Law Firms and the "Two Tier System" for Associates

The Boston Globe today ran a story originally from the New York Times about law firms setting up a "two tier" system for their associates rather than "off-shoring" jobs. The idea is that they offer one set of associates the traditional partnership track. These associates are housed at the offices in the big cities and do the large number of billable hours, and may do more complex work. There is a second set of associates now, though, with varying names. They may be called "career associates" or "permanent associates," and their offices may be in alternate cities or towns with lower cost of living. They are never going to be partners in the firm, and are not expected to work the high number of hours. They may also be doing more mundane work. The upside is that they have more time for family, or outside interests. They typically earn $50 - $65,000 in a year. There is a note of warning sounded in the article about the problems these "permanent associates" have paying off their law school loans on these salaries. And the article talks about the care the firm they feature, Orrick,Herrington and Suttcliff, is putting into managing perception: "There are no second-class citizens at Orrick."

I took a quick look around the Internet and found lots more articles in legal publications about the phenomenon. For instance, from 2009, the ABA Journal has one upbeat management-oriented article about this trend, "Are you Offering the Golden Egg or Golden Handcuffs? Alternatives to Partnership." But, by the fall of 2010, the ABA reported on a study, "Have Law Firm Structural Changes Created a Pink Ghetto?" Obviously, the flexible time of the permanent associate track may be more attractive to young women of child-bearing age. The study looks at the paucity of women in partnership ranks in multi-tier firms compared to single tier firms.

And the July, 2010 issue of The Recorder has an article that looks frankly at the costs and benefits of the structure. The author notes that while the firm pays the alternate track lawyers about half of what it pays the partnership track associates, it typically bills clients for their services at a discount only 25 - 30% less. So, the firm makes a nice profit by using the two tier system. But, the system may not be quite as profitable if looked at in the whole picture, according to this author's analysis. Apparently, the firm often must fix mistakes or re-do some of the non-partner lawyers' work in order to bring it up to the firm standard. While some of the lawyers hired for this tier are certainly the quality that would be hired for the partner tier, others may not be. And the non-partner associates are working in a separate office, in a distant city, making communication more complicated and difficult. These are some of the same problems that plague out-sourcing and off-shoring work. But the article ends with a positive note about careful implementation of the system.