Masterclass

Managing the risk of lawyer mobility

By Edward Zulkey

There was a time an experienced associate would apply for a new job and your first thought would be that the poor individual was likely to have been fired by the current firm. Similarly, once made a partner one would assume that the next transition would be retirement. Nowadays if a lawyer stays in one place for an entire career, most think it is due to a lack of drive or portable business. However, this mobility creates increased management issues for the respective firms. Moreover (in addition to changing law firms) the national and international aspects of practice move lawyers across boundaries without even noticing it. This type of mobility raises yet another set of issues.
The purpose of this article is to provide an overview of the legal risks law firms face regarding lateral hiring, attorney departures and cross-border lawyer mobility. It cannot offer to provide concrete solutions, but will hopefully at least provide a checklist of issues to manage.
Although the legal issues relating to hiring and departure are mirror images of each other, it is my observation that they are not always treated in the same manner. While we will discuss the two issues separately in this article, it should be kept in mind that on any given issue relating to incoming or departing attorneys, a firm should consider whether it addresses these issues equally and fairly on both sides.
Before looking at each issue separately, it is helpful to point out some general principles. In regard to many of the issues, there is developed case law and bar rulings. This article is not intended to be a scholarly treatise, however, and readers are urged to consult an experienced practitioner in their relevant jurisdiction.

General principles
The first principle is that the duty to the client is paramount. I have seen both the departing attorney and the firm claim that they own the client. Neither is true. Both have a duty to protect the interests of the client. Unsurprisingly, however, how one should act in fulfilling this duty is not self-evident when an attorney working for a client changes firms. What should motivate both parties is what is best for the client. Sometimes those two parties have differing views. Ultimately, however, the client will decide. For the purposes of this discussion, a lawyer can justify advising a client that he is considering leaving prior to telling his firm, on the basis that it is done for the benefit of the client. On this point, one needs to distinguish between the clients for which he is working and those for which he is not. The departing attorney cannot communicate – in advance of his departure – with the firm’s clients for whom he is not working, but there is nothing to prevent the firm from offering to retain the client by different staffing.
The second principle is that partners owe fiduciary duties to fellow partners and their firm. The main point here is that this is reciprocal and not a one-way street. This means that a partner cannot secretly plot to recruit employees or solicit clients for whom he is not acting. On the other hand, a firm cannot improperly impede the partner from departing. Once the partner announces he is leaving, recruiting employees is generally permitted. A related issue concerns files and precedent. The file belongs to the client, so it would go with the departing attorney if the attorney is taking the client. The file does not generally include work product and general precedent. This will be discussed further below.
Finally, there is one area where the US generally differs, quite markedly, from the rest of the world. In the US, restrictions on the practice of law are unenforceable. Thus firms cannot enforce non-compete agreements. This is not generally the case outside the US.

Lateral hiring
It is, of course, beyond the scope of this article to deal with the business side of the lateral hire. Like all laterals, he is not fully appreciated at his current firm and the acquiring firm has found the perfect individual to fill the niche (talent or business). The first level of risk management involves due diligence – that you are, indeed, getting what you think.
Due diligence must relate to personal and professional issues. Some are easier than others to check, but, in part through the candidate and in part through independent sources, one ought to check the following general and particular areas:

Verification of academic and bar credentials;
Disciplinary history, including sanctions and bar rankings;
Criminal record;
Party to other litigation;
Files tax returns;
Prior employment and credit background.

