Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowRising prices on food, gas, housing and other consumer goods have resulted in the average Hoosier tightening their purse strings this summer.
While solo and small firm attorneys have traditionally been the most at-risk financially during volatile economic times, some such lawyers in Indiana are saying they aren’t feeling added pressure despite a looming recession.
Multiple small and solo firm attorneys told Indiana Lawyer they aren’t yet panicking over current inflation, have not heard any major concerns about billing from their clients or fellow colleagues, and believe the lessons learned from COVID-19 will help them meet future economic challenges.
Going up
Inflation surged in June to a 40-year high of 9.1%, climbing from the year-on-year increase of 8.6% in May. In July, the number remained high at 8.5%.
Despite the job market staying robust, with the national unemployment rate at 3.5%, the U.S. economy shrank in the first half of 2022, raising fears of an impending recession. In Indiana, unemployment increased from 2.6% in July compared to 2.4% in June.
The country’s gross domestic product also declined 1.6% in the first quarter and another 0.9% in the second quarter, according to the Bureau of Economic Analysis, while the Federal Reserve has continued to aggressively raise interest rates.
Recent price increases have led to weakened spending for Americans, who are not currently purchasing as many large-ticket items and nonessential goods, The Associated Press reported.
‘Bullish’ attitudes
The 2021 State of U.S. Small Law Firms report, created by the Thomson Reuters Institute along with the American Bar Association and Association of Legal Administrators, described the current attitude of leaders in the solo and small firm market as “bullish.”
“Leaders in small law firms see a large number of areas of potential risks to their firm’s profitability. However, relatively few leaders see any of these risks as particularly significant,” the report states.
However, according to the report, the most concerning area for solo and small firms is general economic pressures, which includes a potential downturn, inflation or change in business cycles. In the study, the report found just 12% of respondents felt general economic pressures were a high risk and another 50% of respondents said those pressures posed a medium risk.
Patricia McKinnon, an Indianapolis solo practitioner who works in family law, said she could see new solo attorneys as the ones struggling to keep up with rising costs.
“The ones I worry about the most are the solo and small firm attorneys just starting out,” McKinnon said. “The zero- to three-year attorneys won’t have the monetary reserves or established client base to survive a recession. These attorneys may end up taking other jobs outside the law simply to survive.”
Most attorneys in the solo field are not straight out of law school, and that number has continued to decrease over the past decade. Less than 1% of all 2021 grads (0.7%) took the solo route compared to a decade ago, when 2.3% of the Class of 2012 practiced solo, according to the ABA’s 2022 Profile of the Legal Profession.
Phones still ringing
For many solo and small firm attorneys, there has been no shortage of work despite the issues caused by COVID-19, which could be partially attributed to the lawyer shortage statewide.
McKinnon said that the last few years have been the busiest she has ever been in her 28 years of family law practice.
“On the one hand, solo and small firm attorneys are in a better position in a recession than a large firm. They can trim their budgets quickly without the need for multiple levels of approval for changes such as staff reductions,” she said. “On the other hand, solo and small firm attorneys are in a worse position than large firms as there may not be a lot of staff to cut. You can’t fire yourself.”
The Thomson Reuters report also found that the number of administrative tasks is increasing for small and solo attorneys, and that those lawyers are spending just 56% of their time actually practicing law, down from 60% just a few years ago.
McKinnon said she could see many solo and small firms not adjusting billing rates over the next few months in an attempt to not scare away clients.
Todd Janzen, of Janzen Schroeder Ag Law, said his firm made a market adjustment at the start of 2022, but that has been the extent of billing increases.
Janzen and partner Brianna Schroeder opened their office in 2015. He said he hasn’t seen any decrease in the request for his services even though the agricultural industry is facing inflationary pressures and supply chain issues.
Additionally, Janzen said prices for online software, which they heavily rely on, have not increased, which is also significant for other solos and small firms.
Scott Wilson of Wilson Law Associates LLC has practiced solo for the last two years and works heavily in commercial transactions and contracts. While his clients are talking about inflation worries, Wilson said the economic situation has also created unique opportunities that have kept him “super busy.”
“I’ve got a lot of clients that, as they’re revisiting contract renewals, they’re not just auto-renewing but revisiting those terms to address this kind of inflationary element,” Wilson said. “So that actually is driving activity increases. … I think, on the one hand, there is an increased level of business for certain parts of my work, but in the other areas it could slow things down because as costs change for my clients, they may be less likely to go buy another company or to merge with another company, or they may think that costs are too high right now to buy a business because it might be artificially inflated.”
Lessons learned
Wilson said the lessons learned from the pandemic will help attorneys navigate through inflation and a possible recession.
“I think, generally, the firms and the people that are successful continue to be successful through COVID because they took the mindset of flexibility and creative solutions versus shutting everything down,” he said “I think there were some really good skill sets that were developed or amplified … so when something like an inflationary environment comes at us, or a recession, you don’t look at it as, ‘We need to do these major things to cut costs and lay people off.’”•
–The Associated Press contributed to this report.
Please enable JavaScript to view this content.