Jumping Ship (and Taking the Crew): Can Law Firm Partners Solicit Their Firms' Employees?

Under traditional agency law, a partner may not benefit at the expense of the partnership, nor may the partner use the resources of the partnership for his or her own gain. See Restatement (Second) of Agency '387 (1958). Furthermore, a partner may not compete with the partnership. See Id. at '393. Nonetheless, these principles do not preclude partners from leaving firms, taking clients, or competing against their former partnership. See Robert W. Hillman, 'Professional Partnerships, Competition, and the Evolution of Firm Culture: The Case of Law Firms,' 26 J.Corp. L. 1061, 1070 (2001); Wayne N. Outten and Douglas C. James, 'Clients: To Whom Do They Belong?' Law Firm Partnership & Benefits Report, Vol. 10, No. 8, Sept. 2004.

A Partner's Right to Solicit Employees

Courts have specifically recognized that a partner may take limited steps to leave and compete with the partnership, even before notifying the partnership of his or her plans. See Graubard Mollen Dannett & Horowitz v. Moskovitz, 86 N.Y.2d 112, 120 (1995) (an attorney who takes steps to find alternative space and establish affiliations prior to notifying the partnership does not violate the fiduciary duty); Meehan v. Shaughnessy, 404 Mass. 419, 435 (1989) ('fiduciaries may plan to compete with the entity to which they owe allegiance, provided that in the course of such arrangements they do not otherwise act in violation of their fiduciary duties') (internal citations omitted). Oftentimes, though, departing partners' efforts are not limited to simply securing new offices or letterhead; they also solicit the firm's attorneys, staff, and clients to accompany them to their new firm.

Generally, it is not a breach of the fiduciary duty for a partner to solicit other members of the firm to leave the firm. See Custard Ins. Adjusters v. Nardi, No. CV980061967S, 2000 WL 562318, at *22 (Conn. Super. Ct. April 20, 2000) ('it is normally permissible for employees of a firm, or for some of its partners, to agree among themselves, while still employed, that they will engage in competition with the firm … '); Beasley v. Cadwalader, Wickersham & Taft, No. CL-94-8646, 1996 WL 438777, at *6 (Fla. Cir. Ct. July 23, 1996) (partner who solicited associates to join him at new firm did not breach his fiduciary duty); Gibbs v. Breed, Abbott & Morgan, 710 N.Y.S.2d 578, 583 (1st Dept. 2000) (attorney who discussed a joint move with another partner did not violate duty to his firm). In fact, law firms that try to limit the ability of partners to 'raid' their ranks through non-solicitation agreements or that impose non-competition agreements on their associates in an attempt to insulate them from solicitation may find themselves in violation of the ethics rules.

Model Rules of Professional Conduct Rule 5.6 prohibits all agreements that 'restrict the right of a lawyer to practice.' The American Bar Association ('ABA'), as well as at least one local bar association, has determined that non-solicitation agreements violate the ethical rules because they indirectly restrict attorneys' abilities to practice law. See ABA Comm. on Ethics and Prof'l Responsibility, Informal Opinion 1417 (1978); D.C. Bar Assoc. Op. 181 (1987) (cited in Jacob v. Norris, McLaughlin Marcus, 128 N.J. 10, 31-32 (1992)). As the ABA explained, 'Although the agreement … does not restrict the right of an individual lawyer to practice law directly, by restricting the right of association between attorneys it restricts such right indirectly and so falls within the prohibition of [the rule].' ABA Comm. on Ethics and Prof'l Responsibility, Informal Opinion 1417 (1978).

In Jacob, one of the few cases to address the issue, the court held that the ethical rule is implicated not just by non-solicitation agreements concerning attorneys, but also by those limiting a departing partner's ability to solicit paraprofessional staff as well. 'Paraprofessionals, no less than lawyers, should not have their career mobility inhibited, especially when the inhibition derives from an agreement to which they were not a party.' Jacob, 128 N.J. at 31.

