How to Show a Partner the Door

The practice of law is a business. Typically, partners in a law practice are responsible for keeping the firm afloat through bringing in business. Because partners are expected to bring in money for their firms, making partner in a law firm is no longer the lifetime guaranteed employment it once was.

Sometimes, firms need to make difficult decisions about the roles of partners, whether it is downgrading their role from an equity to a non-equity position, or asking the partner to leave the firm. Firms can also ask partners to leave for other reasons.

Asking partners to leave the firm imposes risks for both the law firm and the departing partner. Because of the firm's ethical, legal, financial and professional responsibilities, there are certain steps the firm should take.

The Reasons

A partnership does not always have to articulate the reasons behind asking a partner to leave, or even dissolving the partnership. The concept of partnership itself connotes a level of confidence and trust that is uniquely personal and subjective. Yet, elevating or dismissing partners is not without limitation. Indeed, law firms are subject to the same limitations on discrimination as other entities. In Hishon v. King & Spalding, 467 U.S. 69 (1984), the U.S. Supreme Court held that the rules against discrimination apply to law firms in making partnership decisions just as they apply to other businesses. The court held that “[e]ven if [the law firm] is correct in its assertion that a partnership invitation is not itself an offer of employment, Title VII would nonetheless apply.”

Moreover, in California, the Fair Employment and Housing Act prohibits harassment and discrimination in employment because of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, mental and physical disability, medical condition, age, pregnancy, denial of medical and family care leave or pregnancy disability leave (Government Code Sections 12940,12945, 12945.2) and/or retaliation for protesting illegal discrimination related to one of these categories, or for reporting patient abuse in tax supported institutions. Under this statute, a private lawsuit may be filed subject to exhaustion of administrative remedies.

Against this backdrop, there are objective and subjective reasons for asking a partner to leave. The objective reasons include billings, origination, productivity and similar, quantifiable issues. So long as these objective criteria are uniformly applied without regard to race, gender, ethnicity or religion, law practices can rely on these factors.

The subjective reasons often include personal dynamics that are not objectively quantifiable. If a law firm is having problems with a partner in this category, it is important that the problems (including supporting facts) be documented. The documented pattern of problems combined with the opportunity to correct them provides the best protection to a law firm asking a partner to leave.

The decision to ask a partner to leave is usually a combination of objective and subjective factors. Although few firms admit it, the two factors are often intertwined and inversely related. The more productive a partner is, the more the law firm is willing to accommodate idiosyncrasies (or difficult personalities). The less productive, the shorter the leash on a partner's behaviors. The safest course for law firms is to thoroughly document the decision to ask a partner to leave. The documentation should be kept in an official file, not merely in the mind of the particular decision-maker. Well-documented files help fend off challenges from partners unhappy with the firm's decision.

The Process

Once a firm has decided to ask a partner to leave, there are four categories of rules that the firm needs to follow: 1) legal boundaries; 2) contractual obligations; 3) fiduciary duties; and 4) ethical responsibilities.

Legal Boundaries

First, there are the legal boundaries such as Title VII of the federal Civil Rights Act and FEHA. Basically, this means that law firms cannot ask partners to leave based on such prohibited factors as race, age, ethnicity, gender or religion. This includes ancillary issues such as family responsibilities or religious practices. All decisions regarding partner dismissal should be reviewed to make sure that none of the prohibited factors are at issue.

Contractual Obligations

Second, firms are bound by their contractual obligations. Partnership agreements, limited liability partnership agreements, bylaws and similar “contractual mutual undertakings” often address the process for dismissal from the partnership. These contracts must be strictly followed. Too often, law firm decision-makers unfamiliar with the actual partnership agreement language move forward without considering or fully appreciating the specific provisions implicated by such decisions. In those cases, unnecessary legal disputes often emerge, creating unexpected problems and additional expenses.

If governing agreements do not address the issue, consider revising them. Specific provisions detailing the process help avoid unnecessary trouble and expense for law firms. The important issue for such agreements is the definition of the effective date for such a departure with a list of both the law firm's and the departing partner's obligations upon the effective date.

Fiduciary Duties

Third, there are the fiduciary and statutory responsibilities, addressed in the California Partnership Act and cases such as Ab Group v. Wertin, 59 Cal. App. 4th 1022 (1997), among others. Until the departure is effective, both the law firm and the departing partner owe each other fiduciary duties. This imposes on each certain obligations arising out of a relationship of trust and confidence.

