By Andrew Strickler
Looking to ease the pain of partner exits and head off client losses, a small but growing cohort of BigLaw firms are putting more financial teeth into their partnership agreements, tying an obligatory resignation notice period and other requirements directly to a departing partner's capital buy-in, experts said.
The souped-up contracts attempt to estimate the financial impact of a particular partner or group exit, and place that financial burden on lawyers in the form of liquidated damages in the event of a breach. Typical updates allow the partnership to keep a slice of the cash or dramatically stretch out repayment if the lawyer doesn't stick out the full notice period — usually 30, 60 or 90 days — or otherwise breaches the contract.
Jeffrey Lowe of legal recruiting firm Major, Lindsey & Africa said the practical effect of the new breed of contracts was limited. In the vast majority of partner resignations, firms are happy to waive notice periods and show exiting partners the door.
Managers raising the idea of a beefed-up partnership agreement might also end up agitating lawyers who hadn't been considering leaving. And typically, once a partner has an eye on greener pastures, Lowe said, they're not dissuaded even if jumping ship raises the risk of a hit to their firm capital or delayed repayment.
"Firms are becoming more aggressive in their defensive posture and in terms of the contracts, but interestingly, more of the really strong firms don't feel the need to put in some artificial mechanism to keep partners there," he said.
Read more of this feature at Law360.