From: Thomson Reuters Law Blog February 11, 2026

Every General Counsel can find great insights in the new 2026 Report on the State of the US Legal Market from Thomson Reuters Institute and Georgetown Law. While law firms celebrated record profits and 13% growth in 2025, the data reveals dangerous fault lines beneath their prosperity. 

Legal demand surged in 2025—some of the strongest in a decade—driven by regulatory chaos, trade wars, and geopolitical instability. But corporate legal departments, squeezed by stagnant budgets, aggressively moved work from premium-priced Am Law 100 firms to lower-cost alternatives. Meanwhile, firm expenses skyrocketed (tech up 9.7%, talent up 8.2%), and worked rates grew 7.3%—more than double inflation. 

But that firm gravy train may be ending. Net Spend Anticipation among GCs has dropped to pandemic-era lows, and forecasts point to demand contraction by mid-2026. 

For in-house teams, this isn’t a problem—it’s an opportunity. Here’s what you need to do now. 

1. The “mobile demand” strategy is working – accelerate it

What the data shows:

Midsize firms captured nearly 5% demand growth in late 2025 while Am Law 100 firms struggled to reach 2%—the largest gap since the Global Financial Crisis. Other GCs are successfully moving work to firms charging 40% less, often moving from $1,000+/hour AmLaw 100 partners to $600/hour in MidLaw. 

LDs spent less per hour in 2025 than 2024, despite average worked rates increasing 7.3%. Strategic firm selection delivers real savings. 

What it means: 

You have leverage. The price differential between top-tier and mid-tier firms has never been more dramatic, and the quality gap has never been smaller. Midsize and Am Law Second Hundred firms are capturing top talent and handling complex work. 

Actions to take:

• Audit current work allocation—Identify matters going to premium firms out of habit. 
• Expand your panel—Add Am Law Second Hundred and Midsize firms offering 40% lower rates. 
• Create tiered guidelines—Reserve Am Law 100 firms for bet-the-company work. 
• Test new providers—Start with low-stakes matters before shifting larger projects. 
• Track blended rates—Measure if your strategy is actually reducing spend per hour. 

2. Law firms are financially vulnerable – use your leverage now

What the data shows:

Firms are on a spending spree. Technology spending grew 9.7%, knowledge management 10.5%, and talent costs rose 8.2% in 2025. Firms grew headcount by 2.9%, marking three consecutive years of aggressive hiring. 

Financial forecasts point to demand contraction by mid-2026, with Net Spend Anticipation approaching pandemic-era lows. 

What it means:

Firms are loading up on expenses assuming boom conditions will continue. When demand softens, firms with high fixed costs will be desperate to maintain revenue. 

This creates a narrow window. Firms that over-hired will either accept favorable terms or watch work go to competitors. 

Actions to take:

• Negotiate multi-year arrangements—Lock in rates before firms recognize their vulnerability. 
• Push back on rate increases—7%+ growth is unsustainable with softening demand. 
• Demand rate freezes or reductions—If firms want volume, they must compete on price. 
• Exercise “most favored nation” clauses—Ensure you get the best rates offered. 
• Use competitive bidding—Let firms know you’re comparing alternatives. 

3. The hourly billing model is broken – demand better pricing

What the data shows:

Despite heavy AI investments that fundamentally alter work performance, Thomson Reuters Legal Tracker data shows that 90% of legal dollars still flow through hourly billing arrangements. 

This creates tension as firms deploy technology that accomplishes in minutes what took hours, then bill by the hour. 

What it means:

Both sides are waiting for the other to blink. GCs want firms to propose innovative billing, while firms complain clients evaluate everything in hourly rates. 

You have leverage to break this impasse. Most clients don’t even know if outside firms are using GenAI—a disconnect preventing honest conversations. 

Actions to take:

• Require AI usage transparency—Ask: Are you using AI? How? 
• Pilot value-based pricing—Tie fees to business outcomes, not hours. 
• Benchmark aggressively—Use Legal Tracker data to see what others achieve. 
• Reject “AI surcharges”—AI should reduce costs, not increase them. 
• Start the conversation—Don’t wait for firms. 

4. Build your own AI capabilities to reduce dependency

What the data shows:

86% of GCs believe their teams deliver value, yet nearly 90% report resource limitations prevent strategic impact. This forces tough choices about which firms get your limited dollars. 

Corporate legal departments have led outside firms in GenAI use since 2022. You’re already ahead—now accelerate. 

What it means:

You’re asked to do more with less while outside counsel costs rise. The only sustainable solution is building AI-enhanced internal capabilities. 

Actions to take:

• Increase legal tech budget—You can’t absorb more work without better tools. 
• Prioritize GenAI for routine work—Contract review, research, compliance, discovery. 
• Bring more work in-house—Nearly two-thirds of GCs are doing this. Use AI to create capacity. 
• Partner with ALSPs—Just 27% of North American firms use ALSPs vs. 76% in UK/Europe. 
• Measure productivity gains—Track how AI increases capacity to demonstrate ROI. 

5. Economic contraction is coming – -prepare your budget defense

What the data shows:

Net Spend Anticipation has slid to pandemic levels. Q3 2025: only 13% of departments anticipated spending increases vs. 22% anticipating decreases. 

Financial forecasts point to steep demand contraction by mid-2026—worse if the US economy enters recession. 

The legal industry surged like this before the Global Financial Crisis and 2021 inflation crunch. Each time, firms mistook altitude for stability. 

What it means:

While 86% of GCs believe they deliver value, C-Suites often rank legal among the least visible contributors. When cuts come, legal will be an early target. 

