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Partner poaching—navigating the movement of law firm partners and practice
teams
18/04/2017
Practice Management analysis: Skilled partners and practice teams are a valuable asset in law firms. How
prevalent is the movement of partners and practice teams between law firms now and is there anything a firm can
do legally to prevent losing their best talent? Richard Turnor, partner and specialist advisor in professional
practices at Maurice Turnor Gardner, examines the latest trends in this area.
Has there been any increase or decrease in this activity over the last few years and, if so, what
do you think is causing it?
Team moves are now an established part of law firm life, and likely to remain at significant levels. There are a number of
drivers.
The commercial legal services market in the UK, and globally, is highly competitive. Major corporations and their General
Counsel have huge buying power, and are using it and their power to shop around and demanding more and more value,
and more and more comprehensive coverage, from their legal advisers. Legal advisers are responding with a drive to
attract and retain the best possible partners and staff, and to find better and better systems for providing excellence and
value, so that they can meet this demand and thus protect and increase their share of the client’s annual legal
expenditure. Successful firms are more profitable and able to provide their teams with a platform from which they can
handle the most interesting work, and are much better placed to attract and retain the best people.
At the same time there is a move away from providing a full range of services, as firms become more strategic in their
approach. Firms increasingly seek to become centres of excellence in particular sectors. This in turn attracts teams and
leads to other teams becoming irrelevant to the firm’s strategy. An underperforming team may find that it can thrive in a
different firm which is geared up to handle its kind of clients.
Less successful firms find it more difficult to retain their people. Partners in high performing areas often feel resentful
about underperformance in other areas, and sometimes blame management for failure to get to grips with the problem.
These people are very vulnerable to an attractive approach from a more successful rival, and their loss may compound
the problems and lead to more partners becoming unsettled and vulnerable to approaches.
Is there any legal way to prevent or discourage a partner or team moving to another firm and
taking clients with them? What penalties may be involved?
Loss of a successful team can be very damaging and firms therefore adopt a number of strategies to deter team moves.
Partners are normally required to give six to twelve months’ notice to leave, and limited liability partnership (LLP)
agreements normally allow the firm to require the team to have no contact with clients or staff during their notice period.
This allows the firm to reassign the team’s work to those who are not leaving and gives them time to mend fences with the
affected clients and encourage them to stay with the firm. It is much more difficult when the firm does not have the
resources to look after the client without the firm’s envolvement, and enforcement of garden leave clauses can be
expensive because the partners concerned normally continue to be entitled to their shares of profits even if they are no
longer doing any client work. Sometimes outgoing partners are therefore asked to continue to work out their notice period,
but even then they remain subject to a duty to act in the best interests of the firm and not to disclose confidential
information to the firm they are joining or to encourage clients (or other partners or staff) to follow them.
Some firms seek to restrict the number of partners who can leave at any one time, but attempts to force potentially
disruptive partners to remain after they have made up their minds to go are fraught with practical difficulties.
Once partners have left, English law LLP agreements normally seek to impose a number of restrictions designed to
protect the firm’s interests and discourage defections. These might include a prohibition against soliciting or acting for
clients of the original firm for whom the partner has acted for a period (often six months to a year) and a prohibition
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against poaching other partners and staff. Sometimes agreements even seek to prohibit entering into partnership, LLP or
employment agreements with former colleagues for a period. These restrictions seek to balance the need to protect the
firm against the risk that a restriction which is judged to be unreasonable may be unenforceable. Many agreements
contain a menu of increasingly draconian restrictions, the most draconian acting as a deterrent and being supported by
less onerous restrictions which will be enforceable even if others are not.
Perhaps the most effective deterrent of all is that agreements normally entitle the outgoing partners to recover their capital
and accrued but undistributed profits in tranches, often over say two years (though five years is sometimes seen). This will
be accompanied by a set off provision which entitles the firm to set off any damages for loss caused by breaches on the
part of an outgoing partner. Such breaches might include disclosure of confidential information, collusion with other
partners, and poaching clients and colleagues unlawfully. The outgoing partner may therefore have a fight on their hands
when it comes to recovering their investment in the firm if it can find any evidence of breach and prove a resulting loss.
Over-draconian measures and their enforcement can come at a cost, reputationally, in terms of damage to internal culture
and because partners may be reluctant to join a firm which adopts that approach (which is often associated with less
successful practices). It could also tarnish continuing relationships with clients if the clients have ongoing work streams
with the firm.
