Remote-working’s Impact on Lateraling and Leasing
A recent study found that lateral movement is down 30% through August 2020, compared to the prior 3 yr. average (Dragged Down by Finance and Energy, the Lateral Market Has Cratered, Dylan Jackson, 10/8/20, American Lawyer). While most firms add and lose lawyers in a given year, distributed (virtual) law firms appear to be making significant lateral partner gains in 2020 (Already Out of the Office, Talent Flocks to Distributed Firms, Dan Packel, 8/12/20, American Lawyer). Under this model, firm partners do not work out of a brick-and-mortar office location. 250-lawyer distributed law firm FisherBroyles hired 35 new partners in 2020 as of August; traditional law firm Taylor English, which added a virtual partner tier to its partnership 3 years ago, expects to add 15-20 new virtual partners by the end of 2020 (Distributed Firms).
AmLaw firms appear to be dipping their toes into the distributed model as well, hiring partners in locations where they do not currently have offices. A willingness to bring aboard partners in remote capacities could open-up lateral opportunities that would not make financial sense if a more costly office opening were required. But these remote hires also have tax implications, as firms typically must file to pay taxes in every jurisdiction where they have a presence; and states have varied apportionment rules (As Firms Weigh Hiring Partners Outside of Footprint, Tax Challenges Await, Dan Packel, 10/13/20, American Lawyer). Historically, some firms have allowed attorneys to relocate on occasion, while continuing to be associated with an official firm office. But explicitly hiring attorneys in a remote location may raise flags with taxing authorities (Tax Challenges).
Loosening up in-person / face-time requirements may have implications for associates as well. Many associates fled NYC when Covid hit and have been working from less-congested locations across the U.S., like North Carolina. It will be interesting to see whether their firms allow them to continue to work remotely indefinitely, after Covid subsides. Firms in North Carolina have long been the beneficiary of lateral associates seeking to leave NYC and other major markets for quality of life reasons. That talent pool may shrink if remote associates are able to continue earning NY compensation, while enjoying the benefits of living in N.C.
Remote working (whether across state-lines or intra-city) will likely have an impact on law firm leasing in the short and long-term. According to a report by Savills U.S., law firms leased 31% less square footage in the first half of 2020 compared to 2019 (As Pandemic Hit, Law Firm Leasing Activity Plunged in Major Cities, Except DC, Dylan Jackson, 9/25/20, National Law Journal). And most major leasing transactions began before the pandemic hit (Leasing Activity Plunged). Although uncertainty and competing priorities fueled by the pandemic and recession likely played key roles in the drop, there is reason to believe that firms will utilize less space after normalcy returns. The pandemic has largely demonstrated to firm leadership that attorneys can be productive outside of the office; and some % of attorneys would prefer to continue working remotely, at least to some degree post-pandemic. Additionally, permanent reductions in staffing due to layoffs and the outsourcing of functions like IT, marketing, and documents services will shrink demand for square footage (The Outsourcing Continues…, Patrick Smith 10/13/20, American Lawyer).
