The week between Christmas and the New Year is usually pretty dead for legal news, which makes it the perfect time for a firm to try to slip some shady stuff past the goalie. Shearman started telling associates that they would not be getting bonuses for a variety of previous unannounced reasons. Foley Hoag tried to retroactively apply next year’s hours requirement to this year’s bonuses (they did the right thing and retreated within 48 hours). And Nelson Mullins sprung a new “collections” policy that you really have to hear about to believe.
Joe Patrice: Hey, everybody.
Kathryn Rubino: Hey. My New Year’s resolution is not to stop doing that.
Joe Patrice: You know, it’s not really a resolution when what you already doing.
Kathryn Rubino: That’s not true. There’s no rules —
Chris Williams: It was the same for last year. It’s contingency.
Joe Patrice: Well, you succeeded in it last year. So, here we are. This is a New Year edition of Thinking Like a Lawyer. I’m Joe Patrice from Above the Law. I’m enjoyed by fellow Above the Lawians–
Kathryn Rubino: Sure. I’ll allow it.
Joe Patrice: –Kathryn Rubino and Chris Williams. How’s everybody doing in our segment called Small Talk?
Kathryn Rubino: Pretty good. Pretty good.
Joe Patrice: Okay.
Kathryn Rubino: New year, same me, but I’m pretty happy with that.
Joe Patrice: Okay. That’s good.
Chris Williams: Cool. You know, I feel like self-discovery and like self-acceptance is the real outcome that you should search for with like New Year’s resolution. So once you get where you’re happy, just stay there. Which to say keep interrupting Joe, I’m a fan.
Kathryn Rubino: You’re obviously on the same wavelength as I am and here we are.
Chris Williams: Now, question. Did you all see any, like, cut hair for watch-chain gifts between your friends and family?
Kathryn Rubino: I don’t know what that is.
Joe Patrice: None of that.
Kathryn Rubino: You said a bunch of words that I understand individually but as a sentence, really are confusing.
Chris Williams: Now, you see what’s like when I hear Joe, that was clearly a ‘Gift of the Magi’ reference. You know, there was a woman, beautiful hair.
Joe Patrice: Yeah, yeah.
Kathryn Rubino: Yeah, I know, I mean, —
Chris Williams: She cuts it off.
Kathryn Rubino: I’ve also seen Christmas Eve on Sesame Street. So, I’m familiar with a ‘Gift to the Magi’, but —
Joe Patrice: Right. Okay.
Chris Williams: Anyway, has that happened?
Joe Patrice: No.
Kathryn Rubino: No. No.
Chris Williams: Good. Because I feel like that’s one of the like, — that’s one of the stories that gets read as romantic. I’m like, “Oh, we need wealth distribution.”
Joe Patrice: Yeah.
Kathryn Rubino: See, in the Christmas Eve on Sesame Street version, Bert and Ernie each sell to Mr. Hooper their prized possession in order to get something for the others prized possession, and then on Christmas Eve, Mr. Hooper comes and gives them back their gifts that they sold to him. So it actually has a happy ending so that is the version I prefer to use.
Joe Patrice: Yeah.
Chris Williams: It’s probably the better one.
Kathryn Rubino: Yeah. And also, you know, love Mr. Hooper.
Joe Patrice: Yeah. It’s a little less ironic than the O. Henry original.
Kathryn Rubino: It is up until the happy ending.
Joe Patrice: Okay.
Kathryn Rubino: It’s like irony, irony, irony, oh, happy ending.
Joe Patrice: Uh-hmm. So, more like —
Chris Williams: I think you mean irony, irony, irony O. Ernie.
Joe Patrice: It’s a little more Alanis Morissette irony than O. Henry irony.
Kathryn Rubino: Again, it’s not. Like, it was ironic like Ernie sold his rubber ducky, Bert sold his paper clip collection, got you know, something for the other ones prized possession but then Mr. Hooper was like, my gift to both of you is that and then they get their sad because they didn’t get anything from Mr. Hooper. But he’s like just seeing your friendship is a gift enough for me.
Joe Patrice: Right.
Kathryn Rubino: That’s the very poignant.
Joe Patrice: Yeah.
Kathryn Rubino: I think that’s the appropriate amount of irony for like a child too.
Joe Patrice: Fair enough. So with that said, I think we’re probably at the end of Small Talk, unless anybody else has something. Closing off that segment. Now, what are we talking about today?
Kathryn Rubino: There’s a lot of big law firms doing a lot of things.
Joe Patrice: Yes. So we’re — well I think this is — so, we’ll structure this by talking about the bonus side first and then move to the other. So, we’re tracking Biglaw bonuses and we’ve already talked about that a bit. What we also found out is that there’s a bit of a Biglaw the week between Christmas and New Year screwing people over season.
Kathryn Rubino: Uh-hmm.
Joe Patrice: So, during that week when people aren’t necessarily paying attention and everybody’s not glued to the legal news, we started getting reports of law firms that were, shall we say trying to nickel and dime a bit.
Kathryn Rubino: It’s like hundreds and thousands, you know? But yes, for sure we’re definitely seeing and is this a state — question about what’s going on in Biglaw generally, is it just because people anticipate a recession in 2023, is it bigger problems than just a one-year off issue? Who’s to say? But we’re definitely seeing people thinking they’re getting their full market bonus. And then —
Joe Patrice: That’s why this first started coming up. So we’ll focus on one firm first, then talk about the other. So we started hearing that Shearman & Sterling had told people that they would be getting market bonuses, you know the good news that happened earlier in the month.
They also though, at that time from what we hear introduced an hour’s requirement for getting their bonus. They have never really had one before or if they did, it was not at this level. I can’t remember the details. The point is there was a new hour’s requirement coming in for the next year. Then what we started hearing is that associates were hearing individually mostly during the week that no one was around to cover. They started hearing that they weren’t getting bonuses. There are a lot of different reports. We have multiple tipsters across multiple departments and offices talking about this and they all — there’s a few discrepancies though from what we gather, the discrepancies may be explained by the fact that it sounds as though Shearman was leading it to some degree of discretion between the offices and departments as to how they handled it. So some people started reporting that the hours requirement, which was supposed to take place next year was being retroactively applied and they were being told, they didn’t meet this year the hours that were not a standard this year, but will be next year and therefore, they don’t get this year’s bonus, which is kind of awful, put a pin in that one. But we also started hearing some folks saying that they just weren’t getting bonuses regardless of what their hours were, which was, you know, even worse.
So, that’s what we’ve started hearing. We don’t necessarily know all the fallout of it yet. It’s still ongoing and developing. So I guess, the first question is, what does this tell us? Which is what you kind of teed up.
Kathryn Rubino: Yeah. I mean, great question. The other thing to note I think that’s relevant for this firm’s story is that there’s rumors that they’re looking at a merger, right? But they’re looking to merge with Hogan Lovells, I believe. And so, obviously, that’s a top, super top of the rankings firm. Shearman & Sterling is a little bit lower. How is that going to — the impacted going forward? Is this part of the reason why they’re looking for a partner?
Joe Patrice: Uh-hmm.
Kathryn Rubino: You know, I think that it definitely puts into kind of a more stark relief the whole question of whether or not they’ll be a merger as well.
Joe Patrice: Yeah, and it makes you also wonder if this tactic is or one it makes you wonder if there’s some financial problems that are pretty bad, which could put the merger in some context. The flip side of that, even if that’s not the issue, you start wondering if this is the, almost like the private equity situation where in the hopes of getting bought, they’re going to slash everything to make it look like the firm’s making more money than it actually is in order to you know, sweeten the pot.
Kathryn Rubino: Because that’s saved money would then become profits for their partners and profits for partner.
Joe Patrice: Or we just look better for Hogan Lovells. On the pay, Hogan Lovells will look at it and go, “Oh, well, you made this much revenue this year, even though”, you know, once they’re Hogan Lovells, they would not have made that much because they would have had to pay a bunch of people, the amounts that Shearman said they were and now aren’t. All of that becomes key to the context around this. I think you’re absolutely right.
Kathryn Rubino: I think it’s really interesting and certainly not the only firm that we heard about sort of nickeling and diming.