Actions to take:

• Benchmark your spend—Prove you’re already lean. 
• Quantify “mobile demand” savings—Show your CFO concrete dollars saved. 
• Identify deferrable work—Not all legal work is urgent; create a priority matrix. 
• Consolidate your panel—Fewer firms = better volume discounts and relationships. 
• Prepare visibility metrics—Track contributions to the company’s top 3-5 strategic goals. 

The bottom line: Act now while you have leverage

The 2026 legal market presents a once-in-a-decade opportunity to fundamentally reset outside counsel relationships. 

The combination of firms loaded with unsustainable expenses, softening demand, outdated billing models, AI alternatives, and successful mobile demand strategies means GCs who act decisively now can lock in 2-3 years of favorable economics. 

Your three-horizon action plan

Immediate (Q1-Q2 2026): optimize current spend

• Renegotiate rates with panel firms 
• Move 20-30% of Am Law 100 work to lower-cost alternatives 
• Implement matter budgets and fee caps 
• Get transparency on AI usage and efficiency gains 

Medium-term (Q2-Q3 2026): build internal capabilities

• Deploy GenAI tools for contract review, research, and routine drafting 
• Partner with ALSPs for discovery, due diligence, and compliance 
• Create internal playbooks for repetitive work 
• Benchmark your spend to prove value to the C-suite 

Long-term (Q3 2026-2027): transform the model

• Shift 50%+ of relationships to non-hourly arrangements 
• Build AI-enhanced in-house team handling 75%+ of volume 
• Reserve outside counsel for specialized or high-stakes matters 
• Create metrics showing legal as value center, not cost center 

The critical warning

When the Global Financial Crisis hit, firms’ realization rates cratered and stayed down for nearly a decade. Collection realization dropped from 95% in 2007 to 88% by 2015. 

If conditions deteriorate in 2026, firms will become desperate for revenue. This gives you leverage to challenge dubious line items, demand write-offs, reject rate increases, and negotiate retroactive discounts. 

The opportunity is yours to take – right now. 

Published by: Robert Glazer Entrepreneur, Best-Selling Author and Speaker | Founder & CEO @ Acceleration; From Inc.com:

It’s a familiar situation for an employee: You’ve applied for a new job, gotten a great offer, and are excited to start at a new company and tackle new challenges. All that’s left is to let your managers know. But once you try to give notice, they respond with a lucrative counteroffer, promotion, or promise to make overdue changes–all to persuade you to stay.

While it seems natural for a business to want to hold onto a talented employee–and tempting for the employee to stay in a comfortable environment for more pay and perks–counteroffers have poor short- and long-term outcomes for both sides.

At my company, Acceleration Partners, it’s always been our policy not to make counteroffers. We think they don’t make sense for our exiting employees or our business. Here’s why:

1. Trust is broken.

At first, an accepted counteroffer seems like a win-win: The company keeps a valuable employee, and the employee gets a raise or other overdue changes without having to take the risk of moving to a new company.

The reality, however, is that counteroffers are rarely a long-term solution for an exiting employee. Many recruiting websites assert that nine out of 10 candidates who accept a counteroffer end up leaving within a year anyway.

The problem is, a threat of departure breaks trust on both sides, and it’s not easy to recover from that. According to a Harvard Business Review survey, 80 percent of senior executives say that trust is diminished when an employee accepts a counteroffer.

This break of trust lingers long after the employee accepts. Sure, the employee is still there, but only after secretly interviewing for and nearly accepting another job. This leaves managers with lingering doubts about that person’s loyalty and longevity. Similarly, the employee knows the company was only willing to step up when they had one foot out the door, and that doesn’t feel good either.

2. Counteroffers don’t address underlying issues.

While a counteroffer often addresses a candidate’s compensation issues, it does not magically erase any of the other factors that compelled them to go job-hunting in the first place. Once the initial excitement and benefit of the pay increase wears off, those other factors will inevitably reappear.

There are many reasons people look to change jobs. Money is a factor, of course, but it’s also common for an employee to chase a more fulfilling position, a new industry, a shorter commute, the ability to work from home, better leadership, or a more promising career development path. Over time, a candidate may realize a few hundred or thousand dollars doesn’t make up for what she sacrificed by staying put.

What’s worse for the company is that an employee who regrets passing up a new job can quickly become disengaged. In truth, employee departures aren’t the most damaging to a business–far worse are people who mentally quit but keep coming into the office, giving half-hearted effort and collecting their paychecks.

What’s also not acknowledged openly is that counteroffers can put employment in jeopardy, because an employee whose output has not changed–yet is costing the business more–is at a far higher risk of being let go for performance issues. They are also more likely to be the first ones to be cut in a layoff or downturn, either because they are paid more or due to lingering feelings of resentment. So while counteroffers may address the situation in the short-term, it’s not a long-term solution.

3. Pay people what they’re worth.

One reason we don’t make counteroffers at Acceleration Partners is that we believe employee compensation should be determined by performance and the market. We align pay to those factors on a regular and proactive basis; we don’t just wait for someone to threaten to leave to provide raises. If an employee is offered more money than we’re paying them, we’re unwilling to match because we are already paying what we believe is fair.

Companies that consistently offer more pay just as someone walks out the door are admitting that they were underpaying their employees. That’s poor leadership. Incentives create behavior, and our policy of paying people what they’re worth sets the precedent that interviewing for a new job is not the best way to get a raise. Finally, if an employee is motivated to get the highest possible paycheck, there is always someone who will pay more; that person is not likely to stay long anyway.

The instinct to make or accept a counteroffer is understandable. In the moment when a valuable employee is ready to leave your company, it’s natural to want to do whatever you can to make them stay. But this is a very temporary solution. A better approach is to address underlying problems before they become unfixable and, when necessary, respectfully part ways with exiting employees. Then, you can replace them with people who are certain they want the job.