This was followed by the release of the Beacon Legal Salary and Market Report July 2023, which emphasised that, so far, 2023 has been a “year of stabilisation” within the legal market, and something director Alex Gotch expects to continue through to 2024.

“The major law firms have reported stable pipelines of work, with a cautiously positive outlook for the second half of 2023 and anticipation of an increase in M&A transactions in 2024, which will drive the market forwards,” he told Lawyers Weekly.

“Firms have promoted high volumes of staff at all levels, recognising strong individual performance over the last 12 months. Promotions have been relatively evenly spread across the major practice areas.”

Including partner, special counsel, senior associate and other senior promotions, the practice areas with the most promotions were corporate (including capital markets and M&A), dispute resolution, insurance, real estate and property, construction, and cyber and technology.

Despite notable growth within the energy and ESG spaces in recent years, promotions within those practice areas were lower than the aforementioned sectors.

However, Herbert Smith Freehills emphasised that its promotions would further strengthen its capabilities in “key strategic growth areas,” including private capital, energy transition, and environmental, social and governance (ESG) specifically.

“The new partners work in our market-leading practices, as well as many of them in our key growth areas, including private capital, energy transition and ESG,” regional managing partner and executive partner for Asia and Australia Kristin Stammer said following the promotions in April.

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“These areas play to our strengths and represent huge opportunities for our clients and our business, which is why we continue to invest heavily in them.”

You can read more about those appointments, as well as other BigLaw promotions here.

Key growth areas for law

In terms of moving into FY24 and into next year, nrol director Jesse Shah said he was seeing growth in a number of areas.

“I’m seeing growth within the energy, competition, commercial disputes, EMP project, cyber and ESG sectors within law,” he said.

“And mid and senior level lawyers are going to be most in demand, especially in those areas.”

The insurance space has already been tipped to continue growing into the next financial year, as the economy tightens and the sector becomes bigger and bigger, especially with new insurance risks in terms of ChatGPT, artificial intelligence tech and legal tech, as well as the rise and increasing importance of cyber insurance.

The insurance practice area also historically fares well in the face of a recession, as people continue to require home owners, life, car and health insurance despite the rising cost of living – and as recently reported by Lawyers Weekly, full-service firms may be looking to bolster their insurance teams to keep themselves afloat amid a recession.

Subsequently, Burgess Paluch director Doron Paluch said that litigation-based roles within insurance would likely continue to grow.

“We are seeing growth in litigation-based roles, particularly in insurance and construction,” he said.

“In previously slower periods, we have seen areas like insolvency, litigation, employment law, and even family law get busy. The same has started to occur across Australia to some extent, and we expect to see that continue over the next six to nine months. Even if major M&A is quieter, deals will still be happening, and we are still seeing construction and insurance as busy as ever.”

According to the Beacon Legal Salary and Market Report, hiring remained stable within finance, real estate, technology, ESG, cyber and energy transition, with demand remaining focused at the experienced associate and senior associate levels in particular.

Last year marked a massive year within the energy sector, as renewables, ESG, offshore wind projects, and clean energy and decarbonisation all become growing areas of law.

This is something Mr Gotch confirmed – and also noted the expansion of the cyber sector, particularly following data breaches in Optus, Medibank, IPH and most recently, HWL Ebsworth.

While it is not yet known the full impact of the HWLE data breach, HWL Ebsworth partner Andrew Miers confirmed in an affidavit submitted to the Supreme Court of NSW that HWLE has, so far, incurred over $250,000 in costs to conduct a comprehensive review into the leaked data – and that that cost is only expected to grow.

This came after IP services group IPH Limited (ASX: IPH) detected unauthorised access to a portion of its IT environment in mid-March, in a data breach later revealed to have cost the firm an estimated $2 million to $2.5 million, as reported by Lawyers Weekly at the time.

Following this breach, law firms of all sizes were advised to take note of the breach and take proper precautions to protect themselves from cyber criminals – such as implementing protective measures, like cyber insurance and taking a closer look at their positive security obligations.

For this reason, Mr Gotch said, legal advice in these areas – in addition to energy and ESG – will continue to be in demand moving forward.

“There are several practice areas within the major law firms that are growing rapidly and we expect will continue to do so during 2024. The areas of the most rapid growth are ESG and energy, which are areas of significant investment for a number of law firms as Australia and the world focuses on energy transition,” he said.

