Law Firms Use Bonus Clawbacks to Curb Lateral Poaching

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Summary: Law firms are fighting back against lateral poaching.

Law firms find new associates using two methods–hiring recent law school graduates or lateral hiring from competitors. It is understandable that law firms wouldn’t want to lose any of their attorneys, considering how they spent years grooming them, so firms are increasingly enforcing policies to discourage poaching. According to ABA Journal, law firms are taking back bonuses, delaying the return of capital, and limiting earnings to draws from departing attorneys. To counter this power move, law firms that are hiring are offering money to make up for whatever the new hire loses from his or her previous job.

Firms typically hire laterally to fill gaps in practice areas. Harrison Barnes of BCG Attorney Search has placed thousands of attorneys in jobs around the country, and he noticed that there were certain types of attorneys that law firms were always searching for.

“Transactional practice areas like corporate, real estate and patent prosecution often require a different set of skills and there are fewer people who can do the work, making the few who learn these skills more in demand,” Barnes said. “Firms may have a very difficult time finding attorneys with transactional experience.”

Because of the value of these attorneys, law firms have resorted to drastic methods to keep their partners. For instance, the Am Law Daily reported earlier this year that a Kirkland & Ellis partner in Hong Kong was asked to repay a $120,000 bonus when he left the company in 2014. His new firm, Latham & Watkins, offered to reimburse him for the money lost in the form of a loan that was forgiven after two years of work.

Law firm consultant Edwin Reeser said that in the past, law firms enacted clawbacks only when a lawyer’s departure would greatly affect the firm’s bottom line. However, Reeser said it’s now common for law firms to fight to keep all of their partners.

“[Clawbacks] are being used as a sword now, [where it] used to be it was a shield,” Reeser said to the Am Law Daily. “It puts huge restrictions on the ability of a partner to leave.”

However, even though law firms’ want to keep their attorneys, that will never stop lateral hiring. Law firms seeking lateral hires offer generous bonuses to attorneys who refer their friends, and they hire legal placement agencies such as BCG Attorney Search to find them qualified candidates, whom they are constantly looking for.

What do you think about clawback policies? Let us know in the comments below.

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