Limits on Solicitation

Nevertheless, depending on the manner and timing of a partner's solicitation, the partner may still breach his or her fiduciary duty to the partnership by soliciting attorneys and support staff to leave with him or her. As Professor Robert W. Hillman has explained:

Grabbing and leaving is not in itself a breach of fiduciary duty because no partner is permanently bound to a firm. The manner in which partners plan for and implement withdrawals, on the other hand, is subject to the constraints imposed on them by virtue of their status as fiduciaries. 'Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms,' 55 Wash & Lee L. Rev. 997, 999 (1998).

In order to comply with his or her fiduciary duty, a departing partner must consider: 1) if and when he or she must give notice to the partnership of intent to leave and solicit others, and 2) whether he or she may use the firm's confidential and proprietary materials to aid the solicitation.

Notifying the Partnership

Most courts to consider the issue agree that a partner has a right to confer with others in secret regarding plans to leave a firm. See, e.g., Graubard, 86 N.Y.2d at 120 ('That this may be a delicate venture, requiring confidentiality, is simple common sense … '); Beasley, 1996 WL 438777, at *6 (partner did not breach fiduciary duty by secretly soliciting three associates; but see Gibbs, 710 N.Y.S.2d at 583 (finding that partners who conferred together secretly regarding a move did not violate their duty by doing so, but finding that they did violate their fiduciary duty by recruiting employees of the firm prior to serving notice and while still members of the firm and by using confidential information to further their recruitment efforts). However, when a partner is asked by the partnership or another partner of his or her intentions or plans, fiduciary duty demands that the partner answer honestly and fully. Meehan, 404 Mass. at 438 ('A partner has an obligation to render on demand true and full information of all things affecting the partnership to any partner.') (citing G.L. c. 108A '20) (internal quotations omitted); see also Unif. P'ship Act (1914) '20; but see Revised Unif. P'ship Act ('RUPA') (1994) '403(c) (creating affirmative obligation for partners to furnish information concerning the partnership's business and affairs).

A partnership agreement may also require notice of a partner's intent to solicit firm employees. See Arthur J. Ciampi, 'Law Firm Partnership Law,' New York Law Journal, March 24, 2006 (proposing sample partnership provision requiring that partners submit lists of other partners or employees he or she wishes to solicit). Even if not formally required by the partnership agreement, however, a partner who fails to provide sufficient notice of a planned migration of key attorneys and staff may breach his or her fiduciary duty. See Restatement (Second) of Agency '393, Comment (e) (1958) ('a court may find that it is a breach of duty for a number of key officers or employees to leave their employment simultaneously and without giving the employer an opportunity to hire and train replacements.'). This is especially true where secrecy is maintained to garner an unfair business advantage. See Sperry Rand Corp. v. Rothlein, 241 F. Supp. 549 (D. Conn. 1964) (finding that employees who subsequently started their own business violated the duty of loyalty owed to their employer).

Obviously, once a partner has left the firm, he or she may solicit his or her former partners and other firm employees with impunity and without notice, since he or she no longer owes any fiduciary duty to the partnership. See RUPA '603(b)(2) (partner's duty of loyalty ends with disassociation).

Using Confidential and Proprietary Materials

A departing partner has at his or her disposal an array of materials that may aid in soliciting the firm's attorneys and staff ' confidential salary information, partners' 'black books' of clients, and billing reports are all things that can be exploited to mine the most able and lucrative employees. Gibbs v. Breed, Abbott & Morgan should serve as a cautionary tale, however, for those who might be tempted to use their firm's confidential and proprietary information to assist in solicitation efforts. 710 N.Y.S.2d 578. In Gibbs, a departing partner circulated information contained in the personnel files of the staff and associates he wished to bring with him, including salary lists, billing rates, and average billable hours, to prospective competitors in an attempt to assist their recruitment efforts. The court found that the information was confidential and that the partner breached his fiduciary duty by accessing and disseminating the information. 710 N.Y.S.2d at 583-84.

