Stay on Top of the Lateral Hiring Boom

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Earlier this year I discussed how, despite the weak legal marketplace, lateral hiring of lawyers at large firms is at record highs, a primary reason being that firms want to buy a book of ready-made business that will come with the lawyer to his new firm.

How much new business? I have heard anecdotal evidence suggesting that firms have doubled their expectations; for example, a firm that used to expect a $1 million book now virtually doubles that expectation for new partner hires. In today’s market, how realistic are such expectations?

Certainly there may be some posturing. The firm making a lateral hiring decision may not believe it will actually get all of such an amount, but reasons that if the bar is set high enough, it might get somewhere close.

Also, lateral hires inevitably are lawyers who work with larger clients; someone whose client list features Joe’s Gas Station will not be as attractive as the lateral whose client list includes ExxonMobil.

What pitfalls can keep new business from materializing? Although clients can request copies of their own files, the departing lawyer cannot do so with the explicit intent to use them for taking clients from the firm. In some instances, even if work product was personally created by the lawyer, the copyright protection on client files may attach to the documents and reside with the law firm or with the client. Client permission is needed to move a file, and it is only ethical to suggest that a client make that request if the client intends to continue working with the departing lawyer.

Another concern is how well the lateral hire has communicated with existing clients, particularly with regard to their opportunities to go with the departing lawyer or stay with the existing firm. Clients should not be left not knowing who their lawyer will be following a lateral move.

Without clear communication, clients may well engage a second law firm, just to make sure they are not similarly left twisting in the wind down the road. That gives them the ability to move quickly if they need to be sure they have legal representation as their lawyer moves to a new home. But care must be taken not to violate solicitation rules or competition regulations vis-à-vis the law firm.

An even more difficult scenario is when the departing lateral hire and the former law firm compete for the business of the client. Firms often may not be willing to compromise on the issue of whether clients belong to the firm or to the lawyer.

Years ago, when I was a general counsel, our company engaged a major law firm. That firm always handled our matters with three lawyers: a senior partner, a junior partner and an associate. The thinking behind that policy was to assure that our company remained with the law firm even if any one of the three lawyers were to depart.

Any firm that follows a similar policy may well press its advantage and keep the business, despite the departing lateral’s assurances to the new firm that the business is coming. Of course, if the dispute is ugly enough, the disgusted client may get a different lawyer or firm for all legal matters. That’s when a lateral addition becomes a zero sum game.

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