Balancing current recruitment with future workloads has always been an issue for law firms. But the downturn has led most to scale back their hiring, says Friederike Heine

As the latest band of students enters the milkround, they join increasing numbers of graduates struggling to make their way onto the career ladder, with rafts of companies cutting back or closing their doors altogether to graduates as they weather the downturn.

For the City's largest law firms, which typically recruit for training contracts two years in advance of would-be lawyers walking through their doors, maintaining the right flow of trainees to match predicted future workflows has always been something of a juggling act.

It has long been a common line trotted out by law firms that graduate recruitment – like partner promotions – should not be based on the current economic climate, but that a little crystal ball-gazing needs to be applied to the process.

CMS Cameron McKenna's graduate recruitment partner Simon Pilcher says: "The number of graduates we recruit is less a reflection of the current job market and more a reflection of wider trends in the legal sector. It is also a reflection of how we expect the market to look in two years' time – from talking to businesses, we make an educated guess as to how many people we will require."

But for all the rhetoric, in reality law firms, like every other sector of business, have had to cut back on their recruitment. Research carried out by Legal Week reveals that the number of places on offer at the top 30 firms has fallen by just over 10% in the last three years.

Since recruits were hired in 2008 to join firms in 2010, the number of places on offer at the UK's top 30 firms has shrunk by almost 150 places, falling from 1,375 to 1,225 for the graduates due to start in 2012.

Slaughter and May practice partner Paul Olney says: "We have maintained a fairly consistent level of recruitment – we have tried not to overreact to the downturn and this has served us well. The number of places we offer fluctuates slightly, but this is not only a reflection of the economy, but a feature of the quality of applicants in that particular year."

Drop in applicants at top 30 law firms

Interestingly, however, while the overall number of places on offer has dropped by 11%, the number of applicants has also fallen over the period, declining 1.5% across the top 30 firms, with around 600 more applicants in 2008 (42,918) than in 2010 (42,298).

Several law firms have actively tightened their entrance requirements, placing a finer filter on initial applicants. Simmons & Simmons and Hogan Lovells, for example, have launched psychometric testing as a precursor to any face-to-face interviews. And the record number of training contracts that were deferred or cancelled in 2009 means the legal sector is no longer the safe bet it has traditionally been seen to be.

This drop-off in applications is a broad trend throughout the UK top 30, although in some cases it has been more marked than in others. Freshfields Bruckhaus Deringer, for example, saw a 12% drop in applications last year in comparison to 2008 – as a result, the magic circle firm was able to offer 7% of applicants a training contract.

The firm's recruitment partner Simon Johnson explains: "Many graduates decided to undertake an additional year at university as a result of market conditions at the time. Although we have received slightly more applications this year [2010], the overall number has remained low."

However, while the overall trend was for a decrease in applications over the three-year period, City firms, in general, actually saw a rise in applications from 2008 to 2010. In 2010 there were around 3,600 more applications to the group than there were in 2008 – a 16% increase. Meanwhile, the number of places offered dropped by 7% over the period.

Travers Smith recruitment partner Tom Purton comments: "When the economic climate is tough, people tend to gravitate towards a career such as law which offers more structure and greater security than many other jobs in the City. In addition to this, starting salaries for trainees in the City are now among the best, which may also have had an effect on the number of applications."

City firm SJ Berwin experienced a 10% decrease in applications in 2009 compared to 2008. However, during the 2010 application round there was a 13% increase in applications from 2009, marking an increase even on pre-recession levels.

Recruitment partner Bryan Pickup (pictured) comments: "We expected to receive a number of applications from candidates who moved away from more unpredictable careers such as finance and banking, but this hasn't been the case."

He adds: "This year, we received applications from several candidates who had already been assessed in 2009. We also received more applications from graduates, as opposed to undergraduates still at university. This reflects the fact that a number of those students who were unsuccessful last year are still looking."

Tightening belts

National and regional firms saw a major decline in applications over the period, with numbers dropping 33% from 2008 to 2010. This was coupled with a fall of 20% in overall places offered.

However, given the reduced number of applicants overall, the odds of securing a training contract with a national firm have marginally improved over the three-year period – in contrast with the position at City firms. Legal Week's research shows that whereas in 2008 City firms hired 3.1% of those applying to join them in 2010, by 2010 the acceptance figure stood at 2.5% of those applying to join in 2012. In contrast, the acceptance rate at national and regional firms rose to 3.1% of 2010 applicants, from 2.6% of those applying in 2008.

Several regional firms deferred applications as a result of the downturn. Beachcroft, for example, closed its 2010 application process early and offered no further places after deferring 15 of its 2009 applicants.

A cut above

Although both Allen & Overy and Clifford Chance declined to participate in the survey, the results as a whole revealed the remaining magic circle firms take on the highest proportion of applicants.

Contrary to popular belief, applicants to magic circle firms have a higher chance of being offered a place than those applying to City or national and regional firms, although this could be due to stricter initial screening and more complex application processes used to weed out weaker candidates early on.

Freshfields has one of the highest proportional intakes across the top 30 – second only to DLA Piper – taking on 6% of its applicants over the three-year period. However, the magic circle firm also has one of the lower levels of applicants of the London-based firms, likely due to a particularly effective initial filtering process.

Meanwhile, Linklaters – which takes applications from more than double the number of students as Freshfields – takes on the most graduates each year: 370 over the last three years.

