COVID19: A comparative analysis

SmallLaw vs BigLaw

It’s clear that all smaller businesses, legal or otherwise, are hit hardest in times of crisis. For the most part, they have less financial security, less bargaining power in how they can renegotiate their operating costs and are much less likely to have significant contingency plans or necessary expenditures in an immediate, short-term basis. These realities are only compounded by how COVID-19 has been indiscriminate on how it has affected businesses. The clients that all businesses rely on are facing similar problems with cash flow and paying the bills. It’s no surprise that hourly-billed legal fees are some of the lowest priorities that clients will be facing right now - not just in their business lives, but quite clearly in their personal ones too. Invoices that were expected or presumed to be paid promptly pre-virus are clearly going to be deferred to some extent right now.

Whilst ‘BigLaw’ firms are generally more prepared for such financial and practical concerns, they are far from free of a need to respond to this crisis. In many cases, BigLaw will have to take a degree of steps that SmallLaw will have sadly had to take already. Many have begun to anticipate a financial downturn and are taking steps already. These are ranging from pay freezes, to pay reductions, to furloughing staff or even cutting numbers entirely. Such actions are clearly reminiscent of responses taken as a result of the 2008 crisis. It is still open to interpretation if the legal industry will be forced to take bolder action in response to this crisis than crisis past.

However, it’s important to recognise that these measures are currently being taken as short-term solutions to an immediate cash-flow problem. Whilst certain sectors are likely to see a contraction of business, other areas of law will be booming amidst the pandemic. There is a need for firms to redistribute resources where necessary and to ultimately be prepared for when business upticks again in any areas currently dealing below their usual average.

Despite these realities, one of the unique characteristics of the legal industry is that certain elements of it are incredibly resistant to, or if not benefit from, economic downturn.

Potential ‘Growth’ Practice Areas

There are a number of practice areas which will likely see an uptick in legal activity in response to the virus and its associated economic shortfall (at least for the immediate short-term):

• Employment - due to the furloughing/redundancy measures being taken by a large number of businesses outlined above, staff will require legal advice and protection in either fighting or navigating through these decisions. On the other side of the table, businesses will also need to seek legal counsel to ensure they don’t fall victim to claims for wrongful dismissal and that they meet their own obligations regarding wages and severance pay. Current measures being put in place as a result of the pandemic - furloughing, claiming back wages from the government, amending working hours etc. - have never been focused to the extent that they have now amidst this pandemic. Despite this, it’s not clear if such employees and businesses will have the financial capability or even willingness to pay these bills. It might call on lawyers to look into providing alternative fee arrangements.

• Litigation - force majeure clauses are designed for such ‘acts of God’ like the virus. It’s clear that with rising economic uncertainty and the practical reality of everyone being forced to stay at home, many companies will want to discharge obligations where they can and put future proposals on hold. Such disputes and breaches of contract will be felt across the supply chain, near-indiscriminately of many businesses. In addition, contracts becoming no longer practically enforceable as a result of the pandemic will also lead to more cases of frustration clauses being triggered as well. Litigation will likely see some of the sharpest upticks in short-term business as a result of these disruptions.

• Divorce, wills and probate - added strains of continuously working from home and self-isolation will likely add strain to relationships already considering divorce. An increase in sickness and poor health as a result from the virus will result in a rise of clients wanting to make sure wills and other probate matters are in order.  Once the virus has passed and financials return to quasi-normal levels, it’s not unthinkable that family legal issues will come to the forefront. 

• Restructuring, insurance and administration - with businesses being forced to close and many having their financial health being strained, it’s highly likely that there will be a significant increase in administration, restructuring or liquidation. In addition, any businesses protected though business interruption insurance will almost certainly trigger their policies in the current climate, leading to an increased number of claims and/or new policies being taken out.

• Landlord/Tenancy law - whilst real estate activity will likely fall (see below), an increase in non/late payments, evictions and lease terminations as a result of mass furloughs and changes to salary will generate an uptick in this particular area of practice.

• Banking and finance - due to market turmoil and increasingly adverse economic conditions, force majeure and other material adverse effect clauses in financial documents may come into play.

• Healthcare - with the NHS coming under unprecedented strain as a result of the crisis, it’s likely that cases of liability and negligence may increase. A multitude of parties have offered to help with the coronavirus effort in some capacity, be it public volunteers or manufacturers producing ventilators and other vital equipment. Again, this may open up further potential avenues for liability and negligences cases. The ‘Clinical Negligence Scheme for Coronavirus’ (CNSC) has been launched in order to help combat these new arrangements, with an aim to ‘indemnify healthcare providers for any clinical negligence liabilities which arise where existing indemnity arrangements do not apply.’ 

However, the above predictions presuppose an ability for clients to pay expensive legal fees and in certain cases commit to lengthy, drawn-out commitments to do so over time. It’s already clear that many smaller clients simply won’t be able to do so.

Potential ‘Decline’ Practice Areas

In line with the above trends and changes of growth, it’s likely that other areas of law may constrict as a result of the virus:

• Personal injury - the practical reality that self-isolation has drastically reduced foot and car traffic across the country means there will be a sharp fall in claims for accident and personal injury. The same principle applies to the ‘workplace’ too, as employees are almost entirely working from home.

• Mergers and Acquisitions - as outlined above, businesses will clearly be more hesitant to pursue new deals and the risk that it involves with the added uncertainty that the pandemic has created. Larger-scale mergers of significant value, or those that have a grater perceived risk to their completion, are certainly going to be put on pause or even stopped completely if the pandemic lasts long enough. Those smaller in scale, or less ambitious in their scope, are much more likely to still see their commitments met - albeit delayed from their original timeline of planning.

• Real estate - with self-isolation forcing individuals to stay and hold and limit their financial spending, milestone events like moving house are increasingly risky in current conditions. It’s very likely there will be little to no selling discussions leading to any fruitful steps being taken under the current lockdown conditions, let alone for an exchange of contractions in-person. This is only exacerbated by government advice for buyers and sellers to avoid in-person viewings and put plans on hold in light of the pandemic. The Law Society added their own advice to these new rules conveyancers must abide by during lockdown, but the practical in-person restrictions will likely lead to deals falling through and dates being pushed back.  

• Private equity - whilst fundraising, for the most part, is on hold, this area will likely recover should investors be more willing to invest in opportune areas where companies are cheaper than ever from an equity standpoint. Certain industries and companies have clearly boomed as a result from en-mass staying-at-home, prompting companies to consider new business models and methods of reaching customers that they can adapt to throughout the pandemic. In particular, for businesses primarily based in Asia or with significant supply chain ties to the region, its profile as a hotspot for the pandemic will inevitably cause greater disruptions. PE firms (and their lawyers) will have to brace for greater potential disruptions in future depending on how the economic scenario changes in the next few months.  

As the above illustrates, COVID-19 will almost certainly have a significant economic impact on how businesses operate, with legal services being no different - albeit not in an equitably distributed manner.