"Fewer People, More Work" Lawyers Cry and Laugh Amid COVID-19

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The novel coronavirus disease (COVID-19) crisis is threatening law firms. While measures to prevent the spread of COVID-19, such as lockdowns and remote work, have led to an increase in various lawsuits and thus more work for lawyers, 'profitable' tasks like mergers and acquisitions (M&A) or initial public offerings (IPO) have actually decreased due to concerns over economic slowdown. Law firms facing increased uncertainty due to the COVID-19 crisis are implementing cost-cutting, layoffs, and salary reductions.

According to the American law firm Hunton Andrews Kurth on the 13th (local time), the number of COVID-19-related lawsuits in the U.S. reached 3,347 as of the 9th, showing an upward trend since March. Among these, insurance-related lawsuits were the most numerous at 819 cases (24.5%), followed by civil rights lawsuits related to workplace closures or remote work at 576 cases (17.2%), and lawsuits concerning detention and movement restrictions at 570 cases (17.0%).

Law firms generally experience a boom during crises like COVID-19 because disputes increase, leading to more work. The Wall Street Journal (WSJ) reported that during the COVID-19 situation, lawsuits related to corporate or real estate matters decreased during quarantine periods, while bankruptcy and personnel-related work increased.

Insurance lawsuits are a prime example. In the U.S. and Europe, litigation has been ongoing over the interpretation of business interruption insurance contract clauses, which companies purchase to prepare for potential operational shutdowns. The issue arose because, although government lockdown measures halted business operations or factory activities due to COVID-19, insurers denied compensation, claiming these were not covered.

In the U.S., retailers including restaurants have filed lawsuits against insurers seeking compensation for billions of dollars in business losses due to lockdown measures. Last month, plaintiffs even placed an advertisement in New York's Times Square urging insurers to "do the right thing." Insurers argue that business interruption insurance only covers "physical damage" such as fire, and losses due to lockdowns are not compensable. The WSJ described this as "the largest litigation in insurance history."

In the UK, the Financial Conduct Authority requested the High Court in May to interpret key insurance policy wordings related to COVID-19 from major insurers, with results expected by the end of this month. French insurer Axa agreed on the 30th of last month to pay insurance claims to hundreds of restaurants. This followed a lawsuit loss in May involving a chef who operates a restaurant, which formed the basis for settlements with other restaurants.

While lawsuits handling disputes are pouring in, requests for advisory services related to M&A or IPOs, which directly affect lawyers' revenues, have decreased. This is because companies seeking to secure cash liquidity during the crisis have increasingly suspended related procedures or canceled existing plans. According to Dealogic, the scale of M&A in the U.S. in the first quarter of this year was about $276.5 billion, a 50% decrease compared to the same period last year. Globally, it decreased by 35%. As the number of M&A deals declines, law firms' revenues inevitably decrease as well.

This phenomenon was also observed during the 2008 global financial crisis. According to a report titled "Impact of COVID-19 on Law Firms" prepared by consulting firm McKinsey in May, during the 2008-2009 global financial crisis, the decrease rate of legal lawsuits related to litigation was less than 5% year-on-year, but corporate transaction legal work such as M&A decreased by more than 10%. McKinsey explained that corporate transaction work is more significantly affected when a recession occurs in a short period.

This year, law firm revenues are also expected to be impacted. Wells Fargo's legal specialist group reported in May that based on revenues from 72 U.S. law firms, service demand decreased by 1.4% year-on-year. This means the impact is less severe than the 10.4% decrease recorded in May last year. This can be interpreted as law firms relatively weathering the pandemic crisis well. They also added that cash collection increased by more than 3% during the same period.

However, pessimistic forecasts are gaining traction within the legal community. In a survey conducted by legal information company Martindale-Hubbell targeting 208 lawyers, 81% predicted that law firm revenues would decline this year. Among them, 27% expected revenues to decrease by more than half compared to the previous year since the pandemic began. Centered on the U.S. and the UK, law firms are taking successive measures such as layoffs or salary cuts to reduce costs. It was reported that the top 45 U.S. law firms received $210 million (approximately 251.9 billion KRW) through the federal government's Paycheck Protection Program (PPP) for small businesses.

This content was produced with the assistance of AI translation services.