Turning a corner

Although many firms have admitted that the legal sector has not entirely escaped the worst ravages of the recession, there is quiet confidence that the situation for graduates is improving as commercial law firms emerge from the downturn.

In recent months, there have been distinct signs that the market is picking up and recruitment partners maintain that law firms are once again thinking about recruiting roughly the same number of trainees as before the credit crunch hit.

"As law firms emerge from the recession, legal services will undoubtedly be in higher demand, which should result in a larger trainee intake among firms in the medium term," argues Travers Smith's Purton.

Undoubtedly, there remains concern that there may not be enough work around to sustain the number of lawyers firms became used to employing during the boom times. Despite the slightly rosier prospects in terms of the number of places available, recruitment partners point to other trends in the legal sector that may increase the pressure on undergraduates and graduates to secure training contracts.

"We have undoubtedly seen the overall quality of applicants improve," comments Camerons' Pilcher. "This could be due to the fact that students are becoming more realistic about what it takes to secure a training contract at a large commercial law firm."

Freshfields' Johnson (pictured) agrees. "The applications have been of a high standard, which may be due to the fact that many students have completed a number of vacation schemes, allowing them to gain insight into what employers are looking for," he says. "I think there is a general trend towards graduates becoming better at crafting succinct applications with the relevant skills and experience."

Indeed, the majority of recruiters have picked up on this trend, and many argue that students' CVs have become significantly more homogenised in recent years. Young entrants into the profession are becoming more aware of the fact that any activity they embark on that is supplementary to studying will potentially boost their CVs. Graduate recruitment partners at the top law firms have seen it all – marathons for charity, break-dancing groups at the local community centre and volunteer work at the Citizens Advice Bureau.

"Students are becoming increasingly savvy about how to use extra-curricular activities to their advantage," says Ashurst graduate recruitment partner David Carter. "They are becoming more serious and professional about building their CVs, and they are getting the message that they only get one chance per year to apply and therefore need to craft their applications very carefully. At the same time, they have become more sensible about what to expect."

The changing market

According to several recruiters, the increasingly fierce competition to secure a training contract and the reduced number of places available is not linked to the downturn; rather, it is tied to the contraction of the legal sector as a whole. With law firms recruiting so far in advance – and difficult-to-predict variables at play, such as the Legal Services Act and legal outsourcing – it is no surprise that graduate recruiters are not keen on making concrete forecasts.

"Students are finding themselves in an increasingly tough environment to start in the law," says Ashurst's Carter. "The legal market has contracted, partly because of the recession, but mostly because the law has become less labour-intensive and transactions have become more efficient – largely because of the electronic advances of recent years."

Purton agrees. "There is definitely less of the repetitive churning work when it comes to transactions. There is a risk of some contraction in the legal sector if outsourcing does takes off," he says.

Several recruitment experts have indicated that retention rates are in fact a more accurate indication of the state of the job market than the number of training contracts available. And trainee retention rates at the UK's leading law firms are recovering strongly this year as activity levels begin to pick up in the wake of the downturn.

While it is obviously too soon to see how many of the current graduate intake will be retained, the average retention rate for September 2010 intakes across the UK top 30 firms currently stands at 82%. This marks an improvement of eight percentage points on September 2009, based on the number of qualifying trainees due to remain at their firm.

A handful of top 30 firms have yet to confirm their retention rates, but of the 23 firms to disclose figures so far, 16 have announced rates of over 80%, while four have kept on more than 90%.

"The fact that retention rates are improving is testament to the fact that we are emerging from the recession," says Carter (pictured).

"The job market will continue to improve for graduates, but it is important to be aware of the fact that entering this profession will continue to become more competitive as the skills required become more complex."

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Simmons & Simmons – filtering the masses

The majority of top City firms find themselves inundated with applications for training contracts every year and are able to offer only a fraction of candidates a place. Up until this year, this was the case at City law firm Simmons & Simmons. The firm received a total of 2,697 applications for the 2010 intake and was able to offer only 50 candidates training contracts.

"The application process was too straightforward, and some of the applications we were receiving were just not of a high enough standard," says graduate recruitment partner Alex Brown.

After a review process in early 2010, the firm's graduate recruitment partner and the human resources team decided to redesign its application process and form for the 2010 recruitment season to focus on reviewing applications from quality applicants. According to Brown, the firm has deliberately made its application form longer and thus more time-consuming to fill out with a view to automatically cutting down the number of applicants. The motivation for the changes is to identify those with a real interest in a job with the firm.

Brown says that the move was not unusual and came in a bid to upgrade the application forms to match those of competing law firms. As a result of the process, the firm experienced a 21% drop in applications in 2010 and offered proportionately fewer places.

"We figured that the people who found the questions on the application form too difficult were not candidates we wanted to consider in any case," comments Brown. "By reviewing the application process, we had inadvertently created a selection process that worked to our advantage."

In addition to these changes, the firm has split its physical recruitment process into two rounds to cut down time spent by fee earners on recruitment interviews. Where previously applicants would be interviewed on their first visit to the firm, the first round of the process now entails coming into the firm to take a number of tests, including the newly-introduced Watson Glaser verbal reasoning test. Those who pass the tests then get invited in for a second round, where they are interviewed by either partners or senior associates.

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[asset_library_tag 2043,Click here] for a full three-year breakdown of trainee intakes across the UK top 30 firms.

• For more, see TCs up for grabs at UK top 30 firms fall by 11% over three years