As law school applications continue to decline, law schools must make hard choices. A law school can maintain the size of its entering class — and the revenue stream generated by those students — but at the cost of lowering its admissions standards. Or a law school can shrink the size of its entering class, accepting the decline in revenue to maintain the caliber of its student body, and make up for the lost revenue by cutting costs.

In my view, the second approach is superior. As the legal job market continues to shrink, with even top law firms conducting large-scale layoffs, it makes sense for law schools to produce fewer graduates. The legal profession is “right-sizing,” and law schools should follow suit.

But even if the second approach is better than the first, it’s not without pain. Last week, we heard reports of one law school basically axing its entire junior faculty. All of the untenured professors received notice that their contracts might not be renewed for the 2014-2015 academic year. Ouch.

As is so often the case, though, there’s more to this story than meets the eye….

The law school in question is Seton Hall University School of Law (#64 in the U.S. News rankings, and #36 in the Above the Law rankings). The cuts are possible, not definite, and the school hopes that it won’t have to follow through on the notices. Here is what we’ve heard:

1. The law school has given notice to its entire junior faculty, approximately seven untenured professors, that their contracts might not be renewed for 2014-2015. 2. The affected professors will be able to teach for the 2013-2014 academic year, but could be terminated after that. 3. As part of a larger effort to streamline the law school and control costs, these notices have been issued to preserve all of the administration’s options. 4. But the notices could ultimately be rescinded — and the administration hopes to be able to rescind them, provided it can find the needed savings elsewhere within its budget.

We reached out to the law school for comment. Dean Patrick E. Hobbs issued the following statement:

This is a time of unprecedented change in legal education and the profession. Our first responsibility is to our students, past, present and future, to admit only those we believe can be successful attorneys, to provide them a first-rate education, and to manage our enrollment to ensure them the best opportunity to secure employment in the profession. We continue to focus on outcomes for our students, and Above The Law’s recent ranking of law schools affirms the success of these efforts. Because of the dramatic drop in interest in legal education, all schools must make decisions about the size and quality of enrollment. We will stand for quality and that will necessitate an adjustment of our costs going forward. With the University’s support, the faculty, administration and I are working together to make those adjustments. The faculty has already made a significant contribution toward continuing excellence by giving back 10% of total compensation. Over the course of the next year, we will be engaged in strategic discussions to respond to the changing legal education and legal services landscape. We will examine how we can improve upon preparing our students for the profession and what resources are necessary to do that: faculty, administration, facilities and information technology. The actions recently taken are to preserve all options in that endeavor. I am confident that together we will chart a course so that Seton Hall Law School keeps rising in the years ahead.

It seems to me that Seton Hall is making the best of a challenging situation. The pain caused by shrinking a law school should be distributed among the various constituencies, to the extent that it can be distributed. The tenure system limits the administration’s ability to impose burdens on tenured faculty members, of course. But it’s worth noting, as Dean Hobbs points out, that the faculty of Seton Hall (including tenured and untenured professors) has already given back 10 percent of total compensation — a significant amount.

The law school has taken other steps to keep its financial house in good order as it becomes a smaller institution, about 30 to 35 40 percent smaller than it was three years ago. It has reduced administrative staff, in intelligent and strategic ways (e.g., sparing the office of career services). It has made offers to senior faculty members of voluntary retirement packages, which are currently being negotiated with several professors, and it is in discussions with some faculty members about reducing their workload in exchange for reduced pay. Depending on how these and other matters get resolved, the law school may be able to rescind some or all of the notices to the junior faculty.

Seton Hall Law School enjoys some advantages that other schools do not. Its main legal market, New Jersey, is one of the top five markets for job-seeking lawyers. And the law school is in the fortunate position of enjoying support from its parent institution. Seton Hall University sees the law school as a flagship and has pledged to do what it can to help the law school through challenging times. Not all law schools are so blessed — either because their parent institutions are not supportive, used to seeing law schools as cash cows, or because they are independent and have no parent institution to fall back on.

How should a law school respond to the changes sweeping the legal profession and legal employment market? Here are my recommendations, based on the Seton Hall model:

1. Shrink your entering class size, instead of lowering your admissions standards. With a smaller class of students with stronger qualifications, you can give students more individualized attention, and your graduates will fare better in the search for post-graduate employment.

2. Spread the pain of cost cutting across different constituencies, as a matter of fairness, but also intelligently, to preserve your institutional effectiveness (e.g., don’t slash career services).

3. Try to get “buy in” for streamlining from the different groups at the law school, and solicit their input on the process. Specific faculty or staff members may have excellent ideas for how costs in their department can be reduced without jeopardizing educational quality. And they will feel less resentful or angry if they feel that they have been included in the process.

Good luck to Seton Hall as it goes about the hard work of growing smaller and working smarter. Perhaps its experience can serve as a guide to the many other law schools that are trying to respond to major changes in the legal profession by remaking themselves as institutions for the future.

UPDATE (10/7/2013, 3:00 p.m.): Happy news: in the end, the law school was able to rescind the termination notices.

Earlier: The ATL Top 50 Law School Rankings (2013)

Law School Applicants Are Down, Again, And We’re Shocked

The States Where You’re Least Likely to Find a Law Job