Conclusion

All courts and commentators agree that a departing partner may solicit other partners and employees after giving notice of departure, but no clear guidelines exist on whether the partner can solicit before giving notice of departure. Therefore, a departing partner (or a lawyer advising a departing partner) should ascertain whether the law of the applicable jurisdiction provides any guidance and should review the partnership agreement for any notice provisions. Under a conservative approach, a departing partner should limit solicitation of anyone until after giving notice of departure; under a less conservative though generally safe approach, the partner may solicit other partners, but not employees, before giving notice. In all instances, a departing partner should not use confidential or proprietary information. Following these guidelines will reduce the risk of a departing partner violating any fiduciary duties.

Wayne N. Outten is the managing partner of Outten & Golden LLP, an employment law firm representing employees, executives, and partners, with offices in New York and Stanford, CT. He co-chairs the firm's Executives and Professionals Practice Group and lectures and writes extensively on employment law, especially on negotiation, mediation, and arbitration of employment disputes and on employment, severance, and partnership agreements. Cara E. Greene is an associate in the firm's New York office and also is a member of the Executives and Professionals Practice Group. She has authored and co-authored numerous articles related to employment and partnership law.

Recently, several prominent partners have left their law firms to set up shop with a competing establishment. See James Illman, 'Sonnenschein Raids Kilpatrick to Enter Charlotte' Legalweek.com, April 30, 2007, available at www.legalweek.com/Articles/1024830/Sonnenschein+raids+Kilpatrick+to+enter+Charlotte.html; Nathan Koppel, 'Mayer Brown Employment Lawyer Jumping to Weil,' The Wall Street Journal Online, Law Blog, April 24, 2007, available at blogs.wsj.com/law/2007/04/24/mayer-brown-employment-lawyer-jumping-to-weil/. As was the case in each of these instances, a partner seldom leaves the firm alone ' often staff, associates, and even other partners join the new endeavor. May a departing partner solicit others to join him or her without violating fiduciary duty to the original firm? At what point must the departing partner notify the partnership of his or her efforts to recruit firm employees? This article suggests that partners may solicit attorneys and staff of their original partnership without violating their fiduciary duty, as long as the manner of their solicitation conforms to their fiduciary duty.

Scope of a Partner's Fiduciary Duty

Without question, law firm partners owe a fiduciary duty to the partnership. This fiduciary duty has been variously characterized as one of 'the utmost good faith,' Holman v. Coie , 522 P.2d 515, 523-24 (Wash. Ct. App. 1974), one of the 'utmost good faith and honesty in all matters relating to the partnership business,' Winston & Strawn v. Nosal , 664 N.E.2d 239, 244-45 (Ill. App. Ct. 1996), and an 'obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise,' Bohatch v. Butler & Binion , 977 S.W.2d 543, 545 (Tex. 1998). Justice Benjamin N. Cardozo's famous statement of partners' high fiduciary duty to one another has been repeated time and again: 'Not honesty alone, but the punctilio of an honor most sensitive, is … the standard of behavior.' Meinhard v. Salmon , 249 N.Y. 458, 463-64 (1928).

Under traditional agency law, a partner may not benefit at the expense of the partnership, nor may the partner use the resources of the partnership for his or her own gain. See Restatement (Second) of Agency '387 (1958). Furthermore, a partner may not compete with the partnership. See Id. at '393. Nonetheless, these principles do not preclude partners from leaving firms, taking clients, or competing against their former partnership. See Robert W. Hillman, 'Professional Partnerships, Competition, and the Evolution of Firm Culture: The Case of Law Firms,' 26 J.Corp. L. 1061, 1070 (2001); Wayne N. Outten and Douglas C. James, 'Clients: To Whom Do They Belong?' Law Firm Partnership & Benefits Report, Vol. 10, No. 8, Sept. 2004.

