How far should a partner in a law firm be prepared to go when asked to enter into restrictive covenants, and where does the balance of power lie in negotiations between firms and those joining them?
In a volatile legal world, where partner and team moves are an everyday fact of life, these are important questions.
This year has seen a large number of team and partner moves. An exit from one firm usually heralds an arrival at another, and where partners are joining new firms they are usually asked to sign on the dotted line and become bound by the terms of the new firm’s partnership or LLP agreement. Such agreements almost always contain restrictions on how partners can act in relation to clients in the event that they wish to leave.
Most solicitors are well aware how non-solicitation, non-acting, non-compete and non-poaching clauses can put a dent in their plans to move on from a firm of which they no longer wish to be a part.
Equally alarming, or more so, is the prospect of garden leave, presenting continuing partners with the opportunity to wean the firm’s clients off their preferred adviser (the outgoing partner) and instead grow to love their replacement.
Many a client has been lost to an outgoing partner in this way.
In the past a few firms have been notable in not having agreements that prevented or impeded outgoing partners from taking their clients with them. Instead, those firms took what was at the time considered to be the sensible view that clients should go where they like. That is sometimes the case, restrictions or no. Professional conduct rules were also used to enshrine the principle of the client’s absolute freedom of choice when it came to instructing solicitors.
However, as times have got tougher, particularly during the recession and its aftermath, and access to profits has become guarded ever more fiercely, firms have been ramping up their efforts to pry clients from the hands of outgoing partners, with many restrictions reflecting what had previously been more common in the contracts of, say, bankers and those in the financial services industry.
Some incumbent partners take the view that they will pretty much sign anything that is put in front of them when they join a new firm.
Relationships are, at the point of entry to the new firm, good. How much scope is there for an individual to argue with an agreement that all of their soon-to-be partners have already signed?
It is easy to be dismissive about the possibility of negotiating the extent of restrictions when joining a new firm, especially if the inducement is a profit share or remuneration to die for.
Sometimes there is a carve-out of clients of the incoming partner that are exempt from subsequent restrictions – clients that have been brought to the firm with the new partner that, as part of an agreement, should not immediately be regarded as clients of the firm.
In reality, every new partner ought to consider the restrictions they are about to embrace. They may find that, if the firm wants them badly enough, it is prepared to relax these, or to pay an additional sum in respect of their rights.
Sometimes the amount of difficulty that has been experienced in getting away from a partner’s previous firm can be used as grounds to resist new restrictions.
So if you are a partner on the move (and particularly if you have a substantial following), you should always consider the restrictions to which you will be subjected at your new firm – if they look too onerous, they probably are.
If you are going to give away your rights, at least make sure the value you are to receive reflects this.
Andrew Cromby, partner, Bracher Rawlins