Associates huddle behind closed doors, in someone’s office, or at a secret lunch location that partners don’t frequent. The air is heavy with worry and fear. They’ve noticed that there have been a large number of departures lately, e-mails from other associates with subject headers such as “Farewell!” and “my contact info” and “Thanks for all the memories.” The rumor was that stealth layoffs were happening, but no one could prove it. A few months later, their worst fears were confirmed. The firm had openly let go of 84 associates and 38 staff. The incoming summer class was told not to start. Instead, they would be paid six months salary to never show up. Essentially, they were fired before they started work.
Sound familiar? I’m writing about the Silicon Valley bubble burst of 2001, when the above hypothetical scenario was the reality for the vast majority of the technology law firms in SV. The consequences of 2001 were still felt by associates in 2002 and even 2003. The economy eventually did pick up, the firms went back to the status quo of doing business, and now, eight years later, we’re in another recession. Not a whole lot of difference between 2009 and 2001, or for that matter the real estate bubble burst of the early 1990s.
This week’s topic focuses on layoffs, “for cause” termination, and the “RIF,” otherwise known as reduction in force. I’ll discuss these issues in detail during the week, but for right now, those associates concerned about job security should recognize the significance of this indisputable and obvious fact: there are many more associates working at law firms when the economy is thriving than when it’s struggling. What does this signify? Ask yourself this: Do associates, as a group, perform brilliantly when the economy is on the up and up, but suddenly lose their abilities to practice law in a down economy? NO. Obviously not! While there are always a smattering of legitimate “for cause” terminations, law firms should not disguise their RIFs as anything but what they really are.
So take heart in Bill Clinton’s famous rejoinder: “It’s the economy, stupid!”
In January, my firm was doing stealth layoffs but characterizing them as the “usual” firings associated with year-end reviews. By February, the partners had realized they had to let go of more people and couldn’t hide behind the “for cause” shield. They RIF’d about another 200 lawyers in late Feb.
I heard that Cravath has been doing stealth layoffs for a while now, and their 2009 class is being paid $80k to defer to 2010.