Why Corporate America Is Spending More on Lawyers

Corporate America is facing an unusual contradiction. Companies are demanding that their legal departments control costs and demonstrate measurable business value, yet many are still expecting to spend more on outside lawyers.

The pressure is visible in corporate legal departments. A Thomson Reuters survey found that, as of the fourth quarter of 2025, 36% of general counsel expected their companies to increase overall spending on outside counsel during the following year, compared with 20% expecting a decrease. Spending was expected to remain particularly strong in areas such as regulatory work and mergers and acquisitions.

At the same time, the legal market itself is expanding. U.S. law firms reported 3% growth in demand during the second quarter of 2026, while billing rates rose 7.1% from a year earlier. If that pace of demand continues, the year could become the busiest for the industry since 2021.

The important question is not simply why lawyers are getting more work. It is why legal risk has become sufficiently important for companies to keep paying premium prices for it.

Complexity is becoming a corporate cost

For large companies, legal work is no longer confined to occasional disputes or major transactions. Legal decisions increasingly sit inside ordinary business operations.

Companies entering new markets must assess regulatory requirements. Businesses handling large amounts of data face privacy and cybersecurity obligations. Employers must navigate changing workplace rules. Technology companies must consider intellectual-property rights and increasingly complicated questions surrounding artificial intelligence.

That creates a persistent demand for specialized advice. When the cost of making a legal mistake can involve litigation, regulatory action, a delayed transaction or damage to a major investment, paying for sophisticated advice can be economically rational even when hourly rates are high.

The legal market's recent performance reflects this demand. Thomson Reuters reported particularly strong second-quarter demand in real estate, corporate work, labor and employment, litigation and intellectual property.

In other words, corporate legal spending is not necessarily rising because companies suddenly want more lawyers. It is rising because more business decisions require legal input.

Transactions and uncertainty reinforce the demand

Corporate activity is another important driver.

Mergers, acquisitions, financing arrangements, restructuring and large investments generate concentrated periods of legal work. When businesses are willing to deploy capital, lawyers become part of the infrastructure required to move that capital.

The same applies when uncertainty increases. A company facing an unfamiliar regulatory environment may need more legal advice before committing resources. A business involved in a dispute may increase its spending to protect an important asset or commercial relationship.

This produces an unusual economic effect: uncertainty can create demand for professional services even when it weighs on other forms of corporate activity.

Artificial intelligence is adding another layer. Law firms reported strong demand related to AI projects, including data-centre development and capital raising, during the first half of 2026.

The technology is therefore both a source of legal risk and a generator of legal business.

But corporate buyers are becoming more demanding

Higher spending does not mean companies are giving law firms unlimited pricing power.

Corporate legal departments themselves are under pressure. Thomson Reuters found that nearly half of general counsel identified staffing and resource constraints as their top barrier to delivering greater value. The proportion identifying technology as a strategic priority entering 2026 had doubled from the previous year.

That changes the purchasing equation.

A general counsel increasingly has to explain legal expenditure to a chief financial officer or chief executive in the same way other corporate functions justify their budgets. The relevant question is moving from “How much legal work did we perform?” toward “What business outcome did that work enable or protect?”

That shift can change which law firms receive work.

Premium firms may continue to command high rates for complex litigation, major transactions and highly specialized matters. But routine work can be more easily compared, standardized or moved to lower-cost providers. Companies can also expand internal legal teams or use technology to reduce the amount of external work they require.

The result is not necessarily less legal spending overall. It can instead mean more selective spending.

AI could eventually change the calculation

Technology may prove to be the biggest long-term influence on corporate legal budgets.

Nearly half of corporate legal departments surveyed by Thomson Reuters reported having some form of enterprise-wide generative-AI tool. The immediate benefit is largely productivity: lawyers can potentially research faster, review documents more efficiently and devote more time to strategic questions.

But productivity creates a difficult question for the legal-services business.

If technology allows a lawyer to complete in two hours what previously required ten, companies may eventually question whether they should pay for ten hours of work. That could place pressure on the traditional billable-hour model, particularly for standardized assignments.

For now, the effect is more complicated. AI can increase the amount of work lawyers are capable of handling, while also creating new legal questions around intellectual property, data, liability and governance.

The technology could therefore initially increase legal demand before eventually reducing the amount of human time required for some categories of work.

The cost is being redistributed, not simply increased

The broader economic impact is therefore more nuanced than a simple rise in legal bills.

For companies, higher legal spending can represent a defensive cost, but it can also protect valuable investments, accelerate transactions and reduce the probability of expensive mistakes. For investors, legal costs are part of the operating structure that determines how efficiently businesses manage risk.

For law firms, the current environment is highly profitable. Yet rising expenses are also creating pressure. In the second quarter of 2026, direct law-firm expenses rose 8.3% and overhead expenses 7.7%, while technology spending increased 11.6%.

For workers, the consequences are mixed. Demand supports employment and compensation for lawyers, while technology may gradually change which skills are most valuable and how junior lawyers acquire experience.

The next phase will depend on whether legal complexity continues to expand faster than companies can absorb it internally.

If regulatory and technological risks remain high, outside counsel spending could remain elevated. If economic activity weakens, some transactional work could decline. If AI becomes substantially more capable, companies may demand greater efficiency from both internal and external legal teams.

Corporate America is therefore not simply spending more on lawyers because lawyers are becoming more expensive. It is spending because the economic consequences of legal decisions are becoming more significant—and because companies are willing to pay when specialized expertise can protect capital, enable growth or reduce risk.

But that willingness has limits. As legal departments become more data-driven and technologically capable, every outside legal dollar will face greater scrutiny.

The future of corporate legal spending may consequently be defined less by how much companies need lawyers than by how convincingly lawyers can demonstrate the value of their work.