Movement of attorneys between law firms is as robust as ever with today’s lateral hiring not just focusing on the hiring of individuals. Firms seeking to fill out capabilities often hire away groups of lawyers in an effort to gain some velocity from their expansion strategy. True mergers, especially when a large firm is eyeing the practice of a smaller firm, are increasingly being replaced by large lateral transactions.
As the recent Law.com article Firms Increasingly Making Partners Pay to Leave points out, however, departing a law firm is becoming increasingly painful. More and more law firms are seeking to stem attrition by requiring sign-on bonus paybacks, reducing or eliminating participation in profits, requiring pay back of compensation “not earned” early in the year, stretching out capital repayment terms and modifying financial benefits even after a firm has been joined. For a workforce used to unfettered free agency, these new obstructions are unwelcome if not surprising.
For any attorney, group of attorneys or small law firm thinking about moving to a new firm, these trends suggest that prior to saying “I do” it is vital to know how the new firm treats its departing lawyers. In particular:
What Are the Terms of Any Financial Inducement? Without a financial inducement to leave, many attorneys will not bolt from their present firm to a new one. So it is not surprising that “sign on” bonuses or other benefits are offered to attract lateral hires. But as the Law.com article notes, more and more of these financial lures come with conditions that trigger a repayment obligation whenever the attorney departs again for a new firm. Before being swayed by the up front “easy money,” the details, especially any obligation to repay, need to be understood.
How Does the Partnership Agreement Deal with Departure? Being excited about the opportunity presented by a new firm is great, but a calm and detached reading of the firm’s partnership agreement is essential. Increasingly such agreements contain provisions that delay the repayment of capital, impose specific procedures and deadlines connected with resignation and speak to repayment of cash related to “sign on” bonuses. To many a departing attorney’s surprise, the dense provisions may also deprive a leaving attorney of year-end distributions or even require repayment of “unearned compensation” which is directly tied to the firm’s profitability on a partner’s departure date. Understanding the nuances of a partnership agreement should occur prior to joining a firm, not once the firm has already been joined, or worse yet, after the resignation letter has been signed.
Is Any Penalty for Leaving Commensurate with Inducement for Coming? If there is a penalty associated with leaving, that penalty should be compared to the benefits to be enjoyed when joining. A new home that will effectively have you in debt on departure had better be worth the cost. If the new firm provides guaranteed compensation, a cost/benefit analysis may ameliorate the negatives of a departure penalty. Or it may not. In any event, careful analysis is required.
Can the Departure of Others Create an Adverse Financial Impact? As true mergers become less common, especially when a large firm swallows a small firm by taking its talent in a mass lateral transfer, the terms of that addition should be understood. If after you join colleagues of yours decide to move on, be sure that their decision to leave does not adversely impact you even though you are happily staying.
How Easily Can the Partnership Agreement Be Amended? Even if your new firm’s partnership agreement seems acceptable respecting your treatment should you ultimately decide to depart, consider whether the partnership agreement can be easily amended. More than one firm has recently adopted more draconian provisions respect the treatment of departing partners in an effort to stabilize the institution. For a new partner faced with a proposed partnership amendment designed to strengthen the institution, speaking out against the new measure many not be the easiest thing in the world.
It is nice to be wanted but when another law firm comes calling some level of caution is a good idea. Besides considering the traditional questions of culture, conflicts and compensation, it is wise to understand how difficult it will be to depart if things don’t work out. With today’s law firms trying to shut the revolving door, will your new home try to bar your exit?