It happens. Unfortunately, based on recent data, it is happening more frequently.
Legal website Above the Law reported in its Jan. 7 article "Nationwide Layoff Watch: Partners in Peril" that: "Over the past few years, many firms have been quietly showing partners the door, or at least ‘de-equitizing’ certain equity partners that they’re willing to keep at the firm, but not as equity partners."
According to The Wall Street Journal on Jan. 6, a survey by Wells Fargo Private Bank’s Legal Specialty Group confirmed that approximately 15 percent of the roughly 120 firms surveyed "intend to cut partners in the first quarter, continuing a three-year trend." In response to an American Lawyer poll, approximately 55 percent of 113 managing partners acknowledged that they planned to ask partners to leave in the coming year.
As The Wall Street Journal article stated: "It used to be that once a lawyer grabbed the brass ring of partnership at a major firm, lifetime employment was virtually assured. But more partners are discovering that those days are over."
The Legal Skills Prof Blog explained why on Jan. 15.:
"That’s the upshot of a new report prepared by Citi’s Private Bank Law Firm Group and Hildebrandt Consulting concluding that the halcyon days of BigLaw are over and never coming back. Indeed, the report concludes that ‘the prosperity [experienced] between 2001 and 2007 was an aberration rather than the norm.’ At bottom, the legal services industry is burdened with ‘too many lawyers chasing too little work.’"
Asking partners to leave involves risks for both the law firm and the departing partner, arising out of ethical legal, and professional responsibilities.
Theoretically, partners do not need a reason for dissolving the partnership or asking an individual or group of partners to leave. The concept of partnership itself connotes a level of confidence and trust that is uniquely personal and subjective. Yet, elevating or dismissing partners is not without limitation.
In Hishon v. King & Spalding, 467 U.S. 69 (1984), the U.S. Supreme Court held that the rules against discrimination apply to law firms in making partnership decisions just as they apply to other businesses. The court held that "[e]ven if [the law firm] is correct in its assertion that a partnership invitation is not itself an offer of employment, Title VII would nonetheless apply."
Against this backdrop, there are objective and subjective reasons for asking a partner to leave. The objective reasons include billings, origination, productivity and similar, quantifiable reasons. So long as these objective criteria are uniformly applied without regard to race, gender, ethnicity or religion, law practices can use them.
The subjective reasons often include personal dynamics that are not objectively quantifiable. If a law firm is having problems with a partner in this category, it is important that the problems (including supporting facts) be documented. The documented pattern of problems combined with the opportunity to correct them provides the best protection to a law firm asking a partner to leave.
The decision to ask a partner to leave is a combination of both objective and subjective factors. Although few firms will admit it, the two factors are intertwined and inversely related. Basically, the more productive a partner is, the more the law firm is willing to accommodate idiosyncrasies (or difficult personalities). The less productive, the shorter the leash on partner problems.
The safest course for law firms is to well document the decision to ask a partner to leave. That documentation should be kept in an official file, not merely in the mind of the particular decision-maker. Well-documented files help fend off challenges from partners unhappy with the firm’s decision with the least amount of expense and risk.
Four sets of rules apply to the discharge of a partner. First, there are the legal boundaries such as Title VII. Basically, this means that law firms cannot ask partners to leave based on such prohibited factors as race, age, ethnicity, gender or religion. This includes ancillary issues such as family responsibilities or religious practices,. All decisions regarding partner dismissal should be reviewed to make sure that none of the prohibited factors are at issue.
Second, firms are bound by their contractual obligations. Partnership agreements, limited liability partnership agreements, by-laws and similar "contractual mutual undertakings" often address the process for dismissal from the partnership. These contracts must be strictly followed.
Too often, law firm decision-makers who are unfamiliar with the actual partnership agreement language move forward without considering or fully appreciating the specific provisions implicated by such decisions. In those cases, unnecessary legal disputes often emerge, creating unexpected problems and additional expenses.
If governing agreements do not address the issue, now is a good time to consider revising them. Specific provisions detailing the process avoid unnecessary trouble and expense for law firms. The important issue for such agreements is definition of the effective date for such a departure with a list of both the law firm’s and the departing partner’s obligations upon the effective date.
Third, there are the fiduciary and statutory responsibilities, discussed by the Georgia Supreme Court in Jordan v. Moses, 291 Ga. 39 (2012). Until the departure is effective, both the law firm and the departing partner owe each other fiduciary duties. This imposes on each certain obligations arising out of a relationship of trust and confidence.
In practice, the scope of these implied duties are inversely related to the level of detail contained in the partnership or contractual agreements. The greater the level of specificity in the partnership agreement, the less general fiduciary duty law must fill in to define what is appropriate and what is not. On the other hand, when partnership agreements are silent or vague, general partnership rules apply, leaving the boundaries ill-defined and applied based on the facts and circumstances of each situation.
The most significant issues arising from a partner’s departure involve money. They include the return of capital contributions, unpaid equity distributions and other monies that might be owed. Significantly, in the plaintiffs’ practice, they also include contingent fees. The best time to address all of these issues is before the partnership begins, not once it ends.
Fourth, there are the ethical responsibilities. Partner departures do not change either the law firm’s or the partner’s responsibilities to individual clients. The attorney-client relationship reflects an agreement between the partner and the law firm, on the one hand, and the client on the other. Changes to that relationship must be addressed and confirmed with the client. This includes making sure that all of the various attendant ethical responsibilities are met, including obligations such as protecting confidences and secrets, avoiding conflicts of interest, preserving client funds and avoiding an impairment to the client’s interests.
Some firms erroneously believe that because their process for partner departures are so slow, they have less need for systems. Yet the rules apply regardless of whether a law firm asks a partner to leave in one day or over the course of two years.
Unfortunately, there are no effective shortcuts for partner departures. Instead, it is a process that benefits from a system focused on fulfilling all of the various rules, regulations, contractual provisions, statutory requirements and legal obligations that apply.
J. Randolph Evans and Shari L. Klevens are the authors of Georgia Legal Malpractice Law, published by Daily Report Books.