“Additionally, cyber is a focus growth area for many law firms, with significant levels of client demand for legal advice, both preventative and reactive, in a complex and dynamic business area.”

Both the Medibank and Optus data breaches also prompted numerous class actions, which you can read about here and here — smaller firms were warned that they were “sitting ducks” and were advised to become more diligent.

This, Naiman Clarke managing director Elvira Naiman opined, means that litigation work following increased class actions is likely to continue to be an area of growth – subject to if a recession hits Australian shores.

“Areas like class actions work seems to have picked up. It’s expected that a proportion of the market will cut back-end operating expenses. We are expecting that litigation candidates across all disciplines will remain in keen demand,” she said.

“Depending on what the economy does, insurance, litigation and insolvency law get a boost when the economy is down, but short of a recession we are expecting continued growth in most of the practice areas with potentially a small drop off in corporate and finance.”

More lawyers moving overseas

The exodus of Australian lawyers in 2021 and 2022 caused significant challenges for Australian law firms, who struggled to retain staff as well as attract new lawyers.

Now, amid a potential recession – and as cost-cutting measures are introduced – lawyers will be more likely to explore their options (whether that be internationally or domestically); and this is something Mr Paluch has already seen occurring.

“Lawyers already seem to be more open to exploring opportunities and making a move – particularly as their own employers may offer less and become quieter on the work front. Firms will be more strategic and conservative, but will continue to recruit,” he outlined.

“The more courageous and switched on managing partners will be positive and opportunistic. On the support staff side, recruitment for roles will slow down as firms will try to restructure rather than hire new staff.”

Further, following the pandemic and state-wide mandated lockdowns, senior and mid-level lawyers have been increasingly hard to find, as candidates in the metropolitan areas of Melbourne and Sydney jumped ship to move interstate or overseas.

This trend has only grown in popularity moving through 2023, as moving overseas is now more realistic and achievable for lawyers than it has been since the onset of COVID-19.

Mid-level lawyers especially, according to Mr Shah, are looking to move internationally, with London and Europe being the most popular options – so much so that the recruitment boutique recently opened up a London office.

The profession is “100 per cent” likely to start losing mid-level lawyers to overseas markets, he said, and that Australian law firms would need to start filling the gaps with international lawyers.

“With lawyers moving abroad, openings are always going to be created. And with more and more business being conducted through working relationships in APAC, firms still need resources here,” he added.

“I really think Australian firms need to be open to hiring international lawyers and sponsoring them a lot more than they have been. They are going to see lawyers from here leave and being able to fill the gap will mean recruiting international lawyers.”

This is something that is echoed in the Beacon Legal Salary and Market Report, which noted that a “significant and far greater than average number of Australian lawyers” have moved overseas since 2021; notably those with more than three years’ PQE.

“Candidates who are interested in relocating overseas in the near future are advised to take a cautious approach and aim to secure a new role before quitting their current role, as the overseas markets are far cooler than 12 months ago,” Mr Gotch said.

“Those candidates considering a domestic move will still have opportunities, particularly at the experienced associate and senior associate level. A slightly slower market can actually be a good time to job search, as there is generally less competition for roles than during a boom market.”

According to the report, 2023 provided a stable job market for lawyers moving domestically – a trend Beacon Legal expects will continue for the “foreseeable future.”

“We are predicting an upturn in international moves in mid/late 2024, or when interest rates begin to fall and there is an increase in the London/US M&A activity and the spending of the billions of dollars of ‘dry powder’ by the PE funds. If, and when, this happens, we expect international hiring to significantly ramp up and a greater number of roles to become available for internationally relocating Australian lawyers,” the report states.

Does a potential recession mean redundancies?

Following the news that legal salaries are slowing down amid economic turbulence and that some lawyers would be “disappointed” come review time, as salary increases will not be as high as last year’s, BigLaw firms may start making redundancies if the economy continues to decline.

This has already been seen in the likes of Clyde & Co and MinterEllison. Last month, Lawyers Weekly revealed that the two BigLaw firms had started making redundancies to back-office roles, such as business operations and administrative support roles.

This is likely due to a quieter market, Mr Paluch opined.

“We have heard of a few firms which are looking at making some support staff redundant. I think these would in some cases be firms which overreacted to the booming market last year, and which are overreacting again by trying to reconfigure for this quieter market,” he said.

