates low and associate salaries on the rise at many firms, firm leaders are increasingly looking to adjust their staffing models, oftentimes placing more responsibilities on their paralegals. More firm leaders are looking to nonlawyer staff members, such as paralegals, to take over duties that may have once fallen on first-year associates, industry observers said. It has allowed them to lower the costs for clients and in many cases increase the firm’s profit margin. But as those tasks fall on other professionals, firms will likely hire fewer new lawyers to fill the traditional role of a first-year associate.

“They realize that their profitability is driven in significant part by lowering what it costs them to deliver the legal services,” Kent Zimmermann of the Zeughauser Group said. “And that’s causing many firms to look at how they staff matters.”

According to Altman Weil’s 2016 Law Firms in Transition report, more than 70 percent of firm leaders are changing or considering changing their strategic approach to staffing. And nearly 38 percent of them expect to shift work from lawyers to paraprofessional staff. Among firms with more than 250 lawyers, that percentage rose to nearly 42.

“I think it will become more prevalent and it’s going to be out of necessity,” said David Kleppinger, chairman of McNees Wallace & Nurick. “Clients are becoming more and more demanding of receiving value for their legal service and the challenge is: How do you deliver that value at a lower cost … without compromising on quality?”

Harry Reichner, secretary of The Philadelphia Association of Paralegals and a paralegal at Cozen O’Connor, said he expects a movement toward greater paralegal involvement at law firms, so those firms can provide services to clients who are currently struggling with the high cost of legal services. Cozen’s paralegals are billed out at relatively high rates because of the clients they serve, he noted, but the large-firm environment and technological resources allow him to focus more on substantive legal work and less on clerical tasks.

“We’re seen as equals in many respects,” Reichner said. “I have an associate who just became a member and I congratulated him and he said, ‘I couldn’t have done it without you.”

The Altman Weil survey came out just a few weeks before a wave of associate salary increases that stole legal industry headlines this summer, beginning in June when Cravath, Swaine & Moore pushed its first-year salary to $180,000. Cravath’s move drove a number of firms across the country to rework their pay scales, even if they chose not to match $180,000.     Tom Clay of Altman Weil said he and other consultants have been “preaching” to firm leaders that they should reassess their staffing models. As firms adopt those models, he said, it will likely keep hiring of new associates depressed.

“The profit margin on paralegals can be much higher than with associates or anyone else,” Clay said. “Paralegals have been around for generations, but now [firms are] realizing paralegals can be a better, more cost-effective method of getting things done.” Paralegals who possess an Associate Degree in Paralegal Studies, where they obtain hands-on experience in preparing pleadings, including Motions, and research are most desirable to firms as they have this specialized experience not traditionally offered in law school. While they are unable to practice law and argue matters in court, they prepare pleadings, manage cases and handle clients, providing the firm with a well-rounded employee for their firm at a more reasonable salary than that of an attorney.

Further, Clay said the profit margin for paraprofessionals often outweighs an associate’s profit margin for up to six years into the associate’s career. And a firm will likely experience a loss for most associates in their first year, and possibly second year. “Everybody knows with a good paraprofessional versus a brand new lawyer out of law school, the paraprofessional is far more efficient and effective,” he said.

Anne Newcomer has been a paralegal at Meyer, Unkovic & Scott in Pittsburgh for four months and worked at Goehring, Rutter & Boehm for about a decade before that. Throughout that time, she said, she and other paralegal colleagues have taken on “much more increased responsibility, where formerly a young associate would have handled those tasks.” Some of those tasks include assisting with research, drafting tax liens, making calls and interacting with clients, Newcomer said.

Kleppinger said his firm routinely calls on nonlawyer professionals in a variety of practice areas including intellectual property, real estate and energy. He said the firm looks at staffing from the perspective of clients, who want better service at the best possible value.

“We’ve been doing that for quite a while, and it doesn’t only relate to paralegals, in a variety of our practices where it’s not essential that a lawyer do different functions,” Kleppinger said.

Like Kleppinger, Newcomer said firms’ increased dependence on paralegals is client-driven, particularly in insurance defense, where she used to do a lot of her work. Insurance adjustors would look over the bills, then point out certain associate tasks that a paralegal could have done, she said.

As those duties expand in scope, Clay said, navigating the ethical boundaries for nonlawyers should be simple. Those professionals simply have to work under the auspices of a lawyer, he said.

“The rules of professional responsibility are extremely clear about the use of paraprofessionals,” he said.

Zimmermann agreed, noting that in certain areas of law, paralegals have long been a key part of the business model. Firms in the intellectual property space as well as private wealth or trusts and estates practices seem to be growing the percentage of nonlawyers they employ, he noted. “You’ve got to make sure those people aren’t practicing law,” Zimmermann said. “That having been said, there’s a lot nonlawyers can do … without running afoul of the ethics rules.”

Kleppinger said it’s clear when a lawyer needs to step in to oversee a paralegal’s work, and where to draw the line in terms of doing legal research and opinions. And nonlawyers are always introduced with the proper title, he said, to avoid confusion. “It’s very clear that they’re not signing any documents or letters … without the clear designation,” he said. Reichner said he is “pretty autonomous” as a paralegal at Cozen. But, he said, it’s very clear where his role ends and an attorney’s role begins.

“The work that I’m doing is substantive legal work, but I am sure to always communicate with my associate or my partner member about what’s going on,” he said. “I don’t make any decisions that could have a legal aspect to them.”

But paralegals aren’t just taking on the tasks that once fell to lawyers. At some firms, they’re absorbing the role of secretary as well. Cindy Wirtz, president of the Pittsburgh Paralegal Association, said she has noticed that trend taking place in Pittsburgh, as law firms rely on smaller secretarial pools rather than an individual secretary for each attorney. Andrea Yannuzzi, president of The Philadelphia Association of Paralegals, said the same. A lot of the job postings aimed at paralegals are now seeking a “legal assistant/paralegal,” who will do both secretarial and paralegal work, she said in an email. “It’s a hybrid position,” said Wirtz, who is a paralegal at Pollock Begg Komar Glasser & Vertz. “The day of the traditional one-attorney-one-secretary [firm] is over.”

Clay said that should be the case. Ideally a firm will have one secretary for every six to eight lawyers, he said. “The real, long-term potential savings is in legal secretaries,” Clay said.

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