Last year news that first-year associate salaries were hiked to $160,000 at some Manhattan law firms raised more than a few eyebrows. What a difference a year makes.

Despite the financial meltdown on Wall Street in September – which shook markets worldwide – and the looming recession in Canada, the demand and salary levels for lawyers are expected to remain stable, according to the 2009 Salary Guide, produced by Robert Half Legal, a legal staffing agency with offices throughout North America.

In the U.S., the bursting of the housing bubble, the demise of investment banking and deteriorating economic conditions have already begun to have a toll on the legal sector. Two venerable large law firms, Thelen LLP and Heller Ehrman LLP, folded in October and November of this year, respectively. Other law firms in the U.S. are trimming associate ranks.

In Canada, the outlook for lawyers appears to be less severe.

Although most of the projections in the 2009 Salary Guide are based upon data collected in early to mid-2008 – well before Bloody Monday on Sept. 15 – market pressures have yet to push Canadian law firms to slash salaries or staff.

“Salaries continued to rise up through 2007, but have leveled off since then” says Jonathan Veale, division director in the Toronto office of Robert Half Legal.

“Thus far there hasn’t been an impact on salaries…. We haven’t seen any declines to date.”

While salary levels are stagnant, the competition for talent has slowed down.

“We’re not seeing the same pace of hiring or frenzied atmosphere,” says Veale. “Law firms are taking more time and being more cautious about recruitment. But demand is still strong for certain skill sets, in particular securities, litigation, intellectual property (especially patents) and regulatory compliance. Insolvency is also a booming practice area right now.”

During the last recession in Canada in the early 90s, many law firms let lawyers go. Although there has been a trickle of associate layoffs this autumn, Veale does not think the layoffs are necessarily linked to the financial turmoil.

Law firms tend to over-hire in the articling and junior associate ranks, so it is not uncommon to see some layoffs as law firms reevaluate their needs each year, Veale argues.

“Although there have been certain cases of layoffs, I’m not convinced that it’s a sign of really bad things to come. I suspect that it’s firms going through their annual reassessments,” Veale says.

Moreover, Veale anticipates that most law firms will try to hang on to associates even if the recession hits Canada.

“From my understanding through discussions with senior partners, they’ve learned a lesson in [the] 90s: When the market recovers, you need to have the core bench strength of associates on hand, so it doesn’t serve them well to lay off a large number of associates if the view is that we’re going to experience an upturn in the next year to two years,” Veale explains.

According to the report, average salaries in 2009 for first-year associates in Canada is expected to range from $81,000 to $91,000 at large law firms, $66,250 to $79,500 at midsize law firms, $61,000 to $69,250 at small/midsize law firms, and $50,500 to $63,000 at small law firms.

In 2009, lawyers can expect to see average salary increases of 4.4 percent at large law firms, 4.6 percent at midsize law firms, 4.5 percent at small/midsize law firms and 4.0 percent at small law firms.

The demand for lawyers should remain steady throughout 2009, with the greatest demand in Toronto, Ottawa and Calgary.
In Toronto, the report anticipates a jump in class action activity and greater demand for contract lawyers.

In Ottawa, midsize law firms account for the bulk of new hires, especially firms providing legal service to the high-tech sector.

In 2008, Calgary’s legal sector experienced rapid growth, particularly in oil sands development and expansion and environmental and regulatory law. Stats used to generate the report were gathered too early to account for the impact of the collapse of the price of oil – down to $64 U.S. per barrel in November from a high of $147 U.S. per barrel in mid-July, a drop of about 60 percent – on Calgary’s legal sector’s remarkable growth spurt.

In-demand practice areas for 2009 include securities law, litigation, bankruptcy, intellectual property and regulatory compliance. Practice areas experiencing downturns of late are commercial real estate, corporate finance and mergers and acquisitions.
Staff retention still remains a top priority for all law firms.

“Over the past few years, associate have been leaving law firms in larger numbers,” Veale says.

Many associates left law firm life for in-house counsel gigs, as corporate legal departments have expanded their legal teams in an effort to control outside legal expenses.

In response, large law firms have taken steps to stem associate losses, such as raising salaries, creating professional development initiatives and offering flexible work hour models.To keep associates from being cherry picked by better paying large law firms, small and midsize law firms have endeavoured to close the salary gap, raising salaries on average five to 10 percent each year.
While 2009 may not promise substantial raises, at least mass pink slips don’t appear to be on the horizon.