As City firms are finding, there’s no easy way to let key partners head for the door

On the face of it there are very few parallels between Clifford Chance (CC) and SNR Denton right now, with CC’s average profits per equity partner standing around the £1m mark, while those at legacy Dentons lag behind its City peers at just £232,000. But in one respect the pair are taking a very similar approach, with both firms currently planning to hold some of their exiting partners to all, or most, of their notice periods.

While the reasons for the departures may differ markedly, each firm has seen four prominent partners quit in recent months, with SNR Denton seeing partners announce their intention to join firms including Norton Rose and Skadden Arps Slate Meagher & Flom, while CC has suffered one of the most high-profile team defections to a US firm in recent years, with Weil Gotshal & Manges hiring a four-partner funds team.

As Legal Week went to press, all eight of the departing partners were in discussions about exit terms. CC looks unlikely to release at least some of the team until their six-month notice period is up, while SNR Denton’s partnership deed entitles it to hold those handing in their notice to up to 12 months’ notice.

And both firms are making at least some of the departing partners work out their agreed notice period rather than putting them on gardening leave. CC and SNR Denton are certainly not alone in their stance. Herbert Smith is understood to be planning to hold the head of its investigations and corporate crime unit Peter Burrell to a notice period of up to 12 months before allowing him to join Willkie Farr & Gallagher, while DLA Piper and Dechert could potentially end up in arbitration proceedings over former global litigation co-head Neil Gerrard’s move.

It’s an unpleasant end to a working relationship that looks likely to happen increasingly frequently. While some firms may be keen to pay out recruits’ former firms to secure an early exit, many would not contemplate this even if the old firm was willing to enter into such discussions. In the case of firms likely to see partners looking to quit as a result of falling profits, it’s easy to see why holding people to notice is a useful means of protecting the business. Equally, CC will be hoping that its decision to hold partners to notice will give it time to ship in more talent and secure relationships with key clients before the team heads to Weil Gotshal.

But it’s a strategy with some risk. Handled badly, it can easily irritate clients, and critics of such tactics argue that it just delays the inevitable as clients will ultimately go where they are going – as demonstrated by CC’s former funds chief Jason Glover, who has managed to secure mandates from buyout houses including BC Partners and EQT despite being held to his notice period and looks likely to benefit further as a result of the current dispute.

And that’s even before tackling the issue of how to motivate a partner, who already wanted to leave before things escalated, to perform. While there is little doubt that tough notice terms have proved much more durable and useful than many in the City predicted a decade ago, the bottom line is there is a limit to what they can achieve and, handled without a very sure touch, they can quickly become hugely counter-productive. As one employment expert comments: “The real question is how productive are people actually going to be. It’s pretty demoralising to be required to work out your notice – particularly if you’re not given any incentive.”

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As City firms are finding, there’s no easy way to let key partners head for the door

On the face of it there are very few parallels between Clifford Chance (CC) and SNR Denton right now, with CC’s average profits per equity partner standing around the £1m mark, while those at legacy Dentons lag behind its City peers at just £232,000. But in one respect the pair are taking a very similar approach, with both firms currently planning to hold some of their exiting partners to all, or most, of their notice periods.

While the reasons for the departures may differ markedly, each firm has seen four prominent partners quit in recent months, with SNR Denton seeing partners announce their intention to join firms including Norton Rose and Skadden Arps Slate Meagher & Flom, while CC has suffered one of the most high-profile team defections to a US firm in recent years, with Weil Gotshal & Manges hiring a four-partner funds team.

As Legal Week went to press, all eight of the departing partners were in discussions about exit terms. CC looks unlikely to release at least some of the team until their six-month notice period is up, while SNR Denton’s partnership deed entitles it to hold those handing in their notice to up to 12 months’ notice.

And both firms are making at least some of the departing partners work out their agreed notice period rather than putting them on gardening leave. CC and SNR Denton are certainly not alone in their stance. Herbert Smith is understood to be planning to hold the head of its investigations and corporate crime unit Peter Burrell to a notice period of up to 12 months before allowing him to join Willkie Farr & Gallagher, while DLA Piper and Dechert could potentially end up in arbitration proceedings over former global litigation co-head Neil Gerrard’s move.

It’s an unpleasant end to a working relationship that looks likely to happen increasingly frequently. While some firms may be keen to pay out recruits’ former firms to secure an early exit, many would not contemplate this even if the old firm was willing to enter into such discussions. In the case of firms likely to see partners looking to quit as a result of falling profits, it’s easy to see why holding people to notice is a useful means of protecting the business. Equally, CC will be hoping that its decision to hold partners to notice will give it time to ship in more talent and secure relationships with key clients before the team heads to Weil Gotshal.

But it’s a strategy with some risk. Handled badly, it can easily irritate clients, and critics of such tactics argue that it just delays the inevitable as clients will ultimately go where they are going – as demonstrated by CC’s former funds chief Jason Glover, who has managed to secure mandates from buyout houses including BC Partners and EQT despite being held to his notice period and looks likely to benefit further as a result of the current dispute.

And that’s even before tackling the issue of how to motivate a partner, who already wanted to leave before things escalated, to perform. While there is little doubt that tough notice terms have proved much more durable and useful than many in the City predicted a decade ago, the bottom line is there is a limit to what they can achieve and, handled without a very sure touch, they can quickly become hugely counter-productive. As one employment expert comments: “The real question is how productive are people actually going to be. It’s pretty demoralising to be required to work out your notice – particularly if you’re not given any incentive.”

Related: