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The coronavirus pandemic sent a wave of pay cuts, layoffs and furloughs through the legal industry this spring. While some firms are anticipating further financial hardship, others have recently walked back some austerity measures, reflecting the pandemic's uneven effects on the legal industry.

Lowenstein Sandler, Cozen O'Connor, Bryan Cave Leighton Paisner and Munck Wilson Mandela have reversed at least some of their compensation cuts, with some citing stronger-than-expected demand and financial performance.

Lowenstein paused a portion of planned distributions for its 50 equity partners. The firm resumed partner distributions in May, firm chairman and managing partner Gary Wingens said, adding the firm was "rapidly catching up on distributions" and had its best financial month of the year in June.

"Clients and practices are far more resilient than we had feared heading into the recession, and even the practices that had a pretty severe demand shock in April are reversing and had come back pretty fast by June," said Wingens.

The firm has doubled its usual cash reserves and was able to pay partners in May and June at a higher rate than its standard distribution, after pausing distributions in February, March and April, he said.

Wingens attributed some of Lowenstein's financial success this spring to its bankruptcy practice, which is representing the creditor's committee in the GNC Chapter 11 case and is also playing a role in other retail restructurings. More surprisingly, he said, is that the capital markets practice has been very busy. The firm closed more than 20 capital markets deals during the last few months, including four during a single week of June, he said. Fund formation activity is also bustling, while much of the firm's M&A work has rebounded, he added.

"In our M&A practice, demand dropped by 35% year over year in April, but by the middle of June, demand was only off 5%," Wingens said. "Not only did we see a lot of deals that went on hold in March and April come back, but we're now seeing clients willing to do new M&A deals, even if they're not physically getting together."

Wingens said Lowenstein was still being conservative with expenses as it navigates the coming months, but the firm's consistent monitoring of its financial data and its practice area activity have allowed it to go against the grain.

"We honestly considered the same cuts you've seen other firms do, but we carefully watched our data every single week and didn't feel like we needed to make those cuts," he said. "At the same time, we've built enough of a cash reserve so we could restart distributions to our partners. We're still monitoring financials every week, but we have confidence that we have the balance sheet we need."

Cozen has also reversed course after the firm in April and May asked partners to defer between 10%-20% of their compensation to the end of the year and furloughed nearly 10% of its administrative staff through July 31. Firm executive chairman and CEO Michael Heller said in an email that as of July 1, the firm is once again paying partners fully. 

However, Heller did not return a message seeking additional comment about the status of the furloughed employees. A firm spokesperson declined to comment about furloughed staffers.

BCLP in April cut pay by 15% for employees making more than $40,000 for 13 weeks; reduced the salaries of its London-based newly-qualified lawyers by 2.5%; and furloughed some paralegals and assistance. In July, the firm reduced all-employee pay cuts from 15% to 7.5%, but the firm also planned to conduct layoffs, including at least 40 positions in London, and planned to close its Bejing office, Law.com earlier reported.

"After exceeding performance expectations during the first half of this extraordinary year, we're pleased to begin rolling back salary reductions necessitated during the worst of the pandemic conditions," BCLP co-chairs Lisa Mayhew and Steve Baumer said in a statement at the time of the recent changes.

It's not just Am Law 200 firms that have found more financial footing. Midsize Texas firm Munck Wilson Mandala this spring reduced compensation for partners, associates, exempt directors and managers; furloughed some salaried employees; and reduced hours for some hourly employees. Several partners also chose to defer their base salary for three months.

As of July 1, a firm spokesperson said, it had resumed normal pay for all employees, and it did not reduce its head count.

The firm's managing partner, William Munck, did not return a message seeking additional comment about furloughed employees.

R. Bruce McLean, a law firm management consultant at Zeughauser Group, said firms reversing cost-cutting measures were anomalies, but a wide disparity in how the pandemic is affecting firms' businesses – based on practice mix and geography — could be making the difference.

"My insight is that payroll and draw reductions were instituted to deal with what was, at the time, uncertainty about cash flow and liquidity," he said in an email. "Since those early days, there has not been a significant disruption in cash flow from what was a pretty good first quarter for work, thus permitting a reversal of conservative cash management."

Even so, McLean said the legal industry as a whole is bracing for a subdued financial year in 2020.

"A significant number of firms, but not all firms, are predicting a shortfall from budgeted annual revenue," he said. "Those shortfalls will extend into 2021, and more permanent expense reductions may be what is called for, although most firms have indicated that they are not yet ready to proceed with head count reduction. Time will tell: by the end of the third quarter, firms will have a more reliable read about business flow through the pandemic."

Brenda Sapino Jeffreys contributed to this report.

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