Summary: Attorneys making lateral departures are facing big financial obstacles when they look to leave their law firm for another one.
Attorneys that leave their firms may be experienced to cut bonuses and other financial deterrents. Law firms are looking to impose penalties on lateral departures. Attorneys can experience delays in the return of capital, limited earnings to draws when departing, and cut back bonuses.
To counter the penalties, law firms making the lateral hires are passing out signing bonuses. However some of these signing bonuses are more like a structured loan that is forgiven is the attorneys remains with the firm for a specific amount of time.
Read Knowing What to Ask and When to Ask It.
An example of this was reported last week in Legal Week by Am Law Daily. A Kirkland & Ellis departing attorney in Hong Kong was asked to return a $120,000 bonus received at the end of 2014. M&A partner Frank Sun had to pay back Kirkland & Ellis the bonus out of his own pocket until he was with his new firm, Latham & Watkins, which reimbursed him. The bonus from Kirkland & Ellis was a considered a loan that would have to be repaid if he left the firm within two years. He had only joined the firm in early 2013.
Another lateral partner reports that his former Chicago firm has stipulations that hold a departing lateral’s capital contributions for up to two years and claw back compensation from the previous year. He states, “I think it’s ridiculous what big firms do to try and force people to stay.”
See Why Are Law Firm Bonuses Flatlining?
Law firms used to only impose financial penalties when the departure of an attorney would cause a significant impact on the firm’s financial stability. Law firm consultant Edwin Reeser says, “They are being used as a sword now [where it] used to be it was a shield. It puts huge restrictions on the ability of a partner to leave.”
Do you think law firms should be imposing financial penalties against attorneys that are looking for better situations. Tell us in the comments.
To learn more about lateral hires, read Busy Month for Law Firm Hires.
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