No More Chicken Big Mac 🍔

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Last week, the EU court made a decision about a case involving McDonald’s, the world's largest fast-food chain. This might be of interest to those who are looking to practice intellectual property law.

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The Response of the Magic Circle 🪄

Freshfields Bruckhaus Deringer was the first member of the Magic Circle to increase their NQ salaries from £125,000 to £150,000. First-year trainees will now also earn £56,000, up from £50,000, growing to a respectable £61,000 in their second year from the previous £55,000. Linklaters, Clifford Chance, and A&O Sherman have also recently matched this offer. Slaughter & May remains the only Magic Circle outfit that has yet to follow suit, as their annual meeting on salaries takes place biannually, with the next discussion scheduled for November this year. With these higher salaries, the effect of competition between US firms and the Magic Circle seems, at least on the surface, positive.

The Consequences of the Pay War on Law Firms 🤑

In a recent statement, Denise Gibson, A&O Sherman’s managing partner said that “trainees and NQs are a key part of the firm’s future.” The competition in the City for the best new talent is fierce, which is why the key players acknowledge that salaries must likewise be attractive. By increasing pay at both trainee and NQ level, London firms are hoping to not only attract but also retain the best talent and prevent their US rivals from snatching up great potential employees. Magic Circle lawyers work similar hours to their US counterparts, which means that they might be tempted to transfer to firms where the remuneration is greater.

However, considering that the pay increases in the Magic Circle have all taken place within the space of a month and have been fuelled by the need to compete with US firms, such practices could soon become unsustainable. Although junior lawyers and associates will feel content with their improved remuneration, the financial burden caused by the increased salaries might lead to higher fees for clients. In the long run, firms should adopt pay rise practices that strike a balance between responding to external competition and assessing whether it would be financially viable to increase salaries once again.

These pay rises, however, will undeniably improve the global reputation of the Magic Circle, at least in the short term. The gap between NQ pay rates in London and New York has now reduced to historical levels, which will be beneficial for convincing international clients to choose London-based firms as their go-to legal advisers. M&A activity has also started to improve following a period of stagnation, which means more potential commercial clients for London firms. However, pay increases for junior lawyers and trainees will generally mean a smaller budget for partners. This may cause dissatisfaction among seniors. Partners at US law firms can take home as much as $20 million per year, so the Magic Circle must be on the lookout for rivals trying to lure in their seniors with more attractive deals.

Looking to the Future 🔮

The arrival of US firms in London in the past 10 years has forced domestic firms to compete. There are both positives and negatives to this competition. While new talent will be compelled to think harder about their choice of firm, US outfits continue to boast deeper pockets. The impact of salary increases on the budgets of US firms will be smaller compared to their domestic rivals, so it is unlikely that the Magic Circle could respond as effectively as they did to future salary hikes from their competitors. There are many factors at play when it comes to determining when and whether salaries in the legal sector should increase.