Legal Industry Experiencing Tectonic Shift: Technology, Talent and Demand Prompting Law Firms to Evolve – Thomson Reuters
- 2026 Report on the State of the US Legal Market notes industry experiencing unprecedented demand growth; profits per lawyer of Am Law 100 firms have soared 53.7% since 2019
- Technology investment up nearly 10% as law firms race to integrate AI; lawyer compensation rose more than 8%
Thomson Reuters, a global content and technology company, and the Center on Ethics and the Legal Profession at Georgetown Law, today released its 2026 Report on the State of the US Legal Market. The annual report states that the legal industry is experiencing a tectonic shift that has helped many law firms thrive during this transformative era, driving unprecedented demand growth and profits per lawyer of Am Law 100 firms increasing 53.7% since 2019.
“Law firms are facing a fundamental shift in the legal industry’s economic landscape, standing at a critical inflection point where they must navigate evolving client demands, rising expenses and a necessary transformation of their operating models,” said Raghu Ramanathan, president, Legal Professionals, Thomson Reuters. “The shifting landscape will unlock further demand and lead certain law firms to becoming fully tech-centric employing tech-pricing structures, as other law firms move towards being an elite, partner-heavy boutique dedicated to delivering highly specialized and bespoke legal counsel. The question isn’t whether traditional operating models can survive but whether law firms are committed to truly transform.”
Forces driving the impact include shifting client power, economic instability and technological disruption. However, peaks are sustained only when the foundational forces supporting the operating model remain in alignment. “What makes this moment particularly treacherous is that the very forces creating today’s peaks are simultaneously undermining the ground beneath them,” the report notes.
Throughout 2025, evolving client expectations, regulatory changes, economic fluctuations, and technological advancements drove a surge in demand with law firms averaging 2.5% growth for the year and hitting a high of 4.4% in July. These banner results came despite being measured against 2024’s record-breaking performance.
Lurking behind the historic demand growth is an arms race for technology and talent. The average law firm increased its investment in technology by 9.7%, and it is more than just traditional or routine upgrades; it is a transformational shift leveraging GenAI to improve efficiency, drive value and serve clients at a higher level. The 2025 Future of Professionals report indicates that law firms with a formal AI strategy are 3.9 times more likely to experience critical benefits compared to those without significant plans for AI adoption.
Additionally, law firms are devoting significant resources securing top talent with direct spending on lawyer compensation jumping 8.2%. The report notes, “this isn’t targeted spending on a few rainmakers or strategic lateral hires, rather it’s broad-based compensation growth across every level.”
The forces that have led to this peak were not necessarily the results of law firms’ actions, yet firms should not allow these forces outside of their control to be an excuse for inaction. Elements such as rate strategies, talent management, capitalizing on or mitigating mobile demand, and developing effective technology deployment strategies remain within the purview of firm leadership and require proactive management.
From here, the question is not “how much technology” but “how integrated and adopted” technology becomes in the hands of lawyers. As the report shows, the path forward for law firms requires three transformational shifts:
- Modernizing pricing models that no longer match how legal work is done;
- Strengthening client trust in an environment in which legal buyers are increasingly selective; and
- Deploying technology in ways that deliver measurable value rather than marketing gloss.
Ramanathan added: “The law firms that will define the next era of legal services will be determined not by how much they invest in technology and talent, but by how boldly they reimagine their entire operating model. The winners won’t necessarily be determined by size or legacy, but they’ll be the firms that act decisively now to align with the future their clients are already demanding.”
Download the 2026 Report on the State of the US Legal Market here.
The report utilizes data sourced from Thomson Reuters Institute Strategic Insights, with financial data from Financial Insights and legal buyer sentiment from Market Insights.
