Law Firms Heading For a Downturn? Billing Rates May Hold The Key

Large and mid-sized US law firms enjoyed a highly profitable 2025, buoyed by strong client demand and steadily rising billing rates. However, a new economic report cautions that the good times may not last — particularly if increasingly cost-conscious clients push back against further fee increases.

 

Law firms could be heading towards an economic contraction similar to those seen during the Great Recession and at the end of the pandemic, according to the Thomson Reuters Institute’s 2026 Report on the State of the US Market, produced in collaboration with Georgetown Law’s Center on Ethics and the Legal Profession. The Thomson Reuters Institute and Reuters share the same parent company.

 

The legal industry is prone to boom-and-bust cycles, with firms often unprepared for a rapid reversal of favourable economic conditions, said Bryce Engelland, a senior industry data analyst at the Thomson Reuters Institute. That pattern could repeat in 2026 if companies significantly reduce legal spending at a time when firms are grappling with historically high costs linked to recruitment and technology investment.

 

The report found that average law firm technology expenses rose by nearly 10 per cent in 2025, while lawyer compensation increased by almost 8 per cent.

 

“My main concern is that firms may interpret their position at the summit as a sign that everything is fine,” Engelland said, referring to 2025’s strong performance. Large and mid-sized firms recorded average profit growth of 13 per cent year-on-year, with demand up by 2.5 per cent and billing rates at large firms rising by more than 7 per cent. In a break from historical trends, both transactional practices driven by deal activity and countercyclical work such as litigation experienced demand growth.

 

Demand is expected to slow somewhat in 2026, the report said, although the economic, regulatory and geopolitical instability that fuelled last year’s surge is likely to persist.

 

The more pressing question is whether clients will continue to accept higher billing rates — and which firms they will choose to instruct — Engelland added.

 

There are already signs that corporate legal departments are becoming more cost-conscious. In the second half of 2025, clients increasingly turned to lower-cost mid-sized firms, which saw demand rise by nearly 5 per cent, compared with less than 2 per cent growth at the 100 highest-grossing US law firms ranked by The American Lawyer. At the same time, the growing use of generative artificial intelligence is expected to prompt closer scrutiny of legal bills and hourly rates, as clients seek greater value for money.

 

If firms can persuade clients that AI is making each billed hour more efficient and valuable, they may be able to continue raising rates and enjoy another profitable year, Engelland said. An economic downturn, however, could squeeze in-house legal budgets and encourage lawyer migration from firms to companies, with the opposite effect.

 

“Corporate legal departments equipped with both Big Law expertise and AI capabilities would not only negotiate harder on rates — they might stop needing outside firms for entire categories of work,” the report warned.

 

DOJ ethics disclosures

 

Separately, newly released records from three senior lawyers in the Trump administration’s US Justice Department have shed light on their compensation and client work at the law firms they previously left.

 

Financial and ethics disclosures, which are mandatory for certain government officials, often cover compensation spanning more than one calendar year.

 

Yaakov Roth, now the deputy head of the DOJ’s civil division, reported more than $7.1 million in partnership earnings from Jones Day. His clients at the firm included Walmart, KalshiEX, TikTok and Huawei Technologies.

 

Roth serves under Brett Shumate, another former Jones Day partner who was confirmed by the US Senate to lead the civil division. Jones Day also supplied several lawyers to the first Trump administration and represented Trump’s initial presidential campaign.

 

Another Jones Day alumnus, Hashim Mooppan — now a senior figure in the US solicitor general’s office — disclosed more than $3 million in partnership earnings, along with a $2.2 million bonus. His clients included Boeing, Chevron, R.J. Reynolds Tobacco and Wells Fargo.

 

Sarah Harris, also a senior official in the solicitor general’s office, reported more than $3.6 million in partnership earnings from Williams & Connolly. Her clients included Bank of America, CVS Health, Google, OpenAI and Starbucks. She also disclosed receiving about $3,000 from the conservative Federalist Society for two speaking engagements in 2024.

 

Justice Department officials did not immediately respond to requests for comment.

 

2026 cases and trends

 

Looking ahead, 2026 is shaping up to be a busy year for lawyers and litigators. Reuters has previewed major developments expected across law firm mergers, US law schools, professional misconduct cases, AI-related copyright disputes, mass torts, class action appeals and more.

 

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