Joe Patrice: So the other story we heard was more the happy version of the story, which is the fully Hogan. Also, introduced a new hourly requirement and then introduced that they were not giving full bonuses. They were meeting the bonus, the market bonus, but only to people who met this new hour’s requirement, which was supposed to take effect for next year, but they decided to retroactively apply to this year. And then the people who met — what they all — they already had an hour’s requirement. But the people who met the hour’s requirement that they thought they had to meet for this year would be receiving 20% less. The good news about this though is that associates raised this concern.
Kathryn Rubino: This seems wildly unfair.
Joe Patrice: They said that this was not particularly fair to change the goal posts at the last second and the firm after two days went back said, you know, you’re right. But you know when we look at what we told you, we told you one target. We shouldn’t change that. The new target is in effect for next year, but we will abide by the original target for this year, which is nice. But it does still leave you saying, why were they doing that?
Kathryn Rubino: Yeah. And I think this is all the same kind of questions that we have about the industry kind of moving forward into 2023. What is the impact of the anticipated recession going to be? You know, if they almost impose that hour’s requirement in 2022, then certainly they’re going to be very big sticklers about it in 2023.
So, there’s not like, oh, you know, close enough or whatever. I think you have to be very careful if you’re at that firm to make sure that you have plenty of hours that they’re all the right kind of hours. But I think that this all kind of goes hand in hand with what we’re seeing, a lot of firms doing right now.
Joe Patrice: I don’t know. I remain one of those folks who thinks that the recession fears are ridiculous to site as a reason for dropping out. I think that we saw a dip and now we’ve seen growth the last couple of quarters. The inflationary fears are dwindling no matter how much the Fed wants to keep pushing. I think that outside of certain sectors, clearly the tech sector has taken a real hit over the last year. But outside of certain sectors, I don’t know as though things are going to be all that bad. So I think it’s overreacting to start slashing people’s bonuses over it. But anyway, it’s something to monitor. If you’re hearing from anybody out there that there are shenanigans going on with people’s bonuses, let us know. We will keep it anonymous. But sometimes it’s important because some of these firms get away with this by making it an isolating event, by telling you individually that for some reason you didn’t get —
Kathryn Rubino: Your problem, you didn’t get.
Joe Patrice: Yeah, and when they do that, they are doing it for the purposes of making sure that you feel too embarrassed to talk about it to anybody and that way they can get away with it with everybody. So by all means.
Kathryn Rubino: And I will say I do not think it’s only these two firms. We have heard unconfirmed but sort of rumblings from a couple of other firms that maybe policies that were always in effect, all of a sudden are being implemented in a way that they haven’t previously whether it be your hours, how quickly you log your hours into the time system, or other policies that all of a sudden, it took kind of a big picture, broad eye towards these policies and now this year it’s, oh, you were 10 hours late, that’s going to be a deduction.
Joe Patrice: I mean, we’ve also already heard that ropes is pulling some — you were insufficiently in the office this year.
Kathryn Rubino: Right.
Joe Patrice: Which they have an office policy. It is not something that had been tied to one’s bonus and they’re using it that way, which gets to a philosophical question which is and this is one that there have been articles where we pushed back that have been in Biglaw and stuff over the years, but it’s a bonus so our associates are really entitled to it. Can it just discretionarily be, oh, well we’ve decided you weren’t in the office enough so you aren’t getting a bonus. While it’s called a bonus and that seems to be something that’s discretionary, it doesn’t function that way in this industry. It really is something that associates depend upon as part of their compensation. They are budgeting around that for the purposes of paying off the giant loans that they have. It is really ridiculous to try and pull the rug out from under them because this really is just —
Kathryn Rubino: I mean, this is definitely a Christmas vacation sort of situation here, and the other thing is can is different than should. Can they do it? Probably, right? I don’t think there’s any real problem with it legally. Should they do it? Particularly when you know that these firms are in competition for things like talent for clients and as part of their overall reputation in the industry, I don’t know that getting the reputation as being the firm that’s going to sort of nickel and dime, be very tight on bonuses is one you want to cultivate.
