By Michele Gorman

Law360 (April 13, 2020, 9:27 AM EDT ) The COVID-19 virus has created a harsh reality for in-house legal departments in the service industry, as the outbreak forces businesses like hotels to furlough law staff and slash general counsel pay to weather the financial impact.

In-house legal departments, like their law firm peers across the world, have been furloughing employees and cutting salaries to help lower their economic burden. But unlike firms, corporate counsel aren't uniformly dealing with the financial effects — those in customer-facing industries are feeling the pain a lot more than those whose business is more insulated from a downturn, according to legal experts.

There are pockets where the pandemic has already affected law teams, as companies remain completely closed or are open only with limited services.

So far, the actions stemming from COVID-19 have largely affected C-suite executives who have taken pay cuts and hourly workers who have been furloughed or laid off at some companies, experts say.

"Companies have to be careful to not cut too deep too fast because you want to keep people motivated and engaged," said Sonya Olds Som, a partner at executive search firm Heidrick & Struggles International Inc. "That's why the cuts definitely start with the executives — the people who can most afford it."

She added, "Once it does get to the point where people further down the line are being asked to take some kind of a cut, the people who make more money have already been asked to do so."

General counsel at Hilton Worldwide Inc., Marriott International, Macy's, The Cheesecake Factory and Walt Disney Co. are among the corporate executives shouldering pay reductions to share the pain and help their businesses stay afloat.

In some cases, organizations have had to make temporary changes to their in-house departments.

At Hilton, corporate counsel have been affected by the COVID-19 response laid out in a March 26 announcement. The company confirmed that the legal team is among the tens of thousands across its corporate and hotel entities that have been furloughed, though declined to comment on the number of workers impacted.

A Hilton spokesperson confirmed that the members of the legal team who weren't furloughed have received a pay cut of up to 20% for the duration of the crisis, and that general counsel Kristin Campbell is among the executives taking a 50% reduction in compensation indefinitely.

And at Marriott International, the law department is one of the corporate offices altered by a move to shortened work weeks at "above property around the world," as well as a decision in the United States to put in place temporary leaves for at least the next 60 to 90 days, a spokesperson said.

But the picture is brighter elsewhere in the tourism industry. Delta Air Lines Inc. said it hasn't reduced staff or announced future cuts across the country.

Meanwhile, companies in other sectors haven't seen a change or immediate negative economic impact. Some legal teams are thinking of creative ways to tread water during this difficult time and contribute to their organizations in unusual ways.

"At this point, you'll probably see some changes in deeply affected industries, but I think it's wrong to assume that most companies will have so many problems that it will definitely be a situation where there's lots of layoffs in legal departments," said Susan Hackett, a law department management consultant. "When times are very good, lawyers are very busy. When times are very bad, lawyers are very busy."

She also said, "I personally don't think you'll see the ramifications of this for the corporate legal department world until we start to move back into a more new normalized or next normalized stage of work."

As Som pointed out, it's "all hands on deck" for now at some companies whose in-house counsel are dealing with a variety of labor and employment, cybersecurity and other issues stemming from the pandemic.

"Think of a building filling up with water and everybody has to grab a bucket," she said.

And as much as the current situation is challenging, it's also a time that's intellectually stimulating for many lawyers, as they step up and demonstrate their flexibility and humility.

General counsel Dan Peters' legal department at the University of Kansas Health System is one team where that's happening. While acknowledging that his legal department in the health care sector might be faring better than those at, say, movie theaters, shopping malls and car manufacturers, Peters said his lawyers are helping the organization in nontraditional ways.

His deputy general counsel is co-leading an internal team modeling and tracking the growth of the novel coronavirus in Kansas, and coordinating with several other public health resources to predict appropriate preparation for both the organization and region.

"The things that were on our plate two months ago or three months ago have changed almost overnight," Peters said. "If we were looking at or talking about, say, organizational relationships or growth plans or things like that, because we had to shift our priorities, it's really putting that on hold and simply saying to our business colleagues, 'OK, how can I help?'"

When asked about possible layoffs or furloughs down the line, he said reducing staff would be one of the last options considered for his health care organization.

"It's not to say that we've not been affected negatively," Peters said. "In health care, there's a huge implication because we're not performing elective surgeries — which has a dramatic impact on every hospital — but not in terms of layoffs."

Other companies are making it work by temporarily suspending the hiring process with job candidates, or asking general counsel who were planning to retire soon to temporarily postpone their plans, Som said anecdotally. If a business has already designated a successor who is ready to step up, they might ask the current top lawyer to retire earlier to help lower compensation costs, she said.

Regarding cuts, in-house leaders are likely taking into account the expense of finding and hiring new lawyers once business returns to normal, said Solutus Legal Search LLC founding partner Julie Brush.

"I would suspect — and if they are not doing this I would strongly advise — that companies sharpen their pencils and do the math on the numbers on getting rid of good people and what it's going to take to hire them back," she said.

Brush added: "In times of crisis, there are winners and there are losers ... and there will also be winners that will come out of this in terms of companies and the products that they offer, services that they offer."

--Editing by Rebecca Flanagan.

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