Bad exits and messy starts – risks when lawyers change firms

The increasing mobility of lawyers heightens the need to have policies and protocols in place to protect clients and firms, writes Ronwyn North

Has there ever been a time of greater mobility for lawyers? Whenever a lawyer leaves a firm or joins a firm, with or without clients in tow, a number of liability and ethical concerns can arise. Yet, surprisingly, many law practices lack even basic protocols for reducing the risk of bad exits and messy starts. This article flags some of those risks and ethical concerns and advocates that lawyers and law practices alike put the interests of clients first and treat each other fairly.

Every day, lawyers are on the move individually or in packs as law practices refocus strategy, ‘rightsize’ the workforce, or recruit for a start-up or newly merged enterprise. A new generation of lawyers sees it as the norm to move regularly – overseas or in-house – and late career moves are no longer unusual within the older generation.

All this movement comes on top of the everyday job and career changes, terminations and redundancies that might be expected in a large profession. With so many comings and goings, it is not surprising that not all transitions run smoothly.

Ugly break-ups

Bad exits include when lawyers leave without notice or go ‘AWOL’ in the lead-up to their departure, leaving clients and the law practice exposed to mishandling of the work; or they may plot secretly for months to take clients, files or staff with them; or they may help themselves to the firm’s commercial information or property on the way out; or they may bad-mouth their former firm to anyone who will listen.

Law practices do not always cover themselves in glory either. Some do not inform the client that the lawyer handling their work has left, or they mislead the client about their capacity or capability to continue to do the work. Some will march lawyers out the door without notice or the chance to retrieve personal property; or refuse to pay principal or employee entitlements; or seek to impose and enforce unreasonable restraints of trade; or be unnecessarily difficult over costs, liens and handover of client files. This is not to say there are no legitimate claims on either side, but as any family lawyer will tell you sometimes divorcing spouses fight over the strangest things – and so it is with departing lawyers and law practices.

Some of these bad exits make for a messy start when the lawyer joins their next law practice.  Many firms will have no idea that a lawyer they have taken on has a cloud over their conduct or is in dispute with their former firm until later when the lawyer’s productivity or availability takes a dive to deal with being a party or witness to litigation or a disciplinary hearing. Even if the firm has not ‘conspired’ with the arriving lawyer over the ‘poaching’ of clients or staff, they may embrace without question the ‘pirated material’ the lawyer hands over, or encourage clients to avoid their obligations to their former lawyers by challenging the former firm’s claims to costs or liens, or by continuing the matter without the original file.

Clients come first

Many of the problems of bad exits and messy starts go away if lawyers and law practices put the interests of clients ahead of their own commercial and personal interests. A change of lawyers mid matter is unsettling for clients, particularly if the departing lawyer was the primary lawyer with carriage of the matter. Whether or not there are specific rules of conduct, lawyers and law practices will give themselves the best chance of meeting their legal and professional obligations if they take steps to ensure the client is:

• told as soon as possible and with reasonable candour of the lawyer’s departure, and the implications of the departure for the handling of the client’s work
• informed that while the client is a client of the firm, the client can choose to stay with the firm, follow the lawyer or, indeed, go elsewhere
• advised of steps being taken to protect the client’s interests in the interim and whether the firm is ready, willing and able to continue handling the matter with competence and diligence
• informed of the implications of any decision by the client to transfer the file to another firm, such as the firm’s policy or requirements regarding payment of the firm’s costs, release of client property (file, safe custody material and trust money) and limitation of liability on termination of the firm’s retainer
• reassured that regardless of whether the client stays or goes, the departing lawyer, law practice and any new firm the lawyer joins have ongoing duties of confidentiality and avoidance of conflict of interest
• not pressured, misled or intimidated into making a decision.

In terms of treating each other fairly, issues can arise around the departing lawyer giving notice to the firm, or the firm giving notice to the departing lawyer; informing clients; and preparations for departure and starting afresh. However, in an irony similar to ‘physician heal thyself’, many lawyers do not attend to their own legal risks. Were they to take their own advice, a law practice and a would-be departing lawyer would already have in place clear contractual arrangements and protocols to:

• give reasonable notice periods and valid restraints of trade
• address how and when and by whom approaches to clients can be made without being regarded as soliciting, together with any special arrangements agreed to in relation to clients with close or personal ties to the lawyer. (Generally, you would expect notice to be give before clients are told. There may be exceptions for specified clients that the lawyer brought with them when joining the firm in the first place.)
• acknowledge ownership and use of client, business and professional information or material with acknowledgement of ‘tools of trade’ or personal material owned by those departing. (Many firms go too far in insisting that the professionals have no rights whatsoever to material developed for the firm or during the course of client work. Special consideration may need to be given to personal information on firm systems and firm information on personal devices, and who owns social media content and CLE materials.)
• identify requirements for the orderly handover and transition of client work. (For example, departing lawyers should expect to leave files in good order and the firm should conduct a file review and reallocate work promptly. Firms should expect to bill and transition files promptly and give out the departing lawyer’s new contact details to anyone who asks. Once notice has been given, protocols for monitoring mail, email and voicemail need to be transparent and effective, especially if the departing lawyer goes on gardening leave or is no longer ‘hands on’ in a matter). Whether a client file is transferred internally to a new lawyer, or externally to a new firm, the transferred matter carries an increased liability risk for all those involved. For example:

–          slow reallocation of work or the slow transfer of the file can mean deadlines are missed or opportunities lost to protect the client’s interests

–          the outgoing and incoming firms can have ‘hidden duties to warn’ a client in the gap between one retainer finishing and another starting

–          communications can go astray because lawyer contact details are not updated

–          mistakes can be perpetuated where there is no independent review of the work and file of the original lawyer.

Costly mistakes

When one or other or both firms drop the hot potato that is the transferred matter, claims can be big, messy and costly to defend. A firm retaining files needs to ensure that work is reallocated quickly and transitioned effectively into the workload and psyche of the new lawyer, and not given a low priority.

Outgoing firms should assert their rights, but get off risk as quickly as possible. This means doing the final bill quickly; not holding files hostage for costs if there is any chance the client could be prejudiced; sending a termination letter reminding and warning the client that the retainer has ended and making sure the whole file is transferred (not easy when the file exists in paper and electronically); and not quibbling about who owns what document and who gets the original.

Incoming firms need to get themselves on risk effectively by making clear to the client from when the firm will be on risk and not allowing the transferred file to bypass normal client matter screening, clearance, work allocation and engagement processes. Do not assume the lawyer who brought the file with them is the best person to continue doing the work as they may not be.

There is much more that could be said and done in relation to the risks and ethical issues that arise when lawyers change firms. If this has started you thinking about your possible exposure, then why not review your firm’s approach – do you know all the risks, do you have good controls and are you sure the controls work?

Safe practice!

Ronwyn North is the managing director of Streeton Consulting and a qualified lawyer who specialises in consulting to the legal profession on practice management issues, including risk management. She can be contacted at rjnorth@streetonconsulting.com.au.