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Sixteen years ago, Paul Lehner was a partner in a Chicago firm that had 60 lawyers. Lehner, who concentrated in employment law and general commercial litigation, was considering either a lateral transfer to another firm or establishing a small practice with another partner in the firm.
Through a dose of luck and serendipity, Lehner said, he realized several other partners in his firm had similar thoughts of leaving. “We compared notes: both our thoughts, desires and philosophies about practicing law and basic dollars and cents issues, including how much revenue we conservatively could project as a baseline the first year of our practice,” he said. “We basically knew we had a law firm.”
Lehner shared the strategy behind his successful transition from working at a large firm to launching his own business in a recent American Bar Association Sound Advice podcast.
The next challenges were making the new firm a reality and planning the exit from the current firm as professionally and amicably as possible, Lehner said. “This part of the planning process starts with a basic legal tenet: Every employee owes a duty of loyalty to his or her employer during the term of employment,” he said. “This, of course, applies to lawyers at any level at a law firm, including partners.”
Most often, battle lines are drawn and even litigation can result from the advanced solicitation of clients and cases, Lehner said. Fights over clients and cases can lead to a painful, expensive separation “very similar to an acrimonious divorce,” he said. “The good news is that the duty of loyalty ends on the termination of employment. Clients you couldn’t call prior to the last day of employment you can call the day after.”
But there is a caveat: Some law firm employment operating or partnership agreements have their own versions of noncompetition or nonsolicitation agreements, Lehner said. “There are ethical issues about such agreements, and they are not enforceable in all states due to the sanctity of the attorney-client relationship, among other things,” he said. “You should check any agreement signed with your firm and the law in your state.”
In most states, planning for the new firm does not violate the duty of loyalty, Lehner said. This generally includes locating and leasing office space, buying or leasing equipment and making computer and telephone arrangements. “To the extent this can be done without interfering with your work at the current firm, of course, the better things will be,” he said.
How did this affect the five partners that make up Lehner’s firm? “We divided up responsibilities and planned the new firm while still employed at the former firm,” Lehner said. “We did so with an effort toward not interfering with work we had to do with our former firm.”
As a general rule, the partners did not inform their clients of their plans in advance. “This was especially true for clients of other partners in our firm, clients for whom we may have been one of the servicing lawyers or perhaps even the primary servicer but not the originating or billing partner,” Lehner said. “We knew any advanced contact with those clients would result in bitter feelings.
“The exception was for certain of our own long-term clients,” he added. “Some clients for whom we were the originating and billing attorneys and who we knew would want to know and would almost certainly make the switch with us were discretely informed in advance but without a direct effort to solicit their business.”
Ultimately, the partners decided not to directly solicit the clients of other partners in their prior firm after starting the new firm. “Instead, after giving notice of our departure, we went to each partner responsible for the client and said while we would be happy to continue working on that client’s business at our new firm, we were not going to directly solicit the client,” Lehner said. “This left it up to that particular partner whether or not to include us going forward in any business or case and gained us considerable good will and probably was the single most important factor that avoided bad feelings when we left.”
Sixteen years later, all five founding partners remain with the firm. With two staff members, the firm has a total payroll of seven. “Had you told us back then that it would still be the same five lawyers … we would not have believed you,” Lehner said. “Now it’s an important part of our marketing and our identity. Significantly, our relationship with our former firm remains strong. We refer cases and clients to each other, and we have been co-counsel on some matters. We remain friends with our former colleagues.
“A lawyer’s word and reputation means a lot. Similarly, the manner in which a lawyer handles the transition from big firm to small can preserve important relationships and actually lead to referrals and increased business in the new practice.”
Sound Advice is presented by the Section of Litigation.