In practice, the scope of these implied duties is inversely related to the level of detail in the partnership or contractual agreements. The greater the level of specificity in the partnership agreement, the less fiduciary duty law must fill in gaps to define what is appropriate and what is not. On the other hand, when partnership agreements are silent or vague, general partnership rules apply, leaving the boundaries ill-defined and applied based on the facts and circumstances of each situation.

The most significant issues arising from a partner's departure involve money. They include the return of capital contributions, unpaid equity distributions and other monies that might be owed. Significantly, in the plaintiffs' practice, the issues involve contingent fees. The best time to address all of these issues is before the partnership begins, not once it ends.

Ethical Responsibilities

Fourth, there are the ethical responsibilities. Partner departures do not change either the law firm's or the partner's responsibilities to individual clients. The attorney-client relationship reflects an agreement between the partner and the law firm, on the one hand, and the client on the other. Changes to that relationship must be addressed and confirmed with the client. This includes making sure that all of the attendant ethical responsibilities are met, including obligations such as protecting confidences and secrets, avoiding conflicts of interest, preserving client funds and avoiding an impairment to the client's interests.

For example, under California Rules of Professional Conduct, Rule 3-700, the firm has an obligation to make sure that clients who transfer their matter to the departing partner's new firm are provided with a copy of their file. To the extent matters stay with the old firm, the firm must maintain the confidentiality of those matters under California Rules of Professional Conduct, Rule 3-100. Moreover, the departing partner has an ethical obligation to keep all communications with clients confidential under California Business and Professions Code Section 6068(e)(1) and California Rules of Professional Conduct, Rule 3-100.

Some firms erroneously believe that because their process for partner departures is so slow, they have less need for systems. Yet, the rules apply regardless of whether a law firm asks a partner to leave in one day or over the course of two years.

However, by following these steps, a difficult process can be made slightly easier.

Randy Evans is a partner and Shari Kleven is is a partner and deputy general counsel at Dentons US LLP, which has six offices throughout California. The authors represent attorneys and law firms, and regularly speak and write on issues regarding the practice of law, including The Lawyer's Handbook: Ethics Compliance and Claim Avoidance (ALM 2013) and California Legal Malpractice Law (ALM 2014). This article also appeared in The Recorder, an ALM sister publication of this newsletter.

The practice of law is a business. Typically, partners in a law practice are responsible for keeping the firm afloat through bringing in business. Because partners are expected to bring in money for their firms, making partner in a law firm is no longer the lifetime guaranteed employment it once was.

Sometimes, firms need to make difficult decisions about the roles of partners, whether it is downgrading their role from an equity to a non-equity position, or asking the partner to leave the firm. Firms can also ask partners to leave for other reasons.

Asking partners to leave the firm imposes risks for both the law firm and the departing partner. Because of the firm's ethical, legal, financial and professional responsibilities, there are certain steps the firm should take.

The Reasons

A partnership does not always have to articulate the reasons behind asking a partner to leave, or even dissolving the partnership. The concept of partnership itself connotes a level of confidence and trust that is uniquely personal and subjective. Yet, elevating or dismissing partners is not without limitation. Indeed, law firms are subject to the same limitations on discrimination as other entities. In Hishon v. King & Spalding , 467 U.S. 69 (1984), the U.S. Supreme Court held that the rules against discrimination apply to law firms in making partnership decisions just as they apply to other businesses. The court held that “[e]ven if [the law firm] is correct in its assertion that a partnership invitation is not itself an offer of employment, Title VII would nonetheless apply.”

Moreover, in California, the Fair Employment and Housing Act prohibits harassment and discrimination in employment because of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, mental and physical disability, medical condition, age, pregnancy, denial of medical and family care leave or pregnancy disability leave (Government Code Sections 12940,12945, 12945.2) and/or retaliation for protesting illegal discrimination related to one of these categories, or for reporting patient abuse in tax supported institutions. Under this statute, a private lawsuit may be filed subject to exhaustion of administrative remedies.

Against this backdrop, there are objective and subjective reasons for asking a partner to leave. The objective reasons include billings, origination, productivity and similar, quantifiable issues. So long as these objective criteria are uniformly applied without regard to race, gender, ethnicity or religion, law practices can rely on these factors.

The subjective reasons often include personal dynamics that are not objectively quantifiable. If a law firm is having problems with a partner in this category, it is important that the problems (including supporting facts) be documented. The documented pattern of problems combined with the opportunity to correct them provides the best protection to a law firm asking a partner to leave.

