Client belt-tightening and law firm expenses on collision course, report says
DOJ officials report Jones Day, Williams & Connolly earnings
2026 previews for lawyers, litigation
By Karen Sloan, Mike Scarcella and David Thomas
Jan 7 (Reuters) - (Billable Hours is Reuters' weekly report on lawyers and money. Please send tips or suggestions to D.Thomas@thomsonreuters.com)
Large and midsized U.S. law firms enjoyed a highly profitable 2025 thanks to soaring client demand and ever-higher billing rates, but a new economic report warns that the good times may not last — especially if increasingly cash-strapped clients balk at further rate hikes.
Firms could be headed into an economic contraction like those they experienced during the Great Recession and the end of the pandemic, according to the Thomson Reuters Institute’s 2026 Report on the State of the U.S. Market, produced 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 law firms regularly unprepared for the rapid deterioration of once-favorable economic conditions, said Bryce Engelland, a senior industry data analyst with the Thomson Reuters Institute. The pattern could repeat in 2026 if companies significantly reduce legal spending at a time when law firms are shouldering historic expense increases tied to hiring and technology.
Average law firm technology expenses rose nearly 10% in 2025, while lawyer compensation expenses increased nearly 8% on average, the report found.
“My main concern is that firms might take the view from the summit as a sign that everything is well,” Engelland said of 2025’s stellar results, where large and midsized firms saw profits grow an average 13% over the previous year, demand increased an average 2.5%, and billing rates climbed more than 7% among large firms. Bucking historical patterns, both deal-driven transactional practices and countercyclical work like litigation enjoyed demand growth last year.
Demand is likely to slow somewhat in 2026, the report said, though the economic, regulatory and geopolitical instability that helped drive last year’s surging demand is expected to continue.
The bigger question is whether clients will continue to accept the billing rate increases that have largely bolstered firm profits in recent years, and which firms clients will favor, Engelland said.
There are already signs that corporate legal departments have become more cost conscious. In the second half of 2025, clients gravitated toward lower-cost midsized firms. Those firms saw demand grow nearly 5%, compared to less than 2% for the 100 highest-grossing U.S. law firms as ranked by the American Lawyer magazine. Meanwhile, generative artificial intelligence threatens to trigger greater scrutiny of legal bills and rates as clients seek to get more from their spending, according to the report.
If firms can convince clients that AI is making each hour billed more efficient and valuable, they will be able to continue raising rates and may enjoy yet another highly profitable year, Engelland said. But an economic downturn that squeezes in-house legal budgets and sends lawyer talent from firms to companies would have the opposite effect.
“Corporate legal departments armed with both Big Law expertise and AI capabilities wouldn’t just negotiate harder on rates, they might stop needing outside firms for entire categories of work,” the report said.
DOJ ethics disclosures
Newly disclosed records from three of the Trump administration’s top lawyers at the U.S. Justice Department provide a look at their compensation and clientele from the law firms they left.
The financial and ethics disclosures are mandatory for some government officials and often include compensation spanning more than one calendar year.
Yaakov Roth, now the second-in-command in the DOJ’s civil division, recorded more than $7.1 million in partnership earnings from Jones Day. Some of his clients at the firm included Walmart, KalshiEX, TikTok and Huawei Technologies.
Roth serves under Brett Shumate, the Jones Day lawyer who was confirmed by the U.S. Senate to lead the civil division. Jones Day was also home to many lawyers who served in the first Trump administration eight years ago and represented Trump's first campaign.
Another Jones Day alum, Hashim Mooppan, now a leader in the U.S. solicitor general’s office, reported more than $3 million in partner earnings, in addition to a $2.2 million bonus from the law firm. Mooppan said his clients included Boeing, Chevron, R.J. Reynolds Tobacco and Wells Fargo Bank.
Sarah Harris, another leader in the solicitor general’s office, disclosed more than $3.6 million in partnership earnings from Williams & Connolly. Her clients at the litigation-focused firm included Bank of America, CVS Health, Google, OpenAI and Starbucks. The conservative Federalist Society paid Harris about $3,000 for a pair of appearances in 2024, the form showed.
Justice Department officials did not immediately respond to requests for comment.
2026 cases and trends
The year ahead promises to be a busy one for lawyers and litigation. Reuters previewed what's on tap in 2026 for law firm mergers, U.S. law schools, lawyers in legal peril, AI copyright lawsuits, mass torts, class action appeals and more.
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(Reporting by Karen Sloan)
