Joel Carpenter, Sullivan & Worcester

Law firms have been relieved that the COVID-19 pandemic has not been as financially catastrophic for the industry as predicted in March, but the coming months will bring more uncertainty for firms and the broader economy as Paycheck Protection Program loans run out and coronavirus cases keep rising in the United States.

Most of the PPP money, which was intended to cover salaries for up to 2.5 months, went out in April. More than 1,500 law firms across the United States signed up, and at least 47 Am Law 200 firms received loans totaling $218 million to $445 million based on the dollar ranges issued by the Small Business Administration, which administers the program.

Nearly two months after most loans were issued, though, firm leaders and legal observers say firms aren't out of the woods yet.

"There's still substantial uncertainty around the 'second wave' and the long-term economic impact," said Sullivan & Worcester managing partner Joel Carpenter. "Supplemental unemployment is up at the end of the month. We're cautiously optimistic, but we still don't know where all this is going to take us."

PPP money allowed his firm to weather the pandemic's initial impact without instituting broad layoffs. Instead, employees who made more than $66,000 per year saw a 5% pay cut, and partners saw a double-digit reduction in their draws. The firm furloughed fewer than 10 employees who were unable to do their jobs remotely.

While Sullivan & Worcester brought back half of its furloughed staff, those jobs are tied to recent reopenings in New York. Some states, in response to the rising tide of coronavirus cases in June and July, have either paused or reversed their reopening plans.

Florida notched more than 11,000 daily cases for a second time Friday in the state's deadliest week as fatalities climbed past 4,100. Four-digit daily climbs in cases have been the norm for more than a month, taking the total above 244,000, including more than 17,000 hospitalizations and pushing intensive care usage above 80%. In the hardest-hit county, Miami-Dade Mayor Carlos Giménez responded with an order Thursday reinstating a ban on indoor dining.

Texas, Arizona, California and South Carolina are among other large states seeing upticks in cases, and U.S. industries continue to be hammered by the pandemic months into the virus fight. United Airlines announced Wednesday that it may furlough up to 40% of its staff, or 36,000 workers, on Oct. 1 even after receiving much of the $25 billion in airline stimulus funding allotted by Congress in March.

"The problem is that [PPP] is a short-term fix," said Paul Hastings partner Christopher Austin, who advises on PPP applications. "Anytime you can get funds in the door in a time of uncertainty, it gives the people more opportunities to get people employed. Whether or not that will last will depend on how people are doing now."

As with United Airlines, several firms that received PPP stimulus loans have announced pay cuts and furloughs. Hughes Hubbard & Reed laid off an undisclosed number of attorneys and staff Tuesday, despite receiving a loan $5 million to $10 million.

In a statement to Law.com, the firm said that while the PPP loan helped "to save jobs during the worst of the crisis," the "deep impact of court closures and a slowdown in deal activity" three months after the pandemic first began forced its hand.

A few firms that did not draw down PPP loans also announced austerity measures in June. New York's Fried, Frank, Harris, Shriver & Jacobson, which had a standout 2019, said it would offer voluntary buyouts to staffers. Denver-based Holland & Hart announced broad pay cuts for both partners and staff.

And while layoffs and cuts are discouraged for those receiving PPP funds by being linked to loan forgiveness, there's nothing that would stop a firm from laying off employees after the money is spent and its loan forgiveness has been approved.

Gretta Rusanow, head of advisory services for the Citi Law Firm Group, said that among the 60 firms she collects data and projections from, two-thirds are projecting median revenue declines of 5% in the third quarter. The firms, including almost half of the Am Law 100 and several firms in the Am Law 200, also project a median 5% drop in demand and 5% lengthening of collections.

Rusanow said firms were initially pessimistic in their projections amid the pandemic. When asked to project second-quarter demand at the beginning of the quarter, a similar sample of law firms estimated a median demand drop of 15%. By June, the firms moderated their projections to just 7%. Revenue among the group saw a median quarterly decline of 1%, although Rusanow notes results varied greatly.

"What I've seen from this sample is that Q2 was better than expected, and firms went into the months very concerned," Rusanow said. "Going into Q3 there is an anticipated drop in revenue, but we may as well see a moderation as we go into the quarter."

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