You should also ascertain a candidate’s general reputation for ability and character, including how the person behaves himself in the office. However, this must all be done in “such a manner that does not prematurely notify the lateral’s clients or current firm”.
The next major area of due diligence relates to conflicts and fiduciary positions. The need to deal with conflicts is obvious, but many firms have failed to perceive the negative implications that bringing over a certain practitioner and clients can cause. While it goes without saying that the lateral cannot bring a client on the opposite side of a matter, what about a major competitor to a good client? In some practice areas, like patent work, even having someone who advocates the validity of a patent in a particular field can create an ethical or business conflict as to clients who have patents issued under a different theory.
The major tension in properly analysing conflicts ahead of time is both a confidentiality and fiduciary issue. The client may not want to be disclosed to the recruiting firm, and the current firm certainly does not want the lateral to disclose. Apart from the tension this creates for the lateral, it raises the issue of whether the acquiring firm is complicit in the disclosures by the lateral. This issue is discussed quite a lot at seminars, and it is generally concluded the absolute necessity of dealing with conflicts outweighs risking being complicit in improper disclosure. The one way to reduce the risk is to limit the extent of disclosure. It is also best to evaluate whether you would still want the lateral if he could not transfer a certain client. Also, you should not allow a lateral to provide confidential firm information.
The issue of fiduciary positions is also an element of disclosure. A firm usually has rules on such positions, as the positions create risk and can create conflicts themselves. If a decision is made to force resignation, then a determination should also be made as to how it will affect the ability to keep the client.
Once you get past the initial stages, the acquiring firm must ascertain any contractual practice restrictions that affect transition and should work to ensure the lateral does not violate any duties to the old firm in regard to premature solicitation, client communication and wrongful exploitation of the old firm’s intellectual property.
Even if you tend to all these issues unexpected problems can develop, but good checklists certainly minimise the surprises.

Departing attorney
Most firms are aware of their rights in dealing with departing attorneys, but often don’t have good procedures to manage the issue. When learning a lawyer is leaving, you immediately have to consider the potential clients that might also be leaving, as well as other lawyers or employees. It is often assumed the departing lawyer will take certain clients. If, however, you are providing other services beyond what is being done by the departing attorney(s), this may not be true. Yet it is still best to allow the departing attorney freedom of communication, whether it be internal or with clients. The firm must communicate at the same time.
If the lawyer is leaving work behind, immediate attention must be given to file review and ensuring deadlines are being addressed.
One of the areas lawyers and firms fight over most is transitioning files. If a client is leaving, the longer the firm holds a file, the more risk it bears. Even if in a jurisdiction that permits holding files until fees are paid, it is too risky. If the client is damaged by the delay, the firm will be responsible. In terms of whether or not the firm should keep copies of files, it would most likely be at the firm’s expense. We recommend copying correspondence and retaining work product. In the computer age, this is not the problem it once was.
Another, relatively emerging, issue is who owns specialised software programs. Under partnership law, it is not clear that the partnership has sole ownership. We recommend the firm requires every partner to acknowledge firm ownership of the programs in writing.

Mobility
The final area is lawyer mobility while in the same firm and the risks it presents. This can be as simple as visiting other locations to spending too much time in one of the firm’s other offices. Talk to any lawyer and the amount of travel, both nationally and internationally, is a major part of the routine. Firms need to evaluate if the lawyer is practicing law without a license when traveling outside the jurisdiction of licensure. In some countries, it is a crime punishable by incarceration. While every litigator knows the routine of pro hoc vice and local counsel, the same concepts are not taken into account outside the courtroom. Recent case law suggests that practicing outside your jurisdiction can, at the very least, put getting paid at risk.
Just because your firm has an office in a particular jurisdiction, that doesn’t make it appropriate for a lawyer not licensed in that jurisdiction to practice there – unless being supervised by a lawyer who is so licensed.
Another area relating to lawyer mobility that has unique issues is the growing use of secondments. Like directorship positions in the past, many firms view these as good business opportunities. However, they do create additional risk. The seconded attorney usually continues as a firm employee. Without an agreement with the client, the firm therefore remains liable for the seconded attorney’s acts. Moreover, the firm often has less supervisory ability. Finally, consideration must be given as to whether secondment negligence is covered under the firm’s malpractice insurance.
The issue of lawyer mobility will not go away. Losing people is as natural a process as recruiting them. The establishment of sound practices will not only increase management efficiency but also reduce risk.

Edward J. Zulkey is general counsel of Baker & McKenzie International. He can be contacted at ejz@bakernet.com.