Why GCs Don't Like It When Firms Impose Lengthy Partner Notice Periods
"It's an issue when law firms act to protect themselves to the exclusion of caring about their clients", says one general counsel.
May 12, 2020 at 05:10 AM
7 minute read
Lengthy contractual notice periods have long been used by law firms to discourage partners from leaving for rivals. But such stringent exit clauses are causing increasing frustration among clients, particularly for general counsel and other in-house leaders.
Just last week, Ince Gordon Dadds welcomed its new senior partner, but was made to wait eight months by the partner's old firm, Hill Dickinson. Were it not for the pandemic and the firm's need to trim costs, the partner would have been held for a further 12 months. Another recent example saw Allen & Overy preventing an M&A partner from joining Skadden Arps Slate Meagher & Flom, again for eight months. But it too had its hand forced by the pandemic, and finally decided to release the partner.
Talking to Law.com International, GCs express their annoyance at how law firms use onerous clauses to keep departing partners on gardening leave, preventing them from continuing to work with them. Some in-house leaders suggest that it's too often the case that a law firm's desire to punish a partner trumps pragmatism, and erodes client relations.
Still, the practice of lengthy lock-ins is unlikely to disappear post-pandemic.
One GC for a mobile app recalls an instance where she received news of a departure from a lawyer's out of office email.
Though she said it "happened only once", she found the firm's behaviour "was so poor that I was shocked".
She adds: "The issue is when law firms act in a way when they're protecting themselves to the exclusion of caring about their clients."
The GC emphasises that law firms must immediately reach out to departing partners' clients to let them know what is happening and which partner is going to now take care of them. She notes that, previously, some partners have let her know that they were leaving, describing the approach as "much more thoughtful and constructive".
"If the firm isn't going to make an effort to let clients know they care, or provide a new partner to look after them — which is the minimum they should do to keep the clients happy — then I would say it is unconscionable to also then forbid clients from contacting the departing partner".
"There have been occasions where emotions have trumped pragmatism in how law firms have dealt with specific exits."
A legal director at a FTSE 250 company also suggests that most firms "definitely" do not approach departures well, saying that perhaps emotion is one of the reasons for this — something that is "not talked about very often".
Echoing this, another in-house lawyer adds: "There have been occasions where emotions have trumped pragmatism in how law firms have dealt with specific exits."
But what about partners who just up and leave?
A private equity partner at a U.K. law firm says that "lawyers don't have to jump ship in the middle of a transaction — you don't have to leave people in the lurch".
But the head of legal at a property group believes that GCs who find themselves deserted in this fashion might need to "look at [themselves] in the mirror as a GC and question your judgment if you've chosen to work with partners and firms who leave you in that position".
The London-based private equity partner adds that GCs "can't have their cake and eat it too". The client may believe the relationship is with the partner, but the law firm believes the relationship is always with the firm. For the partner, this clash in viewpoints is a crucial observation.
However, for the legal director from the FTSE 250 company, this debate can be settled easily: "[Law firms] need to think about clients being serviced by firms and not individuals, and build up depth in teams and relationships to enable succession."
"It is unconscionable to forbid clients from contacting the departing partner."
Law firms are "very alive and sensitive to these issues", the partner says, pointing to the "honest and open frank conversations" that occur in most cases, because nobody wants to upset clients.
A recruiter suggests that such discussions could enable collaboration between the departing partner's new and old firms.
However, the mobile app GC adds that, although these conversations are important, they are often limited.
"It is possible to get the law firms to waive the gardening-leave period ban on contacting the departing partner", she says. "But, essentially you have to say something like 'let me talk to this partner because he/she has so much context about us so it will be quick, or else I'm leaving your firm."
The future of lock-ins
Gardening leave and lock-in periods serve a legitimate purpose. Who wants a partner taking a firm's business to a competitor? Indeed, as the private equity partner adds, "all businesses, not just law firms, have these restrictive covenants in place".
The property group's head of legal says that "more sophisticated GCs will tend to have in place a sensible and resilient range of options to advise their organisations across key practice areas", so "they can absorb any isolated difficulties with specific partners becoming unavailable for short to medium length periods of time".
The private equity partner points to the rarity of a GC saying they only use a firm because of an individual partner. But if that partner was truly important enough to the GC, he says, they should wait for the partner to rejoin their next firm.
"Frankly, how big a tool is it to stop people being able to compete for a short while? Perhaps GCs are a bit impatient."
"We are more likely to increase the use of another firm we know than move with a partner to a firm we don't."
He adds: "It's a bit precious of some senior in-house counsel to make that point [on lock-in periods], especially when some have left private practice and previously have been under the same constraints."
The legal director agrees that, generally, GCs do not follow individual lawyers. "We will reassess whether we continue to use that firm for that type of work. But we are more likely to increase the use of another firm we know than move with a partner to a firm we don't."
Despite the recent moves by Hill Dickinson and A&O, the recruiter anticipates that, in tough times, U.K. firms will generally become more hard-line on restrictive covenants, as they are "not going to make the acquiring firm's life easier".
Though the pandemic has introduced unique and unprecedented challenges to law firms, they are "still businesses that operate in a fiercely competitive world", says a Magic Circle partner. "Partner lock-ins are necessary, and become more so in tricky times.
The private equity partner concurs: "It will go on for as long as we can get away with it."
|Read More:
Firms Land Key UK Hires as Pandemic Prompts Rivals to Waive Notice Periods
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