The decision to ask a partner to leave is usually a combination of objective and subjective factors. Although few firms admit it, the two factors are often intertwined and inversely related. The more productive a partner is, the more the law firm is willing to accommodate idiosyncrasies (or difficult personalities). The less productive, the shorter the leash on a partner's behaviors. The safest course for law firms is to thoroughly document the decision to ask a partner to leave. The documentation should be kept in an official file, not merely in the mind of the particular decision-maker. Well-documented files help fend off challenges from partners unhappy with the firm's decision.

The Process

Once a firm has decided to ask a partner to leave, there are four categories of rules that the firm needs to follow: 1) legal boundaries; 2) contractual obligations; 3) fiduciary duties; and 4) ethical responsibilities.

Legal Boundaries

First, there are the legal boundaries such as Title VII of the federal Civil Rights Act and FEHA. Basically, this means that law firms cannot ask partners to leave based on such prohibited factors as race, age, ethnicity, gender or religion. This includes ancillary issues such as family responsibilities or religious practices. All decisions regarding partner dismissal should be reviewed to make sure that none of the prohibited factors are at issue.

Contractual Obligations

Second, firms are bound by their contractual obligations. Partnership agreements, limited liability partnership agreements, bylaws and similar “contractual mutual undertakings” often address the process for dismissal from the partnership. These contracts must be strictly followed. Too often, law firm decision-makers unfamiliar with the actual partnership agreement language move forward without considering or fully appreciating the specific provisions implicated by such decisions. In those cases, unnecessary legal disputes often emerge, creating unexpected problems and additional expenses.

If governing agreements do not address the issue, consider revising them. Specific provisions detailing the process help avoid unnecessary trouble and expense for law firms. The important issue for such agreements is the definition of the effective date for such a departure with a list of both the law firm's and the departing partner's obligations upon the effective date.

Fiduciary Duties

Third, there are the fiduciary and statutory responsibilities, addressed in the California Partnership Act and cases such as Ab Group v. Wertin , 59 Cal. App. 4th 1022 (1997), among others. Until the departure is effective, both the law firm and the departing partner owe each other fiduciary duties. This imposes on each certain obligations arising out of a relationship of trust and confidence.

In practice, the scope of these implied duties is inversely related to the level of detail in the partnership or contractual agreements. The greater the level of specificity in the partnership agreement, the less fiduciary duty law must fill in gaps to define what is appropriate and what is not. On the other hand, when partnership agreements are silent or vague, general partnership rules apply, leaving the boundaries ill-defined and applied based on the facts and circumstances of each situation.

The most significant issues arising from a partner's departure involve money. They include the return of capital contributions, unpaid equity distributions and other monies that might be owed. Significantly, in the plaintiffs' practice, the issues involve contingent fees. The best time to address all of these issues is before the partnership begins, not once it ends.

Ethical Responsibilities

Fourth, there are the ethical responsibilities. Partner departures do not change either the law firm's or the partner's responsibilities to individual clients. The attorney-client relationship reflects an agreement between the partner and the law firm, on the one hand, and the client on the other. Changes to that relationship must be addressed and confirmed with the client. This includes making sure that all of the attendant ethical responsibilities are met, including obligations such as protecting confidences and secrets, avoiding conflicts of interest, preserving client funds and avoiding an impairment to the client's interests.

For example, under California Rules of Professional Conduct, Rule 3-700, the firm has an obligation to make sure that clients who transfer their matter to the departing partner's new firm are provided with a copy of their file. To the extent matters stay with the old firm, the firm must maintain the confidentiality of those matters under California Rules of Professional Conduct, Rule 3-100. Moreover, the departing partner has an ethical obligation to keep all communications with clients confidential under California Business and Professions Code Section 6068(e)(1) and California Rules of Professional Conduct, Rule 3-100.

Some firms erroneously believe that because their process for partner departures is so slow, they have less need for systems. Yet, the rules apply regardless of whether a law firm asks a partner to leave in one day or over the course of two years.

However, by following these steps, a difficult process can be made slightly easier.

Randy Evans is a partner and Shari Kleven is is a partner and deputy general counsel at Dentons US LLP, which has six offices throughout California. The authors represent attorneys and law firms, and regularly speak and write on issues regarding the practice of law, including The Lawyer's Handbook: Ethics Compliance and Claim Avoidance (ALM 2013) and California Legal Malpractice Law (ALM 2014). This article also appeared in The Recorder, an ALM sister publication of this newsletter.