From salary wars to lateral hires, London's legal press is awash with stories about intensifying competition between U.S. and U.K. firms. But there are various legal issues U.S. firms should consider when hiring partners from U.K. firms, and also some cultural differences in relation to partner duties and restrictions.

One of the key differences between U.S. and U.K. law firms is that U.K. firms are typically more successful at institutionalising client relationships, as they are able to deploy a number of tools in their legal armoury to protect clients from being poached by departing partners, including lengthy notice periods, "waiting lounge" provisions, gardening leave and restrictive covenants. Such restrictions will be unfamiliar territory to U.S. law firms, which are used to operating in an environment where much greater weight is given to professional autonomy and client freedom of choice, as professional conduct rules in many U.S. states prevent lawyers from entering into agreements that hamper their ability to practise after leaving a firm.

Such provisions not only make the process of extracting a partner from their existing U.K. firm tricky and potentially time-consuming, it also means the hiring U.S. firm must carefully evaluate whether the proposed lateral hire will be able to successfully transport their clients within a realistic timeframe (if at all) to justify their business case.

Alongside assessment of the commercial case for a hire, it is vital that U.S. firms also consider the obligations and duties owed by partners to their existing firm, in order to minimise the legal risks to both the recruiting firm and the individual candidate. Exiting partners will take their obligations seriously, not least because their current firm will be holding their capital, undistributed profits and tax reserves. As well as putting these sums potentially at risk, breaches of contractual and fiduciary duties may give rise to remedies against the partner including injunctive relief, being required to account to their old firm for profits earned, forfeiture of their remuneration, and/or paying damages for losses suffered. The acquiring U.S. firm risks exposure to claims for conspiracy or procuring or inducing breaches by the partner. 

Don't fall at the first hurdle…

U.K. partners will have extensive duties and obligations to their existing firm, both express (found in their partnership or members' agreement) and implied. These will typically include a wide-ranging duty of good faith and confidentiality, disclosure and reporting obligations. These duties are likely to prevent a partner from discussing any move with colleagues and clients, and require them to inform their current firm promptly of any circumstance that is likely to affect the business, including the possibility of lawyers or clients leaving the firm.

The recruitment process will inevitably involve a flow of information between the exiting partner (or team) and acquiring firm, but U.S. firms should be aware that the requirement to disclose client details, for example in the kinds of lateral partner questionnaires frequently used in the U.S., may result in a breach of a partner's duties and/or their professional regulatory obligations. In practise, such restraints are often overlooked as strict compliance would make any lateral move difficult. However, it is vital that both the hiring firm and the candidate are aware of the risks, including the fact that any paper trail they create (e.g. business plans) could be potentially discoverable if the matter were to be litigated by the candidate's existing firm, and any breach of professional duties could also lead to regulatory censure.

Team moves are especially fraught with difficulties, given the duties owed by partners to their current firm (as outlined above). In such scenarios, it is important that the recruiting firm runs separate hiring processes with each partner in a team it is looking to hire (for example, joint business plans should be avoided). The individual partners must also ensure they do not share information or collaborate to the extent possible. Minimising the paper trail is essential. It may also be necessary to stagger any team hire to avoid conflict with the losing firm.

Notice periods and gardening leave

Notice periods for partners at U.K. law firms typically range between six and 12 months, with junior partners often having a shorter period and equity partners likely to be at the top of that range. This will seem very long from a U.S. perspective, where notice periods usually range from 30 to 90 days. Some U.K. law firms also have "waiting lounge" provisions, which restrict the number of partners in the firm as a whole or in a particular practice group or office who can retire within a defined period. Such restrictions are designed to deter team moves or at least decelerate the exodus of partners.

Used in conjunction with long notice periods, gardening-leave clauses are commonly used to restrict exiting partners' contact with the firm's clients and access to other lawyers who may be lured away with them. In practise, notice and gardening leave are subject to negotiation, but they are sometimes strictly enforced. 

Post-termination restrictions

U.S. firms seeking lateral hires will quickly be alerted to the prevalence of post-termination restrictions, which will impede U.K. lawyers from moving seamlessly between firms and bringing their clients with them. Although the basic starting position under English law is that restrictive covenants are void on grounds of public policy as they are in restraint of trade and they cannot be used merely to prevent competition, the law will enforce them if they are necessary to protect one or more of the firm's "legitimate business interests". This usually means its trade secrets or confidential information, its client and/or supplier connections, or the stability of its workforce. They must also go no further than is reasonably necessary to protect those interests. Carefully drafted covenants that are tailored to specific circumstances and are reasonable in scope and length are therefore likely to be enforceable.

Typical restrictive covenants in partnership and members' agreements include prohibitions on soliciting and dealing with certain clients, prohibitions on soliciting or hiring former colleagues, and sometimes specific prohibitions on team moves. Some firms also include non-compete obligations, however this is relatively rare in the U.K. legal sector. Such restrictions can last from six to 24 months (typically 12 months).

In practical terms, it may be possible for a departing partner to negotiate at least a partial waiver of restrictive covenants, for example, in relation to specific clients and/or in relation to specific services. This will of course depend on individual circumstances, including the partner's relative bargaining power and whether their current firm has any incentive or motivation to agree such a waiver. For example, if a client strongly insists that they wish to follow the departing partner, it is unlikely the firm will wish to lose goodwill by holding the client hostage.

Indemnity

Due to the inherently risky nature of partner moves, a lateral candidate may seek to mitigate their potential losses by requesting that the hiring U.S. law firm provide a written indemnity to make the partner whole on their potential losses. Such indemnities typically cover the costs of obtaining legal advice (including the costs of defending against any claim made against the partner by their former firm); any losses suffered as a result of any adverse costs and/or damages awarded; any shortfall or losses sustained in relation to any reduction in profit share and any retention or forfeiture of all or any current, capital and/or tax reserve balances; and any liabilities incurred under the terms of any settlement agreed with the former firm.

Hiring firms should be wary of agreeing to a written indemnity of this kind, because this agreement would be disclosable in any potential litigation and the firm could possibly be at risk of being viewed as having induced or assisted the partner's breaches. Hiring firms are understandably reluctant to commit to indemnifying a partner for potentially significant and unlimited liabilities, over which they may have little control. If the firm did agree to provide an indemnity, it should at the very least seek to impose some form of financial cap and/or include consent/approval provisions so that the hiring firm has a say with respect to the advice the partner receives and steps they take.

Zulon Begum is a partner at CM Murray, an employment and partnership law firm, and advises many firms on partnership matters.