Severance watch – score one to the magic circle (and Nabarro)

Say what you like about the City firms axing jobs but, judging from the figures that have so far emerged, firms such as Clifford Chance (CC) have put down more than respectable packages for those unfortunate enough to lose their jobs.

An analysis of severance awards at a basket of law firms recently sent to Legal Week concluded that CC was among the most generous in the UK top 50, with a newly-qualified lawyer laid off from CC in line to receive £35,577 on top of notice pay (other firms to rate well included Nabarro and Wragge & Co). Linklaters and Lovells also paid well above statutory requirements. So the bottom line is that, even in this very uncertain job market, very few redundant magic circle assistants will now be unable to make the mortgage.

It was this comparison that contributed to the heated feelings at DLA Piper where the decision to pay out statutory redundancy to departing staff is not going down well. On a moral level, the argument is that well-heeled businesses like corporate law firms can afford to do better when cutting jobs. And while they aren't charities, there is some substance to such claims. Whatever challenges they are facing, commercial law firms are far from the situation of car manufacturers or retailers genuinely in fear for their existence. By any reasonable yardstick they will still make good money this year – indeed, their profits will hold up far better than their City counterparts in banking – and so should take care of staff they jettison when no longer needed.

But of more relevance from a cold-eyed business perspective is what impact such meagre payouts will have on DLA Piper’s image and ability to retain and attract the best staff in the long term. On this issue, I suspect the angry attendees of the DLA Piper meeting are correct: paying well below City firms damages DLA's drawing power for a good while to come.

Of course, on this measure, DLA is hardly alone, as nationally-focused law firms that have made redundancies have generally offered far less than City rivals, with the honourable exception of Wragges. But if national law firms really want to play in the big leagues then surely they have to have some regard to market rates, whether rates for hiring or firing. And recent history strongly suggests internet-savvy junior lawyers will be only too aware of such disparities and will change their view of which firms are attractive places to work.

Consider the recent example of Latham & Watkins - like DLA Piper, a much-celebrated brand that had styled itself as a credible place for talented junior lawyers to join. Clearly recognising that its uncertain handling of staffing issues in this recession was in danger of demolishing a brand it spent 15 years building in a matter of weeks, Latham put down the most generous severance package yet seen in the US market when it announced steep job losses. The cost of that severance deal is estimated at $15m-$20m (£10.8m-£14.4m) for the laid-off fee earners alone. In Latham’s case that will probably prove money well spent. Even without matching that largesse, DLA Piper may come to wish it had on this occasion invested a little more in its reputation.