The Real Economy

Canadian law firms are losing talent

How can they stop the exodus?

Oct 19, 2021
Labor and workforce Economics The Real Economy Law firms

The red-hot labour market for lawyers in the United States is drawing the attention of Canadians, willing to make the move for lucrative wage increases at U.S. firms. Canadian firms, meanwhile, have been slower to react with widespread wage adjustments, but we expect that to change in the coming months.

Follow the money

Overall employment in the United States increased by 3.5 per cent year-over-year in June, but that growth was disproportionate among various industries, according to the ADP Research Institute. Business and professional services, which includes law firms, grew by 3.73 per cent, the third-highest rate out of nine industries tracked by ADP. Only leisure and hospitality (13.32 per cent) and education and health services (4.11 per cent) grew at a higher rate.

More notably, the business and professional services industry had the third-highest year-over-year job-switching rate—a whopping 22.84 per cent. Think about that: Almost one in four professionals in the industry switched firms in the 12 months preceding June 2021, according to ADP. And, as it turns out, many of those professionals found the pots of gold they were looking for.

Those who switched employers in the industry enjoyed average year-over-year wage growth of 9.59 per cent, compared to 4.72 per cent for those who stayed with their employers, ADP data shows. Only in the resource and mining industry were job switchers rewarded with greater wage growth (11.81 per cent).

An international pursuit

Some of that job switching in business and professional services entailed crossing the border—especially because it isn’t all that difficult for some Canadians.

Lawyers generally are classified as TN non-immigrants under the North American Free Trade Agreement. The classification permits qualified Canadian and Mexican citizens to seek temporary entry into the United States to engage in business activities at a professional level. Canadian lawyers, unlike Mexican citizens, are generally eligible for admission as non-immigrants without a visa. Essentially, Canadian lawyers can enter the United States just by presenting to customs a letter from their U.S. employer with their other documents.

So it’s hardly surprising that more Canadian lawyers moved to the top 200 U.S. firms in the first six months of 2021 than they did in all of 2018, 2019 or 2020—a statistic gathered by Firm Prospects, a legal labour analytics company, and reported by Business Insider.

Base salaries for entry-level lawyers at top corporate firms in the United States have climbed to approximately $200,000, the first sector-wide raise in three years, according to Business Insider.

Meanwhile, Canadian firms have not followed suit. At large firms in the four largest Canadian cities (Toronto, Montreal, Calgary and Vancouver), a first-year lawyer earns, on average, anywhere from CA$92,000 to CA$106,000 (US$72,500 to $83,500), according to ZSA, a Canadian legal recruitment firm.

What does this mean for Canada?

Demand for lawyers is not unique to the United States, though. In Canada, the business and professional services industry experienced 11 per cent year-over-year job growth in June, according to ADP Canada.

Given the growth and individuals’ willingness to pursue higher wages with a new employer, Canadian law firms risk losing talent either to another Canadian firm or one south of the border.

How might Canadian firms respond? We could see them announcing firm-wide salary increases of up to 20 per cent during the remainder of 2021, mirroring the strategy of many American firms earlier this year.

Implementation of salary increases could trigger a flurry of job switching, with fast-acting firms rewarded by deep candidate pools. Turnover rates could eventually approach those within the United States as switching between firms becomes more lucrative. Meanwhile, this could underscore the benefits of investing in operational efficiencies that decrease the need for additional hires.

Is money all that matters?

To be fair, all the movement in the labour market is more than just a mad dash for cash.

In December 2020, Canadian Lawyer published the results of its inaugural survey of legal workplaces; 419 lawyers responded to the question of what qualities are important when thinking about how an employer can meet the needs of its employees.

Competitive salary ranked fifth; the top four were, in order: team environment, strong management, mentorship and the firm’s reputation. It will be interesting to observe whether those priorities have shifted through 2021.

The survey quoted Sameera Sereda, managing partner of The Counsel Network, a recruiting firm. She asserted there are three main factors in a workplace environment for which lawyers are looking:

  • Platform: Is the platform going to help me move forward in my career? Am I going to build my client base? Am I going to have access to a mentor?
  • Progressive policies: Are there policies that include equity and diversity?
  • Innovation: Does my career path at this firm allow me to do meaningful legal work and still make partner?

Based on these findings, we could also see law firms begin to direct additional focus to reviewing and revamping ESG policies, as well as refreshing the design and execution of internal mentorship programs.

RSM contributors

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