My newest column has been posted at Slaw, winner of the Canadian Association of Law Librarians’ 2009 Hugh Lawford Award for Excellence in Legal Publishing. It’s the latest honour for Canada’s best legal website, and yet another reason to read this post there and take in the rest of the terrific content.

As always, I’ll also post the article here.

The legal profession is on the verge of an extremely serious problem. If you want to see what it looks like, check out what Chicago-based firm Mayer Brown has just done. According to the Chicago Tribune, the firm has offered its new associates a deal: take a $100,000 pay cut (to $60,000) and go work in-house for one of the firm’s large clients like Kraft or United Airlines. The job is guaranteed for one year and not a day more — after that, if the company doesn’t keep the associate, she’s on her own.

It tells you something about new lawyers’ state of mind that most of the associates grabbed this opportunity. As John Wallbillich at the Wired GC observes, there’s little downside for the associate: either he’s hired, or he’s let go with valuable experience under his belt, or he develops an arm’s-length relationship with the client under his own shingle. And from the client’s perspective, hey, free lawyers are always nice to have. The article indicates other firms might be reluctant to follow Mayer Brown’s lead, in case the seconded associate bombs and the firm is blamed — which I find pretty amusing, since these firms don’t seem to mind if the associate bombs while pumping out billable hours on the client’s dime. But whatever, the client seems happy enough, too.

So that brings us to the question: what’s in this for the firm? I mean, Mayer Brown is basically paying associates $60,000 not to work for them. This, at the same time that dozens of large firms are paying associates not to work for them either, but rather to report to law clinics and public-interest legal employers, or to travel or do “something meaningful.” And still other firms are paying future associates still in law school to defer their employment with the firm, maybe for good.  These current and future lawyers evidently hold so little value that their employers will pay someone to take them off their hands. Associates are starting to look like the equivalent of subprime mortgages for law firms — toxic assets they want moved off their books.

Law firms paying associates not to work for them isn’t just a symptom of the recession, though — it’s worse than that. In normal marketplaces, employees are paid roughly in accordance with the value they produce through the application of their skills and knowledge to their assigned tasks. In smaller law firms, this holds true: a partner won’t take on a new lawyer unless there’s work that needs doing and the lawyer can accomplish it with enough competence to keep the clients satisfied and the fees coming in.

But the large-firm leverage model skewed that system. An associate could be assigned endless cycles of rote work with little value, billing out the hours logged until the associate paid off his annual cost to the firm and became an engine of  pure profit. This worked because institutional clients didn’t know or care enough to question exactly what the associate was doing and why he required so much time and money to do it. The associate’s value to the firm lost any connection to his actual skills and qualifications.

That system, as you may have noticed, is coming to a grinding halt. For a variety of reasons covered here before — closer scrutiny by more sophisticated and motivated clients, new technology and processes capable of handling rote work cheaply, low-cost alternatives to associates in low-cost jurisdictions — large firms won’t be able to employ armies of associates on work that a bright law student could do. In many cases, they’ll have to restrict the number of new lawyers in their employ to those who can handle sufficiently sophisticated work that a client is willing to pay for. The diamond — or the cylinder — will come to replace the pyramid, and law firms will be leaner, more effective and more rational organizations for it.

But first, the profession is going to go through a crisis, one triggered by a growing buildup of law school graduates who can’t find work. Year after year, we’ll produce more new lawyers than the market will hire — the large firms won’t be taking on nearly as many, while legal talent demand overall will narrow to lawyers with proven skills and/or experience. And these masses of unemployed law graduates are going to make us face an ugly truth we’ve been avoiding for years: we’re doing a terrible job of training our future lawyers.

Whether they ought to or not, most law schools don’t train their students in the skills they need to contribute value as lawyers — new associates often end up with rote work because in many cases, they’re not equipped to do much else. The bar admission process offers too little training and comes too late in the game to provide much help. Articling terms, where they exist, offer mixed results in terms of producing competent lawyers. We know all this, but we haven’t been sufficiently moved to do anything about it, because new lawyers always seemed to muddle through somehow.

But the emerging economics of the new legal marketplace won’t allow us to disguise unskilled law graduates as billing drones or on-the-job training projects anymore. Unless they can hit the ground running as reasonable contributors of client value, these graduates will be very hard-pressed to find work as a lawyer.  Hanging out their own shingle will be a risky option, given their paucity of skills, but one that many of them simply may have to take.

A huge disconnect will quickly become evident: our professional admission system still imagines that purchasers of legal services are willing to effectively subsidize the new lawyer training process. The purchasers will say otherwise, and this reality will bear itself out in rising new lawyer unemployment rates. This will force us to accept that new lawyers must be ready, upon entry to the bar, to provide at least a minimal level of useful legal services to clients — a base of competence from which they can grow as professionals. And that realization will lead, faster than we think, to a wholesale restructuring of the legal education and lawyer training system.

When this change will happen, how long it will take, what form and directions it will assume, which institutions will survive and which won’t — I have no idea. I dislike making predictions as a general rule, but this seems to me less a prediction and more the inevitable result of clear trends now well underway. When law firms pay their lawyers to work for someone else, something has gone seriously wrong. We’re looking at the canary in the coal mine.