KPMG-website-screen-URL_shutterstock_753002566 Credit: PT

When does a team hire become a crime? It is a question that French firm Fidal is asking after accounting firm KPMG hired 144 of its lawyers in one of the biggest law firm raids in recent times.

The hire, which included 26 partners, marks an acrimonious turn in what used to be a close relationship between the two parties, spanning back decades. The pair had a nonexclusive partnership agreement from 2011 until it was broken off in July 2018.

Fidal is now expected to bring legal action against KPMG on the basis of “unfair competition,” which could either refer to the European law that states a firm cannot abuse its majority position in a market or to a French civil liability law that allows companies to make cases for unfair competition. In turn, KPMG could respond that before this hire its French legal arm was relatively minor, having only been established in 2018.

Fidal said it will focus on the break clauses in the agreement that the two institutions had during their partnership. During discussions before the end of the relationship, Fidal said KPMG had offered the reassurance of two clauses: one giving notice that the agreement was ending, and the other a nonpoaching clause that would be in effect until 2020.

The nonpoaching clause stated that KPMG could not hire lawyers from Fidal without Fidal’s written consent, regardless of which side made the approach.

However, there seems to be disagreement about what, if anything, was eventually agreed to.

“The constructive proposals, made to Fidal to ensure the future of their teams, dedicated to the KPMG network, were rejected by the representatives of Fidal. In this context, a number of professionals have decided to leave Fidal and have expressed their wish to join KPMG Avocats,” KPMG said in a statement.

Fidal managing partner Yves de Sevin

Fidal managing partner Yves de Sevin denies this. The firm said the only disagreement came when KPMG made two proposals: either become a member firm with the Big Four auditor, or have KPMG take lawyers from Fidal, neither of which Fidal agreed to.

Fidal insisted that there is no way the nonpoaching clause was either not agreed on in the first place, or compromised by later discussions.

“Us refusing these two proposals does not give [KPMG] the right to hire our teams! KPMG’s behavior is therefore inadmissible and the entire office is shocked by such behavior,” de Sevin said.

Commenting on the two arguments, Ronnie Fox, a partnership and employment specialist partner at Fox & Partners, said that from the outside it appears there was an attempt to reach an agreement but it failed, in which case there could have been no breach of contract.

One French competition partner in a rival domestic firm said Fidal could only take KPMG to court for civil liability, claiming that it is unfair of the accounting firm to take so many assets from Fidal. However, the partner added: “In France, every lawyer has the freedom to go where they want … so arguing for unfair competition will be very difficult.”

Fox agreed with that assessment.

“The fact that there was once a partnership agreement doesn’t mean that those that used to work for Fidal can’t work for KPMG. Ultimately, slavery has been abolished so if people want to move, they can,” he said.

Fox added that considering the size of the team hire, it would probably have been orchestrated sensitively to any agreements made, and likely organized by recruitment specialists.

One partner in the French office of a Magic Circle firm likened the events to “two brothers fighting each other,” considering how close they were before the recent dispute. When asked whether Fidal will be able to take action against KPMG, the partner said: “Between taking action and actually winning, there is a big difference.”

Yet de Sevin is not cowed. When asked if the firm intends to take action, he said, “we will defend ourselves by all deontological and judicial means.”

Legal action after hiring takes place is rarely seen in the legal world. Last year, Ince & Co sought legal action against Clyde & Co after it lost four Hamburg-based shipping partners to its rival, in a move that also gave Clyde an additional 20 associates. Jan Heuvels, Ince’s senior partner at the time, argued that the hires had given rise to unfair competition issues. But no claim emerged.

One similar case that did make it to court came from outside the legal industry and involved two brokers, Tullett Prebon and rival firm BGC Brokers, a decade ago. After BGC hired a team of brokers from Tullet, Tullet tried to seek damages for what it saw as a raid on the business. Court documents claimed that Anthony Verrier moved from Tullet to BGC as executive managing director—“leaving early without lawful justification”—and then tried to poach teams from Tullet by taking them out for fancy dinners.

The case resulted in a small fine for BGC, a fraction of the damages Tullet had sought, according to reports at the time.

No matter how the Fidal-KPMG dispute ends, partners believe the issue is unlikely to go away any time soon. The growth of auditors’ legal arms means large hiring battles could become commonplace.

An example of Big Four team hires came a few years ago when EY hired partners from Baker McKenzie and Weil, Gotshal & Manges as it launched its financial regulatory practice. And already since the start of the year, EY has hired the financial services regulatory head from PwC, and Deloitte has hired a senior partner from Allen & Overy to launch its legal arm.

As one French partner at a Magic Circle firm remarked, the recent mass hire “proves the appetite of the Big Four in the legal industry.”