Dallas lawyer Kevin Crews, held up in moving to Kirkland & Ellis‘ new Dallas office because of a six-month notice provision in his employment contract with Weil, Gotshal & Manges, is far from the only Texas lawyer who has faced that sticky situation—and Kirkland isn’t the only firm to face delays in lateral hiring as a result.
Other firms in Texas have recently enforced such “hold” provisions in employment contracts and partnership agreements, most notably when lawyers have made splashy moves to growing Big Law rivals in the state.
The situation can create difficulties all around, as lawyers endure an awkward, unproductive wait at their old firms while their new firms bide their time, waiting for them to finally arrive.
It can also test client loyalties, because firms can use the waiting time to ensure that clients don’t leave with the departing lawyers.
“Firms do everything to keep their clients. The two rules for lateral movement, for ethics, is it is the client’s right to choose counsel and it’s the attorney’s right to move, and so firms sometimes put these things in place to protect their clients and protect their interests with their client. Ultimately, it’s the client’s right to choose counsel,” said Chris Batz, a legal recruiter and founder of The Lion Group, of Overland Park, Kansas.
“It’s messy,” Batz said.
That messiness has affected some recent high-profile lateral moves in Texas, a market where there’s much lateral activity and lawyers with big books of business are moving to competitors.
Shearman & Sterling, which moved into Texas in March in Austin, didn’t open its new Houston office as fast as the firm wanted to this spring because Baker Botts held a group of oil and gas lawyers for 90 days. Another group of six energy partners from Baker Botts lawyers faced the same issue in 2017 as they were held for 84 days after they resigned and before they could move to Gibson, Dunn & Crutcher‘s new Houston office.
Weil, which is holding Crews under a six-month notice provision as part of his counsel employment contract, has done something similar before in Texas. In 2013, Weil held a group of lawyers for several weeks, delaying their move to Sidley Austin‘s Dallas office.
Baker Botts initiated its 90-day leave policy after Latham & Watkins opened its Houston office in 2010 and quickly poached partners, according to a source familiar with the policy. Since then, with more Big Law firms opening firms in Texas or expanding with additional offices, and lawyers with big books of business being lured to competitors, reports of holds are cropping up on a more regular basis.
Bill Cobb, a firm consultant in Houston at Cobb Consulting, said the enforcement of hold provisions has become more of an issue because the market is so competitive, and because the lawyers making lateral moves likely control clients that provide considerable revenue.
‘So Much Change’
Unlike Crews, the Baker Botts counsel who can’t move immediately to Kirkland, high-profile corporate lawyer Sean Wheeler joined Kirkland as a partner in Houston on July 30 without a firm-imposed delay, coming from Latham & Watkins’ Houston office.
Wheeler said he stayed at Latham for three weeks after putting in his notice, simply because he was working on an M&A project for a client, and wanted to see it through. He said that while Latham’s partnership agreement includes a six-month hold provision, he’s not aware of any instance when the firm has enforced it, and said lawyers typically depart the firm within a week or two.
He said that when he joined Latham in 2010, he only stayed at Baker Botts for about five days after his notice. He said the firm instituted the 90-day hold provision in the partnership agreement shortly after he and partner Michael Darden (now at Gibson, Dunn & Crutcher in Houston) left for Latham.
Wheeler suggests that firms may frustrate clients when they hold lawyers to a lengthy notice period.
“There’s been so much change in the Texas market over the last 10 years, I think some firms just view it as a way of possibly forestalling the loss of business … I’m not convinced it helps anyone retain a client for a long period of time,” said Wheeler, who was named a Dealmaker of the Year by The American Lawyer in 2015.
Hugh Tucker, the oil and gas partner whose departure from Baker Botts was delayed this spring, said in May that the 90-day hold was frustrating because the partners were anxious to get things rolling at Shearman. “It’s one of those things that you wish you didn’t have to go through, but I certainly understand the rationale for doing so,” he said.
Bill Pollard, a solo practitioner in Austin who prepares partnership agreements for firms, said firms can benefit from hold requirements because they have flexibility to waive them or to enforce them and use the time to try to retain clients.
But Pollard said most of the partnership agreements he’s handled have been for relatively small firms—up to a dozen lawyers—and he hasn’t included hold provisions. “Those [firms] are just not big enough where that kind of provision would be meaningful enough to be in there,” he said.
Batz, the recruiter, said that while all firms don’t have hold clauses, 30-day holds are what he generally sees, and firms often don’t enforce them. “It’s kind of a fail-safe if there’s concern for client departures,” Batz said.
In most cases, Batz said, a partner gives notice and “the firm says, ‘thank you for giving notice and you are free to leave now.’” He said there are reasons that holding groups of attorneys at the firm isn’t good for the firm, specifically because it could lead to litigation.
That is what happened in Australia in 2017, when Herbert Smith Freehills (HSF) sued eight former partners who had departed in 2016 to open offices in Melbourne and Sydney for White & Case. HSF partners Australia are subject to a six-month notice period after resignation and an additional six-month restraint period.
The HSF partners gave notice on Sept. 1, 2016, but could not join the firm until six months later. The litigation settled in May 2017.
Crews, who did not return two telephone messages, reportedly gave notice to Weil on June 12 and transitioned his work to other lawyers, but he has not been able to move to Kirkland. In a written statement, Weil confirmed the six-month notice provision in its employment contract for counsel and wrote that it has not agreed to shorten the period for Crews.
Haley Clark, owner of HC Legal Search in Dallas, said she’s aware that some firms are enforcing hold provisions, but she believes it’s a risky move. For one thing, Clark said, Texas is a right-to-work state. She also said it isn’t fair to employees.
“It’s unfair on the part of the firm to create a situation where their lawyers contractually are supposed to work somewhere they don’t want to be,” she said.