Joe Patrice: Right. Which also plays into the first story here, which is that it can give the firm a bad name. Now, what does that mean when we put together Hogan levels and Shearman & Sterling and they become a new firm called Hogan Level? Because let’s be honest, there’s no real worry about the Shearman name, but anyway. So it’s been a busy time.
Kathryn Rubino: Yeah. You know how I know it’s busy?
Joe Patrice: How?
Kathryn Rubino: Because we’ve had the phone ringing off the hook.
Joe Patrice: Off the hook? Is it really on a hook?
Kathryn Rubino: Well, I think that it’s one of those phraseology.
Joe Patrice: Idioms that you’re just not going to let go of?
Kathryn Rubino: I’m not going to. But you know what I will let go of? My need to actually answer the telephone.
Joe Patrice: Okay, okay. How will you do that?
Kathryn Rubino: Virtual reception services.
Joe Patrice: All right. That make some sense.
Kathryn Rubino: Yeah, it really does.
Joe Patrice: So, let’s hear from Posh about that.
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Kathryn Rubino: But you want to know what actually makes cutting your bonuses in the way that we just talked about actually look good?
Joe Patrice: Uh-hmm
Kathryn Rubino: Cutting your salary.
Joe Patrice: Oh, okay. What’s going on there?
Kathryn Rubino: Nelson Mullins is changing the way that they calculate all attorney compensation but this also applies to associates and counsel which I think makes it particularly problematic. They are going to create a compensation system for 2023 that includes a fixed component which is how salaries generally work in Biglaw but also include an earn-up component that is based on collection goals. So you may bill a bajillion hours but if the clients you’ve happen to be assigned to work for don’t pay, you will not get your full salary.
Chris Williams: Well, that sucks kneecaps.
Kathryn Rubino: Yeah, yeah. Especially because associates have no control over whether or not. First of all, what cases they get, right? And if there’s just a big case and you don’t even necessarily know whether or not that client has a reputation for paying its bills on time. But you have to do that work. Otherwise, you get a bad reputation at the firm, but your salary is the one that’s potentially impacted. You also have no ability, you have no client contacts as a junior associate to call them up and be like, “Hey, Bill, please pay your bill”, right? That’s wild.
Joe Patrice: Probably should have given him a different name.
Kathryn Rubino: I probably should have but Bill was on my mind when I started.
Joe Patrice: I understand.
Kathryn Rubino: Yeah. I mean, whatever. You get what I’m saying here.
Chris Williams: I think it was fine. I think it’s okay.
Kathryn Rubino: Okay, thanks. Yeah. So it’s functionally for a lot of associates at the firm decrease in their base compensation.
Chris Williams: That sounds like a way to get rid of the associates you don’t like without having to deal with discrimination claims.
Joe Patrice: Well, I mean —
Chris Williams: The people you don’t like just assign them the cases that don’t do well and they’re like, “Oh, well, sorry, it’s the policy.”
Kathryn Rubino: Yeah. I mean, I think that certainly might be true for clients that have a reputation that precedes them in this way but sometimes you don’t know when or it’s a newer client that doesn’t have a long paying history at the firm.
Joe Patrice: Depending on practice area, there’s no way you can know, right? One of the jokes I always tell when people are like talking about partners and their book of business they bring with them, you know, I worked in white-collar and if you’re a criminal lawyer who has a book of business then you’re a mob lawyer because you should not have a book of business or there’s a real problem if you have a book of business. But what that really means is, as somebody in that work, your clients are not hopefully repeat customers. You’re always getting new people and new institutions. Now, sometimes it’s not really like that. Sometimes you get a lot of clients who have especially in the white-collar world who have insurance carriers covering the expenses. So, the carriers are who you deal with, those folks are repeat but they’re not necessarily predictable for the book of business purposes. But at least you know what you’re dealing with when you’re asking Lloyds to pay your bills. But with these other situations where it’s just like some rich person who has a legal kerfuffle, you don’t necessarily know. You can get all the way through a trial and not know —
Kathryn Rubino: All those hours.
Joe Patrice: Right. Well, then key with trials is you run up most of the — I mean, it goes up like this. Like you run up most of your expenses in that last month or so of trials and if they pay dutifully up to the end and then screw you, you have a claim to go get that money but all the associates are stuck not making their, paying their bills this year because the partner wasn’t keeping on top of the client.
