New data reveals how a widening rate gap is fueling the largest redistribution of legal work since the financial crisis
Highlights
- Am Law 100 rates crossing $1,000/hour while others average $600 drives unprecedented work redistribution.
- Midsize firms achieved 5% demand growth versus Am Law 100's 2% in 2025's second half.
- Corporate clients spent less per hour despite 7.3% rate increases, accelerating mobile demand trends.
Law firms experienced a demand surge in 2025 at levels the industry hasn’t seen in more than a decade, with billable hours increasing 2.5% for the year and hitting as high as 4.4% growth in July. Yet beneath these record-breaking numbers, a subtle shift is reshaping how and where corporate clients buy legal services.
Data from the recent Thomson Reuters State of the US Legal Market report examines why a growing price gap is driving one of the most significant market shifts in decades.
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A widening rate gap creates a tipping point
Demand shifts reveal client priorities
Elite firms double down on premium work
Midsize firms capitalize on market opportunity
What this means for the legal market
A widening rate gap creates a tipping point
When Am Law 100 lawyers cross the $1,000-per-hour threshold while everyone else averages around $600, general counsel (GCs) starts making different choices. Nearly 90% of GCs report that resource limitations are preventing them from delivering the level of strategic impact their organizations expect, forcing intense scrutiny over external counsel spending.
For many in-house legal departments managing flat or declining budgets, shifting routine matters — and increasingly even moderately complex work — to law firms charging in many cases 40% less has become standard practice rather than exception.
Demand shifts reveal client priorities
The data tells a clear story about where legal work is moving. Midsize firms surged ahead with nearly 5% demand growth in the latter half of the year while the Am Law 100 couldn’t crack 2%, resulting in the largest percentage point-spread gap in demand between the top and bottom segments since the global financial crisis.
Clients actually spent less per hour on average legal services in 2025 than in 2024, despite firms raising rates 7.3%, showing that rate hikes are pushing work downstream. One consequence of these technology and pricing dynamics is accelerating “mobile demand,” the movement of legal work from the most expensive Am Law 100 firms to less costly alternatives. Corporate legal departments aren’t just shopping around for routine matters. They’re rethinking which engagements truly require elite counsel and which can be handled effectively by more affordable options.
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Rather than competing on price, top-tier firms are concentrating on ultra-premium, high-stakes matters where clients have no choice but to pay top dollar. Complex transactions, bet-the-company litigation, and specialized regulatory work — particularly private equity transactions — command rates that justify the premium.
The average law firm celebrated 13% profit growth in 2025, with Am Law 100 firms seeing particularly exceptional results as profits per lawyer increased 53.7% since 2019. This strategic repositioning allows elite firms to maintain profitability even as they lose market share in routine matters.
Midsize firms capitalize on market opportunity
Firms outside the Am Law 100 grew their fees worked at a pace equal to or faster than larger competitors despite significant rate disadvantages, suggesting that traditional market hierarchies are shifting. Midsize and second-tier firms are capturing work that would have automatically gone to larger firms a decade ago.
Since January 2023, the average Am Law Second Hundred firm has grown headcount by nearly 8% and midsize firms by more than 6%, while Am Law 100 firms have seen slower growth at 3%. Many of these firms are also leveraging technology to narrow the capability gap with larger competitors, making them attractive alternatives for cost-conscious clients.
What this means for the legal market
The $1,000 barrier represents more than a pricing milestone. It marks a fundamental shift in client behavior and market structure. Accelerating mobile demand is creating winners and losers across the legal market.
For law firms, success now depends on clear positioning. Elite firms must justify premium pricing through genuine expertise and results. Midsize firms must demonstrate they can deliver sophisticated work efficiently. And all firms must recognize that clients now view outside counsel decisions through a value lens rather than defaulting to brand prestige.
“Tectonic forces” in the legal industry are creating fundamental tensions that will continue reshaping the market in 2026 and beyond. Firms that adapt to these new realities will thrive. Those that assume the old hierarchy is permanent may find themselves on the wrong side of history.
The Thomson Reuters State of the US Legal Market report delivers comprehensive data on demand trends, pricing dynamics, and profitability across all firm segments. Download the full report to make informed decisions about your legal spend strategy.
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2026 Report on the State of the US Legal Market: Peak prosperity and the fault lines below
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