US-headquartered firms now make up almost half of the 50 highest earning practices in the City of London, generating a record £4.27bn ($5.69bn) in the past year. Notwithstanding Brexit headwinds, the London legal press is awash with stories about intensifying competition between US and UK firms to land the biggest clients and hire the best lawyers, from high profile lateral moves to the "salary war" between US and Magic Circle firms.

Against this backdrop, it is worth considering some of the legal and cultural considerations faced by US firms when seeking to bolster their bench strength in London (if they already have a presence) or enter the London market. Here we focus on legal issues arising when hiring partners from UK firms, as well as some of the cultural differences in relation to partner duties and restrictions.

One of the key differences between US and UK law firms is that UK 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, garden leave and restrictive covenants. Such restrictions will be unfamiliar territory to US law firms who 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 US states prevent lawyers from entering into agreements which hamper their ability to practise after leaving a firm.

Such provisions not only make the process of extracting a partner from their existing firm tricky and potentially time-consuming, it also means the hiring 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 US 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 firm risks exposure to claims for conspiracy or procuring or inducing breaches by the partner.

Don't fall at the first hurdle…

UK 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. They are likely to prevent a partner from discussing any move with colleagues and clients and require them to inform their partners promptly of any circumstance 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 US firms should be aware that the requirement to disclose client details, for example in the kinds of lateral partner questionnaires frequently used in the US, may result in a breach of a partner's duties and/or their professional regulatory obligations. In practice, 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 and are careful about the paper trail they create (e.g. business plans) as it could be potentially discoverable if the matter were to be litigated by the candidate's existing firm and 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. Again, 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 garden leave

Notice periods for partners at UK law firms typically range between six and twelve 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 US perspective where notice periods typically range between 30 to 90 days. Some UK 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 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, garden 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 practice, notice and garden leave are subject to negotiation, but they are sometimes strictly enforced.

Post-termination restrictions 

US firms seeking lateral hires will quickly be alerted to the prevalence of post-termination restrictions which will impede UK 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 provided 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 or supplier connections, client connections or the stability of its workforce.  They must also go no further than is reasonably necessary to protect those interests. Carefully drafted covenants which are tailored to specific circumstances and which 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 UK legal sector. Such restrictions can last from between 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 US law firm provide a written indemnity to make the partner whole on their 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 since 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 and Holly Buick a trainee at CM Murray, a leading employment and partnership firm.