Kathryn Rubino: You’re 100% right, but also, this is the difference between being an associate and a partner, right? When you are a partner at a firm, you are yes taking the risk that clients may not pay, but you are also reaping the rewards. You don’t necessarily have a clear fixed salary because it depends on billables and the profitability of the firm for a year and a very complex formula which is all well and great, but that means — there’s a risk reward kind of balancing act that’s going on that you’re aware of when you pay in to become a partner at the firm. When you’re an associate, first of all, changing it — these people have been working at the firm a few years, you know, associates, they’ve never had to take on that level of risk before. I think it’s wildly unfair to all of a sudden say now you are responsible for the risk that the firm takes on but there’s no chance you will get any of the reward if we have a particularly good year.
Joe Patrice: Right. Well, it strikes me as a staffing issue too. If I’m an associate, I start figuring out who has the sweetheart client that always pays and I turn down work other than for the good ones. And like, that’s no good for anybody either. It’s a real mess.
Chris Williams: Do you think that this is a way of outsourcing risk that other firms would adopt?
Kathryn Rubino: Well certainly, this is the only firm we’ve heard taking on that approach for 2023. Nelson Mullins previously did this during the height of COVID. So in 2020, they announced it and at the time, they said that 9% of the associate salary was dependent on these collections. They have not yet — or, we are not aware of what percentage at this point it will be for associates in 2023, but it did not become sort of a widespread thing in 2020. I would hope that other firm’s kind of hold the line here as well. But again, this is the first firm where here — Biglaw firm. This is a Top 70 law firm. This is not a regional firm that is, you know, worrying about keeping the lights on. This is a national, giant firm and I think it’s a bad way to do business.
Joe Patrice: Your clients are expecting you to know a lot of things about a lot of things, even topics like domain names.
Kathryn Rubino: Domains were definitely not covered in my law school classes.
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Kathryn Rubino: The other Biglaw story that I think we need to talk about is Proskauer.
Joe Patrice: Uh-hmm.
Kathryn Rubino: They — last week, you know, not a ton of people are paying attention to the intricacies of Biglaw politic between Christmas and New Year’s, but that is exactly when Proskauer filed a lawsuit against its fired Chief Operating Officer.
Joe Patrice: Right. Now this Chief being — from what I gathered, this Chief Operating Officer had — you say fired, which I believe is accurate, though he was quitting was the issue.
Kathryn Rubino: Yes.
Joe Patrice: He was in the process of quitting, he had announced he was quitting, at which point — and this is the part that I actually think is the most fascinating part of it. He had taken a lot of files, propriety files from the firm which he had downloaded within the 30 days before telling the firm, “Hey, I’m leaving.”
Kathryn Rubino: Yeah. So apparently at the firm when someone announces they are leaving the firm, especially a high-level executive, the firm does a completely standard IT evaluation as to you know, if any suspicious activity has happened on that person’s computer and they found out that on December 5 and December 16, the former COO, Jonathan O’Brien had made two large downloads of proprietary information.
Joe Patrice: Right. So what gets me about this is how does the Chief Operating Officer not know that there is a 30-day IT look-back. Seems as — I’m wondering how that place was operating this whole time, because —
Chris Williams: It’s so goofy.
Joe Patrice: I mean, —
Chris Williams: I’m just imagining there’s like a Mission Impossible soundtrack and he’s like, “They’ll never catch this.”
Joe Patrice: I mean, one would think the COO would be in the position to understand that you need to do that stuff 31 days before you announce you’re leaving.
Kathryn Rubino: It’s wild, and —
Chris Williams: That is not legal advice?
Joe Patrice: No, it is not.
Kathryn Rubino: And again, different firms have different policies and you might imagine Proskauer may even tighten theirs in the future.
Joe Patrice: But still, something a COO would know.
Kathryn Rubino: You would think. Again, I don’t know —
Joe Patrice: Like, I’m putting aside — you’re absolutely right, this is wrong no matter what. I’m just saying I just stare at this and wonder what he felt his job was this whole time and if was not understanding the operations of the firm. It is literally in his name.
