Even in a year that has seen continuing global economic and political uncertainty—not to mention high-profile battles between the White House and some of the nation’s largest law firms—the market for legal services has remained strong.
But industry analysts see trouble on the horizon. At issue is the growing hunger by clients for artificial intelligence-driven cost reductions and the uneven response by law firms to rapid technological change. While some firms are making substantial investments and adopting advanced generative AI tools to meet client demand for greater efficiency, many firms are starting to lag behind.
All of this could mean rockier times ahead for lawyers seeking jobs. According to legal recruiters, demand for in-house counsel, which has risen dramatically in recent years, is already slipping as companies embrace AI. Last year’s law school graduates have enjoyed record-high levels of employment, yet the prospect of a slowdown in associate hiring has been in the offing from the moment generative AI began gaining ground.
Law firms have also leveraged strong revenue growth during the last few years to engage in an aggressive round of lateral hiring. Revenue increases in 2025 have been driven largely by rate hikes, and client pushback is growing, raising questions about how long firms can continue the lateral hiring spree.
What Insiders Are Saying
At the recent Law Firm COO & CFO Forum, an event sponsored annually by the Thomson Reuters Institute, chief operating officers, chief financial officers and other law firm C-suite executives noted that while the financial picture has been bright this year, not all firms are benefitting equally. In a report on the event, Thomson said that “bifurcation seems to be driving some firms into a group of performance leaders and others into a group of laggards.”
That report noted expenses have been rising and realization rates have been drifting downward in recent months—a phenomenon not seen since the Great Recession years of 2008 and 2009. In an earlier review of law firm financial performance in the second quarter of this year, Thomson analysts said that increased spending could “leave firms overexposed to a slowdown if clients may become reluctant to spend.”
The second quarter analysis also suggested that firms “should consider ways of slowing expense growth…in order to be able to continue to invest in their growth strategies.” As participants at the COO conference noted, this is particularly challenging given the need to make AI-related technology investments. Quoting one panelist, Thomson reported that “most clients want their outside firms to use AI because their corporate teams are already using it.”
“If the legal market is going to become rocky over the next year,” Thomson Reuters said in its report on the COO & CFO conference, “these questions around tech investment and implementation will become more critical than they are now.”
Client Pressure
Thomson also reported that panelists at the forum said clients are the primary drivers pressuring law firms to invest in AI tools. “AI is already here,” a panelist told Thomson. “But the next part of this equation is how law firms are going to invest in training our lawyers to use this technology to clients’ advantage.”
That said, recent data collected by Best Law Firms shows that many firms are taking a go-slow approach to implementing AI tools. In its annual survey of nearly 5,000 U.S. law firms, Best Law Firms found that 70% are either exploring the potential for generative AI adoption or have launched pilot projects testing AI tools in select practice areas. Yet just 11% of firms have fully implemented AI across practices.
In-house counsel have noticed. A recent survey by the Association of Corporate Counsel and Everlaw found that in-house professionals see their outside counsel as unwilling or unable to deploy new technology—particularly to reduce costs for clients. Only 24% of in-house professionals said they were pleased with how outside firms are adopting AI for cost effectiveness.
Six in 10 in-house professionals in the ACC survey said they have seen no savings in time or money spent on matters because of generative AI use by outside lawyers, and nearly two-thirds of in-house teams expect to reduce their reliance on outside counsel.
Masking Vulnerability
A recent article by strategic communications consultants and legal industry veterans Tom Orewyler and Hugh Burns observed that demand for legal services grew by just 1.1% during the first half of 2025, which means rapid revenue growth this year has been the result of “higher prices, not higher productivity.”
“That dynamic is unlikely to hold indefinitely,” they wrote. “For years, the question inside law firm leadership meetings has long been: ‘How much can we raise rates?’ When clients start tightening budgets—as they already are, with hiring—the answer is ‘not much.’”
Orewyler and Burns posited that the financial boom at law firms “masks a vulnerability.” Clients are already reducing spending, and “pricing power has limits,” they said. Only those firms that “can show measurable value—and communicate it with discipline and consistency—will maintain both profitability and trust as rate pressure intensifies.”
None of this bodes particularly well for future law firm hiring. While the lateral market is currently active, firms appear to be racing to get deals done. Law.com reported that law firms “are trying to be more nimble in a more competitive lateral market to mitigate the risk of losing candidates to rival firms.” As of the end of August, lateral partner moves among the Am Law 200 were outpacing the previous year by 10%, according to Law.com’s data.