Apart from having legal precautions in place, what can firms do to prevent partners and teams
from moving to other firms?
By far the best way to prevent team moves is by making sure that partners remain happy where they are. Team losses
are a key risk and good governance can go a long way towards achieving a culture in which the risk of unwanted team
moves can be minimised, even at times when profits may be under pressure. Characteristics of good governance include:
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a structure whereby the management team is both transparent and accountable to partners
a dynamic strategy which partners feel they have played a part in, and continue to play a part in developing
a system for sharing profits which partners broadly accept as fair, and reasonably reflects contribution over
time
a fair and transparent performance appraisal system, with powers to ‘demote’ and/or remove consistent
underperformers over time
a focus on the firm’s culture and values, and an intolerance of disruptive behaviour, and ideally
a good flow of interesting work and profits to match
It is also very helpful to institutionalise relations with key clients, so that the client depends on the firm as a whole, rather
than particular partners or teams, for trusted advice.
Do many such movements give rise to disputes? If so, what are the legal issues normally
involved?
Litigation is surprisingly rare. In some cases it is possible to manage a team move in a way which avoids any breaches of
duty. The acquiring firm talks to each member of the team quite separately, there is no collusion and reliance is placed on
publicly available information. Care is also taken not to share confidential information, perhaps by providing projections of
future financial performance, rather than evidence of previous performance, but acquiring firms are understandably
reluctant to make offers without performance data. Care is taken not to breach restrictive covenants (and note that some
firms, especially US heritage firms, do not have restrictive covenants at all or have only very limited covenants). In other
cases, a claim is impracticable because of the damage it would do to relations with clients who are affected by being
unable to continue to work with the team concerned. Concern is also often expressed about the potential damage to a
firm’s internal culture if an outgoing partner is seen to be victimised.
Having said that, there have been instances where firms have successfully sought substantial damages, or undertakings
not to poach clients, although most settle before they get as far as the courts. The argument normally revolves around the
construction of the duties set out in the applicable LLP agreement and the evidence of breach. Remedies sought include
injunctive relief, seeking to prevent breaches of restrictive covenants and damages for loss. Most claims take place before
an arbitrator in private, and most of them are settled at a relatively early stage.
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What do firms taking on partners and teams need to take into account—legally and in a
managerial sense?
From the point of view of the acquiring firm, very careful consideration needs to be given to the business case for the
move:
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What are the advantages?
Are the new team’s business plan and objectives fully aligned with the firm’s long term strategy and will there
be opportunities to deepen relations with key clients and cross selling opportunities?
What are the risks?
Will the team really be able to bring its clients across?
Will it be subject to restrictive covenants?
Is it overstating its current results?
Can the new team be integrated into the firm and how quickly?
Are billing rates and salaries compatible?
Will the move create conflicts of interests which mean that some clients have to move elsewhere?
Is there a risk that the team will never settle and will move on again very shortly and before value has been
generated?
There is always a tension between conducting appropriate due diligence, on the one hand, and the risks associated with
the team disclosing confidential information on the other. The acquiring firm could itself become liable for procuring a
breach of contract by the team, and it will also be concerned by the risk of the team’s former firm managing to obtain an
injunction which disrupts the ability to bring the practice across. Disputes about team moves can take up huge amounts of
management time and may distract the team itself at a time when it should be concentrating on client service.
The team may ask the proposed new firm to provide an indemnity so that their own risks are shared, and may ask for
guaranteed profit shares, thus increasing the risk of dilution of other partners’ profit shares.
Costs (direct, like head hunter costs, but also indirect such as the cost of supporting new partners who make time to get
up to full speed) also need to be taken into account. There may also be insurance issues, especially where the Solicitor’s
Regulation Authority’s successor practice rules are applicable.
Have you got any predictions for trends in this area?
US firms will continue to look for teams to help them achieve their global ambitions, thus destabilising the UK market
further. At the same time, accountancy firms and other entrants are continuing to make waves in the legal services
market. As the pressure mounts on the ‘squeezed middle’, the most successful teams will become vulnerable to
approaches from more successful firms, which will continue to ask search firms for help in looking for partners to fill
strategic gaps. As successful firms grow, on the other hand, centrifugal forces will build up and dissatisfied teams are
likely to look for a happier home. Despite the difficulties, therefore, team moves are inevitable as the market for legal
services continues to evolve.
Interviewed by Diana Bentley.
This article was first published on Lexis®PSL Practice Management on 18 April 2017. Click for a free trial of Lexis®PSL.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor
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