Is the credit crunch going to crack open the legal business and hack back the ambitions and prospects of lawyers?

At the start of this year Mundays (the Surrey law firm that claims to operate to City law standards) announced that it was sponsoring Chelsea Football Club’s “football in the community” programme. By this week, however, it was having to hush up details of its staff layoffs. When quizzed about who was leaving, the firm’s hapless marketing executive could only say that she “did not want to discuss the matter”.

Yet while no one likes to admit a setback (and the human cost that goes with it) the announcement of redundancies is scarcely unusual any longer among law firms. Over the past couple of months there has been the progressive build-up of outfits with big names that have been forced to admit that they were letting people go or initiating redundancy programmes.

Maybe the most spectacular and emblematic has been the losses at Dickinson Dees, the highly successful North East firm closely identified with Northern Rock. It would have taken a miracle not to be hit hard by the mayhem arising from last autumn’s crisis and so earlier this summer the firm began redundancy talks with three of the four departments in its volume business. The speculation is that it aims to reduce its head count by around 70 — and that is in addition to the 17 who left last November.

Meanwhile, other well-known names such as Howard Kennedy, Halliwells, Bevan Brittan and McGrigors have all made headlines with news of their departures and downsizing. There are rumours everywhere about people being eased out in penny packets or, at best, highly qualified specialists sitting around twiddling their thumbs because they have nothing much to do.

The big problem for law firms — as for the rest of the economy — is that no one knows how bad it will get or indeed what will happen next. The only clear trend, according to Nick Root, of the recruitment agency Taylor Root, is that it is worse in the regions than it is in London and it is worst of all in real estate. “The difficulty is that if you’re in real estate there’s nothing else you can easily move on to,” he says. “It’s suggested that people should retrain but if you’re a five-year-qualified real estate lawyer that will not be easy. Moreover, you can’t just up and off elsewhere to the Gulf or Hong Kong. There’s no demand for your skills as an English real estate lawyer.”

Tony Williams, of the legal management consultancy Jomati, agrees. “Outside London the smaller high street firms are being hit very badly,” he reports. “In a normal market, real estate — domestic and smaller commercial — might make up 50 per cent of their work and that will now have dropped, typically, by half. Effectively they will have lost 25 per cent of their business and it is very likely that this might wipe out their profits entirely.”

As a result associates are being made redundant because there is, literally, no work for them to do. Mind you, there is always a silver lining and local authorities, Root says, are receiving applications from people who are “five thousands times better than anyone they’ve ever had before”.

Within the City of London it is said that things are much better. A leading management consultant (who preferred not to be named) said that he had heard of no redundancy programmes among the leading City players. However, there seems to be no guarantee that this will last.

“People haven’t a clue what’s happening in this market,” Root says. “They’re living from week to week.”

Those who are most under threat are reckoned to be those with five years’ post-qualification experience or who are salaried partners. “The firms will want to focus on those with the most potential and then let go those who are not so good. So a salaried partner who is not going to make full-equity partner would be vulnerable. Meanwhile, the work will leapfrog over the five-year qualifieds down to the two and three-year qualifieds to ensure they are continuing to get a broad experience,” Root says.

The hope, presumably, is that in a couple of years the whole thing will have blown over. This should also help trainees. Although in firms heavily hit by the real estate collapse many associates still do not know what awaits in the autumn, there is a concern among law firm managements not to repeat the errors of the 1990s when non-recruitment and non-retention led to big skill shortages once the recession was over.

Will all this lead to lower profits for the partners? Logic dictates that it should — but not in the short term according to my “well-placed source”. In the largest firms globalisation means that other territories such as the Middle and Far East are likely to prove their worth and make up for what London is likely to lose. “Even so, in a year’s time any firm that is maintaining its profitability will be regarded as doing very well.”

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