Greek law firms are using employment law reforms to instigate structural change

Greek employment law has recently undergone significant upheavals. Major reforms have been part of a targeted programme aimed at boosting the economy, with unprecedented financial haircuts and considerable changes to the structure of both the public and private sectors. Within this newly-developed business environment, law firms have also been affected both as professional service providers and more generally as employers.

Employment law provisions and relevant case law in Greece were historically renowned for their traditionalism and employee-friendly attitude. The main law regulating severance pay stems from 1920 and, while it has been amended several times since then, it now constitutes a heavily-overregulated texture of legislation, regulations and court rulings.

After the Greek government signed the so-called memoranda with the International Monetary Fund, European Commission and European Central Bank, Greece’s employment laws have undergone numerous modifications aimed at “stabilizing the economy and enhancing the competitiveness of Greek businesses”.

The most notable legal changes include Laws 3845/10, 3846/10, 3899/10 and 4024/11, with the majority of this new legislation targeted at a reduction of labour costs and increased labour market flexibility. Moreover, the legislative verve of the Greek parliament has outlined a new framework for shaping working conditions, a model which is now based primarily on individual negotiations.

The amendments were so drastic and numerous that they were bound to strongly impact the way in which law firms perceive themselves and their practices. With more than 15 pieces of legislation in the past two and a half years, many of which were amended again practically before the ink was dry, the Greek labor market has been overwhelmed by legal uncertainty. In view of the above, Greek law firms have needed to reassess the structure of their practices.

In addition, Greek law firms have been faced with a major challenge to their employer status as a result of significant changes to the legal charter. In Greece, law was traditionally practiced by individual attorneys or small flexible structures consisting of very few lawyers. However, in the past 20 years, there has been a gradual growth in the number of law firms, a trend that was amplified during the start of the economic crisis through numerous mergers and acquisitions.

As the economic squeeze puts pressure on every aspect of economic activity, Greek law firms have been engaged in unprecedented competition between each other while also attempting to consolidate and control their costs.

Greek law firms have benefited from recent employment law reforms, with the opportunity to restructure their practices and utilise cost-cutting tools. The new provisions promote flexible employment (such as part-time employment and job rotation), adapted to the functional needs of the business and linked to the productivity and financial conditions of the firm.

Law firms have been able to reorganise themselves using measures such as fixed-term contracts with personnel, unilateral wage reductions and temporary work schedules. In addition, working hours have been rearranged by firms in a manner consistent with their particular needs. The use of redundancies and a reduction in severance pay have provided increased flexibility for law firms when tackling the impact of the financial crisis.

Within the new market environment, law firms nationwide are developing a much more flexible and robust approach to the collection of fees. A significant lack of liquidity is evident, in conjunction with a radical increase in non-performing assets. Indeed, partners in some Greek law firms often try to share, or even transfer, the burden of collecting legal fees to their associates, which can result in a profound redefinition of associates’ remuneration, as their pay is linked to fee collection.

Several Greek law firms face continued pressure to reduce their attorney headcounts and/or their fixed compensation. With increasing pressure on costs, managing partners have gradually abandoned fixed remuneration schemes by limiting the number of salaried associates and negotiating salary payments with percentage changes.

Ironically, however, other factors have led individual lawyers in private practice to seek economies of scale and security by forming law firms. Following the introduction of new tax legislation, an independent lawyer can be taxed up to 28 per cent of his reported income, whereas the partners in a law firm can enjoy the advantages of a more favourable dividend tax rate.

In conclusion, the current employment reforms offer unique opportunities for law firms in Greece to enhance staffing flexibility, while maintaining their revenues by developing specific strategies and implementing tough cost-control programmes.

Dr. Dimitrios Kremalis is a founding partner at Greek law firm Kremalis, a member of employment law alliance Ius Laboris