How to prepare your practice for the next market downturn

Eventually, the pandemic-fuelled economic boom will come to an end
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Te largest law firms in Toronto have spent most of the pandemic making a lot of money. As companies struggled to make sense of new safety regulations, wage subsidies and the rules that govern mass layoffs, lawyers saw their billable hours skyrocket. Low interest rates and stimulus funds, meanwhile, have led to a surge in transactional work. “The stock market and real estate have been high-flying,” says Jeremy Fraiberg, chair of the mergers and acquisitions group at Osler, Hoskin & Harcourt LLP. “Once the pandemic started, we didn’t in our wildest dreams think we’d end up having record levels of activity.” And yet, he knows the soaring economy won’t last forever: “What goes up must come down.”

Fraiberg is speaking from experience. He launched his legal career at Torys, back in 2000, just in time to enjoy the tail end of the dot-com bubble — and to watch it burst. Seven years later, he was a partner at Osler during the global financial crisis. Based on what he saw during those downturns, he has a sense of what the next one might look like inside the largest law firms on Bay Street.

If there’s a sharp drop in the demand for legal advice, one of the most obvious consequences will be a sudden decline in morale. “The only thing worse than being too busy is not being busy enough,” says Fraiberg. “The mood isn’t good. You’re worried about not hitting your hours target or getting your experience.”

Associates will have to adapt to the shifting economic landscape. At the peak of the dot-com era, Fraiberg had expected to become a technology lawyer. “I thought I was going to get all these IPOs to do and meet all these young founders,” he recalls. Then the internet economy collapsed. After the shock subsided, he revised his career plan and, eventually, transitioned from representing emerging companies to a more general corporate and M&A practice.

Illustration of two lawyers walking on a curved arrow. The lawyer at the bottom is in shadow while the lawyer walking on the top of the arrow is in the light walking toward a sunny sky

If the favourable deal-making environment that has buoyed the M&A market comes to an end, today’s corporate associates are poised to suffer the most severe drop in billable hours. At that point, they could either ride out the trough in the business cycle or pivot to other areas of law. 

A pullback in corporate work could, in fact, lead to gains in other areas. If central bankers increase interest rates significantly in response to rising inflation, for instance, a spike in bankruptcies could follow. “If you’re a corporate lawyer and you work at a firm that has an insolvency department,” says Fraiberg, there might be opportunities to “help with those transactions.” 

Allan Hutchinson, a professor at Osgoode Hall, is emphatic that law firms also have to be agile. “Firms that have all their eggs in one basket will be troubled when economic conditions change,” he says. “A nimble law firm will always do well.” 

So when might an economic pullback take place? There’s no way to know for sure. But Walid Hejazi, an associate professor of economic analysis and policy at the Rotman School of Management, thinks it could take a while. To justify that prediction, he points to the re-election of Justin Trudeau’s Liberal government. “Trudeau now has a mandate to continue doing what he’s done,” says Hejazi. “I think that it’s going to be a mandate for the government to continue spending more than it would have had there not been an election.” 

Fraiberg is comforted by the fact that, during the last two downturns, Canadian law firms avoided a wave of layoffs. “We try very hard to make sure we’re always right-sized,” he says. “You want to make sure you’re judicious in your hiring so you don’t overbuild.” 

In his view, there’s no reason for lawyers to be filled with anxiety. “The music does stop at some point, and lawyers will have to adapt,” says Fraiberg. “But that doesn’t mean you’re in for some kind of impending doom. It’s just the business cycle.” 

This story is from our Winter 2021 Issue

Illustration by Jamie Bennett.