Chris Williams: If any of the listeners ever needed a better indication that Joe worked in a white-collar crime, this is it.
Joe Patrice: I mean, yeah.
Chris Williams: His first comment wasn’t, “Yo, this is unethical.” His first comment was, “Dude, do it three days earlier.”
Kathryn Rubino: And it’s interesting because the firm, the complaint alleges that O’Brien can potentially use this information either at a competitor firm, at a consultant agency for the legal industry and that sort of brings up the question where is he going to go work, because he had, you know, put in his two-week notice at that point and after that is when they, the board voted to let him go. But the thing is, they won’t, he won’t tell firm leaders where he’s going. After being repeatedly asked what his future employment plans were, he refused to answer and only told leaders that they would be “mad” when they heard where he was going.
Joe Patrice: Yeah. So the lawsuit’s basically that he took trade secrets, which I mean — I don’t know, there’s a large part of me. Like, it’s not good, but a large part of me wonders to what extent the law firm world really has trade secrets. Is it like, they’re just giving their clients the real law? Everybody else gets that?
Kathryn Rubino: No, but part of what is alleged that was taken is the way that Partner Compensation is calculated which obviously potentially leaves the firm open to other places using that formula to target certain partners for poaching.
Joe Patrice: Of course.
Kathryn Rubino: It’s certain. There’s a lot of information, I think, in these downloads that’s alleged.
Joe Patrice: I mean, I think that’s true. My only thought on that front is how much of that stuff isn’t coming out anyway? Like, you know, when you talk to a partner about potentially moving, they’re fairly open about what they’re making if they’re serious about moving. They are reasonably open about knowing where they are within the firm structure. They know how things are functioning. Usually, they’re leaving because they’re willing to tell you that they have a problem with the way in which the firm compensates people. So after a couple of phone calls, this is all stuff that most people kind of have a sense of. So that’s why I was —
Kathryn Rubino: I still think that a competitor or some kind of a consultant agency having access and not just how Partner X is compensated, but telling Partner X clearly how they compare to Partner Y and Partner Z. I think that there’s a lot — and let’s be clear, there’s also allegations in the complaints, I don’t want to forget this part, that O’Brien tried to delete 2,000-ish emails that were subject to a litigation hold.
Joe Patrice: Yeah, which you know you should —
Kathryn Rubino: That’s definitely —
Joe Patrice: Not only you should not do — that actually raised another issue for me which is how in the world, and maybe this is how it was stopped, that they do have some other —
Kathryn Rubino: Right. It was just an attempt. It wasn’t done and there were other folks at the firm that the firm says participated in his attempt.
Joe Patrice: Yeah. See, litigation holds, like we talk about this all the time in the legal tech world. Like, everybody’s catching up with the idea that litigation holds are something that needs to be centralized and handled by software so that you don’t have the ability to screw things up.
Kathryn Rubino: Right. And apparently, it was done that way and that was how they found this out, but he attempted to undo those centralized regulations through various things.
Joe Patrice: Uh-hmm. Well, all right.
Kathryn Rubino: Those are certainly the allegations, and I think it will be an interesting case to continue to follow.
Joe Patrice: Yeah, I agree. Cool.
Kathryn Rubino: That was a lot of Biglaw stories.
Joe Patrice: It was. It was a Biglaw-heavy beginning to the year. So with that said, thanks everybody for listening. You should be subscribed to the show so you get new episodes when they come down. You should give reviews, write something, give stars, they all help. You should be following us on social media. Above The Law is @atlblog, I’m @Josephpatrice, she’s @Kathryn1, the numeral 1, Chris is @WritesForRent. All of that is Twitter, which is still primary at this point, but we have other channels that you can generally find us on too. You should be listening to the “The Jabot”, Kathryn’s other show.
I’m a guest on the Legal Tech Week journalist roundtable. You should be listening to the other offerings of the Legal Talk Network. Be sure to read Above the Laws, so you see the, you know, read these and other stories before we talk about them here and with all that said, I think we’re done.
Kathryn Rubino: Peace.
Chris Williams: Peace.