As the economy starts to improve, attorneys will increasingly explore the possibilities of moving to new law firms.
Recently, jobs were too scarce for many attorneys to take the risk of looking around, but this has started to change. According to The American Lawyer, "lateral activity among Am Law 200 firms reached a three-year high in 2012." Law firms can expect that trend to continue in 2013.
The reasons for changing law firms can vary—from money to practice focus to an upgrade in law firms. Regardless of the reason, the worst of all worlds is for an attorney to give up her position at her old law firm only to learn that she cannot join the new firm. More often, attorneys changing law firms are (unpleasantly) surprised by the unexpected things that would have dramatically changed their decision.
To minimize the risks, attorneys should take these four steps when evaluating whether to leave a law firm.
Step 1: Read the current firm’s partnership agreement and/or terms of employment
The decision to leave a law firm often starts with contact by an attorney search firm (sometimes called a headhunter) or an inquiry from an attorney at another firm. The next step can be the most important. There are two kinds of limitations on the ability of attorneys to change law firms—contractual and ethical.
For partners, the contractual terms are generally contained in the partnership agreement. That agreement typically contains provisions explaining what will happen if an attorney leaves the partnership. This can include potentially punitive provisions on the repayment of partnership capital and loss of the right to partnership draws. It also can include rights of the law firm to recover lost profits from ongoing representations and liabilities for post-departure claims based on pre-departure conduct. All are important in considering the risk and reward of changing law firms.
For associates, the contractual terms can be in a formal agreement or a countersigned letter of employment. Either way, it is critical to review the relevant contractual commitments before considering a move.
The partnership agreement or associate employment terms can affect the timing of a decision. These issues can affect the kinds of things an attorney should discuss in any agreement with a new law firm. To the extent possible, any offer from the new law firm should mitigate or eliminate the risks of leaving the old one.
Step 2: Respect the ethical boundaries
Although clients generally can change attorneys at any time for any reason, attorneys do not share that flexibility in changing law firms. As a partner, attorneys owe fiduciary duties to their partners and the partnership. In considering whether to leave the partnership, the attorney must respect these fiduciary duties.
Associates also owe duties to their employer. These include limitations on the ability to interfere with business relationships or to solicit existing clients to a new business enterprise. As a result, although a new law firm is undoubtedly hiring more than just a biller, exploring a transition to a new firm should be uniquely personal to the attorney.
Attorneys considering whether to change firms can project what they expect to happen with clients, colleagues and subordinates at a new law firm. But, prior to their departure, attorneys should not take any such action. It is a fine line, but an important one. Soliciting clients, colleagues or subordinates while still in a relationship with the old law firm could be a violation of the legal, fiduciary and ethical duties to that law firm.
There are other implicated ethical issues. For example, attorneys must respect the attorney-client privilege. For publicly known matters (such as public filings in courts or with government agencies), the identity of clients may be less of an issue. But for matters that are not public, the disclosure of the identities of clients presents a different challenge. Attorneys are required to respect the boundaries of the attorney-client privilege even when considering changing law firms.
The American Bar Association and state bar associations have recognized this tension between full disclosure to a new law firm and maintaining the confidentiality that clients expect. The ABA addressed the issue in Formal Ethics Opinion 09-455 (2009). Although the ABA recognized in this opinion that an attorney moving to another firm may be asked to disclose confidential information as part of a conflicts screen, ­"[c]onflicts analysis cannot be accomplished without sharing conflicts information generally about the persons and issues involved in a matter." Thus, attorneys may disclose the persons and issues involved in a matter, i.e., "the basic information needed for conflicts analysis," without running afoul of any state bar obligations.
Step 3: Identify and address potential conflicts early
Most law firms and search firms use a formal lateral questionnaire. (Every law firm that uses a lateral questionnaire should use it every time—without exception! Inevitably, the lateral hire who did not complete the questionnaire ends up with an impermissible conflict, putting both the law firm and the attorney in a very difficult situation.)
The bottom line is that potential and actual conflicts should be addressed before discussions and the negotiation progress. This means truthfully and completely sharing the necessary information for a complete conflicts analysis.
Notably, the new law firm has more flexibility than the attorney in exchanging information necessary for the conflicts analysis. The most important information for the new firm to disclose to the attorney changing law firms is the identity (for whatever reason) of clients against whom the new firm cannot—or refuses to—be adverse.
While permissible in the lateral hire context, the challenges of ethics screens are noteworthy. Such screens must be imposed at the first contact so that inadvertent conflicts can be avoided in the interview and negotiation process. Contrary to what most law firms believe, an impermissible conflict can be created prior to the moment an attorney actually joins a law firm. It usually arises from the inadvertent disclosure of confidential information during an interview process.
Truth, candor and completeness are extremely important during this conflict resolution phase. The costs are simply too high for undiscovered conflicts to happen after the change from one firm to another.
Step 4: Verify the information
As negotiations progress, there will undoubtedly be representations made about the future opportunity. This typically includes the terms of partnership or employment along with ancillary issues like benefits and insurance. There is no reason not to verify this information.
For partners, this means getting a copy of the partnership agreement. For the associates, it means getting a copy of the proposed letter of employment. For both, it means getting a copy of the legal malpractice insurance policy and all other policies associated with the benefits of employment (like health care, retirement, pensions, etc.). Don’t assume anything.
Obviously, there are many more factors for an attorney to consider in deciding whether to leave a law firm. These are the top four things every attorney should do before making a decision.