A Partner's Right to Solicit Employees

Courts have specifically recognized that a partner may take limited steps to leave and compete with the partnership, even before notifying the partnership of his or her plans. See Graubard Mollen Dannett & Horowitz v. Moskovitz , 86 N.Y.2d 112, 120 (1995) (an attorney who takes steps to find alternative space and establish affiliations prior to notifying the partnership does not violate the fiduciary duty); Meehan v. Shaughnessy , 404 Mass. 419, 435 (1989) ('fiduciaries may plan to compete with the entity to which they owe allegiance, provided that in the course of such arrangements they do not otherwise act in violation of their fiduciary duties') (internal citations omitted). Oftentimes, though, departing partners' efforts are not limited to simply securing new offices or letterhead; they also solicit the firm's attorneys, staff, and clients to accompany them to their new firm.

Generally, it is not a breach of the fiduciary duty for a partner to solicit other members of the firm to leave the firm. See Custard Ins. Adjusters v. Nardi, No. CV980061967S, 2000 WL 562318, at *22 (Conn. Super. Ct. April 20, 2000) ('it is normally permissible for employees of a firm, or for some of its partners, to agree among themselves, while still employed, that they will engage in competition with the firm … '); Beasley v. Cadwalader, Wickersham & Taft, No. CL-94-8646, 1996 WL 438777, at *6 (Fla. Cir. Ct. July 23, 1996) (partner who solicited associates to join him at new firm did not breach his fiduciary duty); Gibbs v. Breed, Abbott & Morgan , 710 N.Y.S.2d 578, 583 (1st Dept. 2000) (attorney who discussed a joint move with another partner did not violate duty to his firm). In fact, law firms that try to limit the ability of partners to 'raid' their ranks through non-solicitation agreements or that impose non-competition agreements on their associates in an attempt to insulate them from solicitation may find themselves in violation of the ethics rules.

Model Rules of Professional Conduct Rule 5.6 prohibits all agreements that 'restrict the right of a lawyer to practice.' The American Bar Association ('ABA'), as well as at least one local bar association, has determined that non-solicitation agreements violate the ethical rules because they indirectly restrict attorneys' abilities to practice law. See ABA Comm. on Ethics and Prof'l Responsibility, Informal Opinion 1417 (1978); D.C. Bar Assoc. Op. 181 (1987) (cited in Jacob v. Norris, McLaughlin Marcus , 128 N.J. 10, 31-32 (1992)). As the ABA explained, 'Although the agreement … does not restrict the right of an individual lawyer to practice law directly, by restricting the right of association between attorneys it restricts such right indirectly and so falls within the prohibition of [the rule].' ABA Comm. on Ethics and Prof'l Responsibility, Informal Opinion 1417 (1978).

In Jacob, one of the few cases to address the issue, the court held that the ethical rule is implicated not just by non-solicitation agreements concerning attorneys, but also by those limiting a departing partner's ability to solicit paraprofessional staff as well. 'Paraprofessionals, no less than lawyers, should not have their career mobility inhibited, especially when the inhibition derives from an agreement to which they were not a party.' Jacob, 128 N.J. at 31.

Limits on Solicitation

Nevertheless, depending on the manner and timing of a partner's solicitation, the partner may still breach his or her fiduciary duty to the partnership by soliciting attorneys and support staff to leave with him or her. As Professor Robert W. Hillman has explained:

Grabbing and leaving is not in itself a breach of fiduciary duty because no partner is permanently bound to a firm. The manner in which partners plan for and implement withdrawals, on the other hand, is subject to the constraints imposed on them by virtue of their status as fiduciaries. 'Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms,' 55 Wash & Lee L. Rev. 997, 999 (1998).

In order to comply with his or her fiduciary duty, a departing partner must consider: 1) if and when he or she must give notice to the partnership of intent to leave and solicit others, and 2) whether he or she may use the firm's confidential and proprietary materials to aid the solicitation.

