Law Firms in Latin America Look for Options to Ease Financial Pain During COVID-19 Crisis

"The laws restrict you a lot," said Leopoldo Hernández, managing partner of KermaPartners, a strategic consulting firm with offices in Colombia, Guatemala, Mexico, Miami and Peru that specializes in the legal sector.

In Mexico, where Hernández is based, firms would first have to lay off lawyers, pay severance, and then rehire those lawyers in order to reduce their pay. Severance in the country is typically three months' salary plus 20 days for every year of service.

Baker McKenzie announced April 13 that it plans to reduce base compensation in the United States by 15%, and 10% in Canada, for employees earning over $100,000. The firm said it did not cut pay in Mexico, though, because of "local policies and regulations."

Baker McKenzie declined to elaborate, or to detail plans for its staff in other parts of Latin America.

Rigid regulations have encouraged creative cost-cutting in Mexico. Firms are negotiating discounts on leases for now-vacant real estate or cutting back on perks like private health insurance or cellphone contracts. A name partner at a top transactional firm in Mexico City said that "pretty much everybody" was studying ways to cut costs and stockpile cash for the lean months to come.

The World Bank predicted April 12 that gross domestic product in the Latin America and Caribbean region, excluding troubled Venezuela, will shrink 4.6% this year.

As in much of the world, firms in Latin America are looking to partners to bear the brunt of economic pain through forfeits of bonuses, salary cuts or even capital infusions.

Spanish firm Cuatrecasas has already moved in that direction. Partners agreed in early April to a capital call of €20 million to strengthen Cuatrecasas' balance sheet amid global shutdowns. That cash injection included infusions from partners in Latin America, where the firm has offices in five countries.

Putting partners on the front line sends the message that "we are the owners of this ship and we want to keep our people safe," said Alejandra Rojas, founding partner of UpWyse, a company that develops marketing and business plans for law firms in Latin America.

Multiple firms are even building out their practices, despite the troubled times. Holland & Knight partner Emil Infante jumped to Polsinelli in March as a shareholder in Miami, where he will lead the firm's first-ever Latin America practice group.

Infante said the biggest challenge for him during the pandemic has been the lack of real face time between lawyer and client, through personal meetings where both sides may speak freely and in true confidence. He said he is eager to hop on a plane once travel bans lift.

"Technology has been very helpful, but there is nothing like a personal meeting," Infante said. "And, in Latin America, it's not who you are but who you know."

Latin America is no stranger to hard knocks. Currency devaluations, natural disasters and painful restructurings are frequent occurrences in the region. Whereas the legal profession has faced regional and more country-specific stresses in the past, Infante reflected that the pandemic's global nature calls for everyone to pull together to adapt and move forward.

Governments Impose Regulations After COVID-19′s Late Arrival

The coronavirus took hold in Latin American a bit later than in more developed parts of the world, putting the region farther behind the curve both for infection and financial fallout.

The first case confirmed in Latin America was in São Paulo, where a man who had traveled to Italy tested positive Feb. 26. Countries such as Argentina, Chile and Peru abruptly shut their borders and halted most domestic economic activity in March.

Soon after, countries began to announce plans to protect workers with measures that went beyond already strong labor protections in the region.

Argentine President Alberto Fernández issued an executive order April 1 that forbids unjustified firings for a 60-day period. The governments of Colombia and Peru urged companies, including law firms, to tap loans to cover payroll during the health emergency rather than cutting pay or laying off employees.

In an effort to retain jobs in Latin America's biggest economy, the Brazilian government authorized companies as of April 1 to reduce employee work hours and salaries by up to 75%. It isn't immediately clear whether any law firms have tapped that option in Brazil.

But the Brazilian bar association says lawyers in the country have been hit hard by the sudden downturn. On April 20, the bar association announced that it has negotiated favorable terms with Banco do Brasil to extend credit lines to Brazilian lawyers facing financial troubles.

Rojas says that lawyers at two firms in Peru have already agreed to 25% pay cuts until further notice, with the promise of eventual reimbursement, while at least two more firms in Colombia have also cut pay. Some firms in the Andean countries have also placed junior lawyers on unpaid leave.

"Lawyers are really understanding the situation—they want to be team players," said Rojas, who is based in Bogotá.

Rojas predicts that staff reductions will be discreet in Latin America because such adjustments signal vulnerability. Layoffs are interpreted as a display of weakness to clients, competitors and potential recruits in the region. But with payments coming in late, and clients asking for discounts, partners must prepare for the worst.

"Firms in Latin America like to show themselves as strong and stable," said Rojas, who worked as a lawyer before starting UpWyse. "If they start to lay off lawyers, that will give a very different message, especially if it's not generalized."

Global firms have been careful to reiterate their dedication to the region in these uncertain times.

"Like all firms, Holland & Knight routinely reviews its operations and at this time we are closely monitoring our business and the potential impact of the COVID-19 crisis," Latin America practice leader Roberto Pupo said in a statement. "The firm, however, is not in a position to discuss any particular plans at the moment."

Pupo said the pandemic will not change Holland & Knight's commitment to Latin America. The firm has offices in Bogotá and Mexico City.

Similarly, Greenberg Traurig said its Latin America practice, including its Mexico City office, remains "fully operational," helping clients throughout the region address their global business needs and any challenges that may arise from COVID-19.

Yet at least one country manager in Mexico who works at a global firm told KermaPartners' Hernández that his firm's top management has asked for a short list of lawyers who could be eliminated should the need arise. And Hernández said KermaPartners' recruiting projects have been postponed until at least June.

Rojas says that UpWyse has been slammed with work since the outbreak, helping clients improve their digital communications as marketing goes increasingly virtual. The smorgasbord of regulatory news pouring out of different countries has required thoughtful synthesis for clients struggling to digest the onslaught of information.

Budgets that had largely gone to travel and events are now free to migrate to digital marketing, or to shrink. Technology investment and support remain critical as lawyers work remotely to attend to clients in crisis, such as aviation companies.

So far, none of Rojas' clients have asked to reduce their payments to UpWyse, but future proposals are on ice until at least July. Like many in the industry, Rojas feels like she's working more for less, while hoping that her clients survive.