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Demand for legal services facing four degrees of change following Covid-19

May 3, 2020

 

Will the demand for legal services face a temporary disruption, a longer term downturn or a no-end-in-sight structural change?

 

These are three different degrees of potential economic upheaval triggered by Covid-19.

 

The fourth degree of change is the boom that will be experienced in certain sectors of the economy.

 

Temporary Disruption (short term)

 

Fortunately for law firms the demand for legal services, in most areas of law, falls into the category of short term disruption. 

 

Conveyancing: Residential property sales volumes will be down for a couple of months and should then continue where they left off before the Covid crisis. Auctions and open for inspections may change for the foreseeable future but this will not affect the fundamental demand for buying and selling homes. The Federal Government has played its part by bolstering consumer and business confidence.

 

Wills and Estates: This is an area of law likely to face minimal disruption. 

 

Family Law and Criminal Law: These are areas of law that could be counter-cyclical to economic conditions. They may see an increase in demand.

 

Disputes and litigation (including family law): There may be less money available for epic court battles but on the other hand there will be a greater incentive to chase parties for cash that in previous times might have been overlooked.

 

If there is a short term disruption to litigation of any type, it will be due to an adjustment of the court system. However, there seems be an effort by courts to adopt new technology and to re-prioritise urgent matters. Courts have demonstrated a willingness to meet the current challenges.  

 

Recession (medium term)

 

Migration work: On Friday 1 May 2020, the Prime Minister announced the shocking news that net overseas migration is expected to fall by about 30% this year financial year (2019/20) and expected to be 85 per cent lower in 2021 compared to 2018/19. He also said that this is not expected to be a long term change.

 

There will be a couple of lean years for those businesses and organisations providing services to new migrants. This will include sections of the property industry, educational institutions and the law firms that service them.

 

Structural (long term)

 

Industry related: A structural decline in the demand for legal services is likely to be associated with specific industries which themselves will experience a structural decline. 

 

Practice areas that focused on the travel industry, hospitality and certain segments of retail and fitness/recreation will naturally expect a decline in legal-spend from companies in these sectors.   

 

There might be a short term spike even within these industries, for disputes, litigation and compliance but if an industry or sector declines then its legal spending will eventually decline with it.

 

Boom practice areas

 

Workplace and Compliance: There will be increased demand from all sectors to ensure compliance with new (health-related) laws and the adoption of best practices in relation to health issues for employees and customers. 

 

Some industries and sectors have boomed through the current crisis and look solid for the future. Examples are supermarkets, food production, logistics/delivery, certain technology sectors, logistics and medical-related organisations. Law firms servicing these sectors can also look forward to good times ahead.

 

Insolvency practitioners should expect to get busy again, particularly on expiry of the government's 'Temporary relief for financially distressed businesses'.

 

Too soon to call

 

Personal injury and class actions.  

 

Corporate & Commercial work, M&A and small business.

 

The shock and anxiety that followed health alerts, supermarket panic buying and changes to work arrangements have only been matched by the shock and awe response of the Federal Government’s pumping of cash into the economy.

 

The amount of cash being deployed is so momentous that there is a real chance of an unexpected economy-wide boom rather than a downturn. Unfortunately, this will be of little assistance to those sectors with unsustainable business practices in the context of ongoing health risks and the need for new health protocols. Of course it will be too late for those businesses that went under.

 

There may even be a renaissance of manufacturing in Australia for a variety of reasons including national security and a low $A.

 

Too good to be true

 

The vast majority of legal practice areas are likely to experience no more than a short term disruption in the demand for their services.

 

The Federal Government’s actions have saved businesses of all sizes, enabled millions to stay in their jobs and bolstered consumer confidence. It is as if this is too good to be true, especially compared to the view from the early stages of this crisis.

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