EY is set to restructure its regional law practice, a move that is expected to result in significant job losses within the consulting giant. The firm has initiated a feedback process with its staff regarding the proposed changes, with EY Oceania Chief Executive David Larocca cautioning that the shift "may necessitate a reduction" in the size of the law team.

"This week we communicated that EY is proposing to restructure our Oceania law business," Larocca stated. He emphasized that the firm would continue to offer legal services in "strategic areas" despite the impending changes.

The news follows a trend of major consulting firms reevaluating their legal practices. KPMG shut down its 30-member law division last year, while PwC has downsized its standalone legal practice. EY's potential restructuring underscores the challenges that consultancy-backed legal divisions face in an increasingly competitive market.

EY reported having 30 partners in its legal practice in 2021, according to The Australian Financial Review Law Partnership Survey. However, sources familiar with the firm's planning indicate that the team has since shrunk to about 25 staff members and six partners.

The firm’s move to reassess its legal practice reflects broader industry challenges. Over the past decade, major consulting firms aggressively recruited senior lawyers from top-tier firms, seeking to establish themselves as comprehensive service providers. However, conflicts between consulting and legal business models, difficulties in securing work, and scrutiny over legal professional privilege practices have hindered the growth of these divisions.

Moreover, the downturn in the consulting sector has made legal divisions an easy target for cost-cutting measures. EY, like its peers, has been navigating a challenging financial landscape. Last year, the firm’s non-partner headcount declined by nearly 500, and hiring restrictions were put in place amid a 15% drop in average partner pay.

The proposed restructuring in Oceania is not an isolated development. EY's legal business in the United Kingdom has been under review since October following multiple partner departures. As recently as 2022, the firm had ambitious plans to expand its legal headcount to 1,000 lawyers. However, those expansion plans now appear to be in question as the firm reassesses its legal strategy.

While EY remains committed to providing legal services in key areas, the restructuring signals a broader shift in how consulting firms integrate legal expertise into their business models. With KPMG exiting its law division, PwC scaling back, and EY now facing a potential reduction in legal staff, the viability of stand-alone legal practices within major consulting firms appears increasingly uncertain.

For now, EY is engaging in discussions with affected employees to ensure compliance with local employment laws. However, with broader economic pressures and shifting market dynamics, the legal profession within consultancy firms may continue to face turbulence in the coming months.