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Partner expulsion case offers lessons to LLP firms and their partners
Andreas White
Now that we are well and truly in the midst of the coronavirus, most of the top law firms in the UK have declared their hand in dealing with partner pay, promotions, employee salaries and furlough.
Publicly at least, they are largely giving out a similar message – that in order to safeguard the business for the future they are acting responsibly. Partners pay outs are being deferred, drawings are being reduced by as much as 20% to 40% in some cases, salary reviews are being put on hold and bonuses frozen across the board.
Some are taking advantage of the Government’s furlough scheme on a limited basis, mostly for non-fee earners. On the whole, the impression they are seeking to create is that everyone is “in this together”, as we prepare to face the inevitable economic fall-out brought about by what may become a significantly extended “lock-down” period.
But what of the future? Sad to say it, but how long before those whose practices have held, or even remain buoyant, start to ask whether it is right that partners across all areas take an equal “hit” to their drawings?
Will those in particular demand be content to have an ongoing income squeeze to support those whose practice areas are less so, or those whose mainstay is to look after businesses that in spite of furlough and the Government’s Coronavirus Business Interruption Loan Scheme, begin to fail?
This is a very difficult issue. As firms get over the initial shock of coping with this unexpectedly grave pandemic, we may start to see a differentiation in approach – between different areas of practice and individuals. Management may start to formulate their vision for the shape of the firm post COVID-19 and as part of that process they may consider the position of their various departments. That in turn may lead them to consider the position of individual partners and their future value to the firm.
For partners who consider they may become vulnerable as a result, how are they to react? Unfortunately, they may soon need to think carefully about what strategies to employ. Ultimately if it comes to it, how would they deal with a “conversation” with the managing partner should there come to be one?
First, there are all the working arrangement alternatives to be considered and potentially put forward, such as part-time or flexible working (on a temporary or permanent basis) or a change in status. These may produce a win-win situation for the firm and the partner.
But if that is not going to work how should they prepare? As a start, they should be reviewing carefully the terms of their LLP Agreement to see what rights they have. Relevant notice periods and the right, for example, to raise an internal grievance or appeal, and if so how, and in what time-scale are important.
Keeping a close eye on personal finances and what change is feasible and what is not, is another. What would they want to do outside the firm if it comes to that, and how do the firm’s restrictive covenants impinge upon their ability to pursue such activities?
If a number of partners are asked to move on at one moment in time, might it be permitted for some to do so together (despite what it may say in their LLP Agreement), and how would that subject best be broached with the firm?
If partners are asked to take a cut to their drawings, and they are subsequently asked to leave the firm, would any termination arrangements be on the basis of their then current draw, or would the package be made referable to the position before they agreed to any rearrangement?
What of the obligation to repay capital and how does that dovetail with the loan they may have been taken out to fund it? Does this raise issues because of the current cash position of the firm?
Of course we all hope law firms will survive well this current maelstrom, and that there will be no fracturing amongst the partners as a whole whilst they see out this crisis.
But if that proves not to be the case, partners need to do what they would advise their own clients to do, namely be well prepared and light on their feet to steer themselves out of this unfolding drama in the best way possible so as to regroup and bounce back in the future when we all return to some semblance of normality.
This article was first published in Legal Week on 27 April 2020: How can partners prepare for a post COVID-19 firm cull?
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