Written by: Andrew Maloney

For years, the richest law firms have been getting even richer, increasing the profit gap between themselves and others and forcing smaller law firms to join forces or wither on the vine. But 2022 is a reminder that segmentation isn’t a one-way street, as clients become more cost-conscious and certain kinds of work and practices move down-market.

According to the latest Law Firm Financial Index from Thomson Reuters, law firms beyond the Am Law 200 (defined as midsize firms in the report) saw an increase in overall demand during the third quarter, relative to the same time last year, while Am Law 100 and Second Hundred firms saw declines.

For those smaller firms, demand in labor and employment (up 2%) and litigation (up about 1.5%) specifically picked up.

The analysts wrote that those demand trends were “exacerbated by increasingly mobile legal demand in the market, with evidence of smaller firms seeing greater success both overall and in certain practices, suggesting that clients are now more willing to shop around.”

An earlier report this year from Thomson Reuters noted that 2015 was the last year in which the average midsize law firm outperformed the average Am Law 100 firm in terms of demand growth. That’s the case in 2022, in spite of the drag created by increasing overhead and rising associate compensation.

But demand shifts between segments isn’t evidence that the gap between bigger and smaller firms is narrowing or that segmentation isn’t occurring, said Jim Jones, a former managing partner of Arnold & Porter and now senior director of Ethics and the Legal Profession at Georgetown University Law Center.

Indeed, he said he thinks it’s mounting evidence of segmentation.

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