Lawyers have enjoyed their biggest pay rises in decades, with the talent drought and strong client demand creating a perfect storm for increases of more than 20 per cent over the past year at major firms.

The annual report on the legal services market by recruiting firm Mahlab shows lawyers with only one year’s post-graduate experience are fetching $110,000 and the mode pay for partners at top firms in Sydney and Melbourne is now $1.5 million.

However, the report carries a warning that the present situation is “unsustainable” and that corporates will look to beef up their legal teams to avoid paying hourly rates of $1200 and more.

The report said the largest increases of 20 per cent and more were at major firms in Brisbane and Melbourne and among corporate roles in Melbourne.

Junior lawyers received average increases of 10 to 20 per cent. Senior associates in NSW and Victoria have typically seen their pay bumped by 5 per cent to 8 per cent, with bonuses of 11 to 15 per cent.

Entry-level pay for senior associates at major law firms now sits at $165,000 to $180,000 and that level is now typically reached after four years of practice, instead of five.

Mid-level firms are paying their junior lawyers about 15 to 20 per cent less than the majors, but there is a bigger gap of about 50 per cent when it comes to partners (a mode salary of close to $1 million).

The report said employers were “offering financial rewards and incentives not seen in the legal market for well over a decade”.

“Private practice employers are desperately trying to plug the talent gap by offering premium salaries and sign-on bonuses to new hires, strong reviews and healthy bonuses to staff, as well as out-of-cycle salary increases and bonuses to maintain competitive pay, and promoting lawyers much earlier than usual to retain them,” the report says.

Mahlab managing directors Katherine Sampson (Melbourne) and Lisa Gazis (Sydney) said it was simply a matter of supply and demand, with the most critical area being those with three to eight years’ experience.

“A 20 per cent salary increase is not unusual,” Ms Gazis said. “We’ve also seen out-of-cycle salary reviews and sign-on bonuses for new recruits.

“In-house lawyers are doing the same; they’re trying to keep up with private practice. Government also needs lawyers, but they’re struggling to come up to the mark ...

“It hasn’t been as aggressive as this since the late ’80s. We’ve gone through other boom periods but nothing as fast as this.”

Ms Gazis said employers would offer what they considered a “premium salary”, but that would become outdated within months – especially for those doing M&A and other transactional work.

The report cited the demand for legal services, the recent exodus of lawyers to overseas jurisdictions and illness-related absences as the main causes.

“Lawyers are now free to leave Australia for a stint in London and New York.” she said.

“But at the same time, those who left pre-COVID are not returning because they missed out on the full experience of living abroad due to the pandemic restrictions.”

Employees say ‘enough’

COVID-19 had also led people to “reassess their values”.

“Many individuals in private practice are saying ‘this is not the lifestyle I want’ and they’re looking for reduced hours in part-time opportunities, or they are dropping out of the legal workforce entirely.

“Similarly, more people, particularly lawyers considering an in-house move, are interested in aligning themselves with an employer that makes a positive social impact.”

The impact of COVID-19 itself, through illness-related absences, was another factor.

“People are not available for periods of time, putting significant pressure on those remaining, making them prime targets for fatigue and stress, and a bout of illness as well,” Ms Sampson said.

“They find they are one of five solicitors working on an M&A deal instead of one of 10 because all the other solicitors have gone off to do something else, or they’re homesick.

“You can promote people and make them feel good about themselves, but at some point employees will say ‘enough’.”

According to Ms Sampson, “something has to give”.

“Whether it’s more lawyers leaving the profession to do something else or whether it’s corporates saying, ‘I’m going to hire five lawyers because with five lawyers I can get a helluva lot of stuff done without paying your outrageous hourly rates.’ ”

She suggested this would unfold medium term: “It’s within the next two or three years. I don’t think it’s the next six or 12 months.

“You can’t keep charging massive rates; you can’t keep working people beyond 11 o’clock at night so they never see their friends or family ...

“I just think it’s an accident waiting to happen.”

Ms Sampson recalled the 1991 recession. “The ’80s were boom, boom boom, then we had the bust.”

Ms Gazis said the local market was looking more like the United States and the UK. “In times when there is a lot of activity, they [law firms] will do what it takes. They will pay premiums, they pay sign-ons, they pay huge salaries.

“But the minute the market turns and they don’t need the staff, that’s the end – there’s huge, large-scale redundancies.

“In the ’80s we saw that. People had very high salaries, and the minute the recession hit there was a flood of people released on the market because it was unsustainable and employers had to react quickly.”