“[But] there are still plenty of good opportunities for lawyers coming into 2024, even though firms are being more cautious before hiring.”

And while keeping key staff is a “critical issue regardless of economic conditions,” many large firms have “huge back-end operating expenses” that are likely to take a hit in a potential recession, Ms Naiman predicted.

“Some firms have as many non-income-producing staff as they do income-generating ones. Despite the economic doom and gloom, law firms in Australia remain busy, however, I suspect they are consolidating resources in time for a possible economic downturn.

“Essentially, departments that cover marketing, finance and operations are where firms feel that some ‘trimming the fat’ is possible. Also, with the uptake of AI and other technological advances, together with a continuing push towards outsourcing some non-business critical functions, undoubtedly will lead to ongoing redundancies in back-end staff in the foreseeable future,” she added.

“We are aware of at least one major firm which has already made very significant cuts to its business services team in anticipation of a continued slowing down of the economy. In relation to legal roles – it’s hard to tell. I think firms will continue to keep a close eye on utilisation and meeting budgets, and some consolidation is definitely a possibility.”

Mr Shah echoed a similar sentiment and also predicted that back-office legal support would be one of the first departments to “take a hit.”

“I think you will see a few redundancies in the back office. I don’t see anything changing for fee earners, but I do see support staff, not massive cuts. But if you look at the roles right now and the top tiers that we work with and who they were hiring last year compared to this year, the number of support roles has reduced significantly,” he said.

“But I would say the lawyers are safe, for now – and with the growth we are seeing with the Asian markets, I think firms are going to always have the need for lawyers.”

More likely than redundancies for lawyers, Mr Gotch added, is the possibility of the relocation from lawyers in underperforming markets to busier markets, such as insurance, cyber, and energy.

“We are not expecting a volume of legal redundancies within the top law firms. Beacon Legal continues to be very busy with far more legal job vacancies than it is possible to fill,” he explained.

“A possible trend, rather than redundancy, is a relocation of resources within law firms, if one practice area is far quieter than others and it is possible for lawyers with transferable skills to work with another team within the firm.”

Increased benefits and changing candidate expectations

Despite the declining economy, the Beacon Legal Salary and Market Report confirmed that the legal recruitment market is still candidate-short – and that, therefore, law firms would continue to hire “quality talent” with a more strategic approach to resourcing and focus on “business critical roles.”

According to the report, with changing market conditions, practices will become more agile in their approach to working, and 2023 may offer lawyers the chance to broaden their skills into other areas.

“We expect law firms to continue stabilising their workforce in key practice areas which have cooled, but are likely to pick back up in 2024, such as corporate and private equity. Firms will focus on continuing to build within the growth areas of law, such as energy and cyber,” Mr Gotch added.

And as firms seek to continue securing talent, the report emphasised that a combination of strong remuneration and a variety of non-financial benefits, such as parental leave and flexibility, will continue to attract and retain talent.

Despite this, Mr Paluch said that candidates still need to understand that “last year was not normal” – and adjust their expectations slightly in the tail end of 2023 and 2024.

“Salary and career expectations were getting a little out of control – and some law firms accommodated and inadvertently encouraged this. There are still very good options for lawyers in the market, but the market now exudes caution. Candidates should reconfigure their expectations accordingly.

“Also, especially on the support staff side, many are wanting flexibility with WFH and different hours. Some firms are becoming less accommodating to more than one day from home. Staff will need to decide what their real priorities are – between salary, flexibility, and culture,” he added.

“Firms should focus on retaining staff, and also on targeting staff from other firms which have previously attracted staff by promising bells, whistles, and promises that haven’t been delivered upon.”

The legal market is likely to, therefore, see an increasing number of benefits introduced – with the onus now on firms to place greater importance on nurturing talent, promoting diversity and gender equality and their working culture, outlined Mr Shah.

“Flexibility is definitely here to stay, I think. And other benefits are likely to increase with the rising cost of living – especially in Sydney and other major cities in Australia. Firms are going to have to introduce a lot more to retain their staff. And in terms of not just waiting to counter-offer staff threatening to resign, I think firms have to be a lot more proactive.

“A lot of candidates have been disappointed about their reviews this year and the increments that they got. Some of these candidates have been at the firm from the start of their career and were very loyal to their firm, but with these reviews, they’re now looking for a move,” he concluded.

“So, I think everyone’s got to up their game.”