Ups and Downs
Overall, hiring figures have bounced around throughout 2025—although the trend has been primarily upward. Leopard Solutions, in its recently released third-quarter report on the legal job market, found that hiring has been steady, but is “more targeted.” Firms, it said, are moving faster to fill roles and “top-tier firms are carefully managing their headcount.”
From the second to the third quarter, the number of open roles rose moderately, Leopard said. The exception was at Am Law 200 firms, where the number of open roles “outpaced the broader market, signaling that top talent remains in high demand despite economic uncertainty.”
The October data, collected by Leopard’s parent company Surepoint, is a turnaround from May when new openings for lawyers fell by one-third. At that point, Law.com, reporting on Leopard’s findings, said the legal industry appeared to be aligning with other private sector employers and was “tracking this broader softening, with hiring slowing in pace but not reversing altogether.”
A Leopard researcher interviewed by Law.com at the time suggested, however, that hiring trends could “change at the drop of a hat” because the market has been “so whipsaw” this year.
In-House Pullback
One area where legal recruiters are seeing a more sustained pullback is for in-house positions. Recruiters told Law.com in August that the fast pace of AI adoption by in-house departments is leading to “a noticeable softening of the in-house job market, especially for lawyers with less than five years of experience.”
Indeed, the ACC/Everlaw survey of in-house counsel found that the number of in-house professionals who said they were actively using generative AI tools in their work more than doubled during the last year. In-house professionals also expressed optimism about artificial intelligence’s ability to transform their departments, with 91% of U.S. in-house teams citing “the technology’s most immediate and tangible benefit: increased efficiency.”
This optimism in AI’s ability to drive efficiency is translating into action. Earlier this year, Microsoft reduced its in-house counsel ranks, laying off more than two-dozen lawyers in a move most viewed as an AI-related cut. One recruiter told Law.com that he believed the majority of the laid-off attorneys were likely three to seven years out of law school and were doing work that was particularly vulnerable to AI replacement.
Such cutbacks mean that “junior in-house lawyers are considering job opportunities at law firms to brighten their career prospects, a reversal of the customary path,” Law.com reported.
Reversing a Trend
The slowdown also reverses a long trend of strong growth in corporate legal department hiring. In September, the Association of Corporate Counsel, analyzing data from the U.S. Bureau of Labor Statistics, issued a white paper showing that the number of in-house counsel in the United States had nearly doubled since 2008.
The increase from 78,000 in 2008 to 145,000 in-house lawyers in 2024 was far greater than increases in the number of law firm lawyers (up 23%) or government lawyers (up 38%) during the same period.
“After a brief decline during the Great Recession and a stall in 2020 due to the COVID-19 pandemic, the growth has been particularly acute since 2021, suggesting a sustained and accelerated trend of attorneys moving inhouse or starting their careers there,” the ACC said.
The growth “reflects a fundamental shift in how legal services are delivered and valued by corporations,” the ACC said. For many years, companies have been bringing work in house that had once been farmed out to law firms in an effort to reduce costs and increase efficiency. Those moves may accelerate with AI’s implementation—but without the expense of hiring more lawyers.
Job Market Disparities
The tightening of the in-house market and the up-and-down nature of law firm hiring could make it difficult for law school graduates to repeat the hiring success their peers have recently enjoyed.
The American Bar Association reported in March that 82.2% of the 2024 graduates seeking jobs that required bar admission had found a position. The National Association for Law Placement (NALP) in July said that the employment rate for the class of 2024 was 93.4%—the highest employment level for new graduates since the organization began tracking data in 1982.
While law school graduates entered “a historically strong job market,” NALP said, follow-up data from the organization shows “persistent racial disparities in employment outcomes.” Asian, Black, Latinx, Native Hawaiian and other Pacific Islander graduates experienced “lower overall employment rates than their white peers,” NALP said.
Racial gaps were also evident in judicial clerkships, “where graduates of color were less likely to be employed than their white counterparts.” Within private practice, employment rates remain lowest for Black, Native American, Alaska Native, Native Hawaiian and other Pacific Islander graduates. Those disparities are hardly likely to improve if the legal job market contracts in the year ahead.
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David L. Brown is a legal affairs writer and consultant, who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times, and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms as senior content consultant.
