Jumping ship: Partners and fee earners first!
Paul McAleavey explains the risks to rival firms when rainmakers and teams are poached
There are few matters that are more likely to make your managing partner wake up in a cold sweat than their key fee earners being poached, or,
to use the less emotive term, being ‘laterally hired’.
The loss of a vital partner, with their valuable client connections, to a competitor would be bad, but when an entire team jumps ship with that rainmaker, the impact for the losing firm can
First, there’s the obvious impact on the fee income, but, in addition, those left behind must ensure that client relationships are maintained and that the ship is steadied. The firm will be particularly keen to send a strong message, warning the departing team members off breaching their obligations and to the remaining partners and fee earners so they don’t follow suit.
English law allows employers
to restrain their departing employees’ abilities to earn a living, but only in a way which goes no further than to protect
the former employer’s legitimate commercial interests. It is an area ripe for litigation and a rogue word in a contractual restriction is enough to make it unenforceable by the court. And, after all, who is more likely to argue about the minutiae of contract wording
than two rival law firms?
At the heart of these disputes are the post-termination restrictions that a departing team owe their former firm. If their employment contracts were not kept up to date, there is a strong chance the restrictions contained therein are now unenforceable.
In addition, if the partner was a ‘traditional’ partner in a ‘traditional’ non-LLP partnership, they will have owed fiduciary duties to their former firm. These include a duty not to let their own career goals conflict with the firm’s commercial interest – perhaps by encouraging their team to leave. It is not uncommon for departing partners to have clients removed and handed over to others and to not be permitted to attend business development events once they hand in their resignation.
Poaching firms will also be understandably concerned. Despite the best will in the world from the newly hired partner, there will inevitably be breaches
of their duties, usually evidenced by emails or text messages. WhatsApp messages are not immune either – and any evidence that the poached partner tried
to coax their team to join them
is potentially discoverable and definitely disclosable. The risk of such unhelpful evidence leaking is multiplied when a team is hired and the distraction caused by a High Court action will be the last thing the poaching firm wants.
As a result, a commercial discussion commonly follows
the threatening of or issuing of
a claim. Settlement agreements can provide for terms as imaginative as the parties want and can include early release (where the poached team or partner are released early from their garden leave periods, allowing their former firm a period of calm to preserve relationships with clients), run-off (where the old firm remains entitled to receive the fees earned by the team before their move), split-off (where the team’s client list is divided up between the firms), and profit-sharing, where the poaching firm agrees to split the profits they make from the new partner or team for a fixed period of time.