Notifying the Partnership

Most courts to consider the issue agree that a partner has a right to confer with others in secret regarding plans to leave a firm. See, e.g., Graubard, 86 N.Y.2d at 120 ('That this may be a delicate venture, requiring confidentiality, is simple common sense … '); Beasley, 1996 WL 438777, at *6 (partner did not breach fiduciary duty by secretly soliciting three associates; but see Gibbs, 710 N.Y.S.2d at 583 (finding that partners who conferred together secretly regarding a move did not violate their duty by doing so, but finding that they did violate their fiduciary duty by recruiting employees of the firm prior to serving notice and while still members of the firm and by using confidential information to further their recruitment efforts). However, when a partner is asked by the partnership or another partner of his or her intentions or plans, fiduciary duty demands that the partner answer honestly and fully. Meehan, 404 Mass. at 438 ('A partner has an obligation to render on demand true and full information of all things affecting the partnership to any partner.') (citing G.L. c. 108A '20) (internal quotations omitted); see also Unif. P'ship Act (1914) '20; but see Revised Unif. P'ship Act ('RUPA') (1994) '403(c) (creating affirmative obligation for partners to furnish information concerning the partnership's business and affairs).

A partnership agreement may also require notice of a partner's intent to solicit firm employees. See Arthur J. Ciampi, 'Law Firm Partnership Law,' New York Law Journal, March 24, 2006 (proposing sample partnership provision requiring that partners submit lists of other partners or employees he or she wishes to solicit). Even if not formally required by the partnership agreement, however, a partner who fails to provide sufficient notice of a planned migration of key attorneys and staff may breach his or her fiduciary duty. See Restatement (Second) of Agency '393, Comment (e) (1958) ('a court may find that it is a breach of duty for a number of key officers or employees to leave their employment simultaneously and without giving the employer an opportunity to hire and train replacements.'). This is especially true where secrecy is maintained to garner an unfair business advantage. See Sperry Rand Corp. v. Rothlein , 241 F. Supp. 549 (D. Conn. 1964) (finding that employees who subsequently started their own business violated the duty of loyalty owed to their employer).

Obviously, once a partner has left the firm, he or she may solicit his or her former partners and other firm employees with impunity and without notice, since he or she no longer owes any fiduciary duty to the partnership. See RUPA '603(b)(2) (partner's duty of loyalty ends with disassociation).

Using Confidential and Proprietary Materials

A departing partner has at his or her disposal an array of materials that may aid in soliciting the firm's attorneys and staff ' confidential salary information, partners' 'black books' of clients, and billing reports are all things that can be exploited to mine the most able and lucrative employees. Gibbs v. Breed, Abbott & Morgan should serve as a cautionary tale, however, for those who might be tempted to use their firm's confidential and proprietary information to assist in solicitation efforts. 710 N.Y.S.2d 578. In Gibbs, a departing partner circulated information contained in the personnel files of the staff and associates he wished to bring with him, including salary lists, billing rates, and average billable hours, to prospective competitors in an attempt to assist their recruitment efforts. The court found that the information was confidential and that the partner breached his fiduciary duty by accessing and disseminating the information. 710 N.Y.S.2d at 583-84.

Conclusion

All courts and commentators agree that a departing partner may solicit other partners and employees after giving notice of departure, but no clear guidelines exist on whether the partner can solicit before giving notice of departure. Therefore, a departing partner (or a lawyer advising a departing partner) should ascertain whether the law of the applicable jurisdiction provides any guidance and should review the partnership agreement for any notice provisions. Under a conservative approach, a departing partner should limit solicitation of anyone until after giving notice of departure; under a less conservative though generally safe approach, the partner may solicit other partners, but not employees, before giving notice. In all instances, a departing partner should not use confidential or proprietary information. Following these guidelines will reduce the risk of a departing partner violating any fiduciary duties.

Wayne N. Outten is the managing partner of Outten & Golden LLP, an employment law firm representing employees, executives, and partners, with offices in New York and Stanford, CT. He co-chairs the firm's Executives and Professionals Practice Group and lectures and writes extensively on employment law, especially on negotiation, mediation, and arbitration of employment disputes and on employment, severance, and partnership agreements. Cara E. Greene is an associate in the firm's New York office and also is a member of the Executives and Professionals Practice Group. She has authored and co-authored numerous articles related to employment and partnership law.