Lawyer Employment Contracts: An Introduction
Lawyer employment contracts have become an increasingly common feature for many personnel in law firms, including associates, partners who join a firm, counsel and associates. While the basic premise of employing lawyers is not anything new, the use of lawyer employment contracts and their key provisions are relatively recent developments in the field of lawyer hiring and retention.
A lawyer employment contract is a legal document by which a law firm and its attorney agree to terms of employment between themselves. These terms include, for example: job title; work responsibilities; work hours; salary or other compensation package such as bonuses, benefits, insurance, retirement planning, vacation, and other matters. The contract terms also identify what happens in the event a dispute arises, including regarding compensation and/or termination of employment. The importance of having such a detailed document is that it helps the firm as employer to clearly define the relationship by spelling out in detail all terms, resulting in fewer conflicts and less room for dispute about the terms of employment.
For the employed lawyer , the employment contract sets forth many important conditions for their employment and those can be much more favorable than a law firm partnership agreement. An employment contract helps a firm clearly delineate the relationship with the employee lawyer and can serve to reduce misunderstandings later because of its clear, although contractual, terms that the employee lawyer has agreed to when they signed the contract.
Some common elements found in lawyer employment contracts are:
Commonly overlooked is the value of an employment contract to the employing law firm. In addition to the employment contract supporting the ongoing business and operational needs of the employing firm, they help to provide guidance on a range of critical issues that may later arise, including when the employed lawyer leaves the firm. This clear identification of terms is essential to avoid disputes between the terminated employed lawyer and the firm, which eventually lead to litigation. Even if not legally required, it can be prudent for an employing firm to have the employment contract carefully reviewed by an experienced employment lawyer to ensure that it is lawful and adequately protects its interests.
Contract Provisions for Lawyers: What to Look For
In order to prevent the misuse of confidential information, the employer will almost always include a provision relating to confidential information in a lawyer’s employment contract. Such a provision is in the best interest of both the employer and the employee. In fact, an employee has a common law duty of confidentiality which requires them to hold confidential all information entrusted to them by the employer. The law requires an employee to respect this duty throughout the entire employment relationship as well as for a reasonable period afterwards. The problem is that ‘reasonable’ is subjective and so the inclusion of a provision relating to confidential information in a lawyer’s contract gives both the employer and the lawyer certainty that they will not misappropriate or exploit confidential information for their own benefit. Confidential information includes client lists; information about the employer’s products; sales figures; outcomes, costs, risks and margins; and internal controls, manuals, and processes. The obligation to keep information confidential also prohibits an employee from giving confidential information to third parties or using it to the disadvantage of their employer.
Lawyers’ contracts also usually have a non-competition clause and a non-solicitation clause. A non-competition clause is where the lawyer agrees not to compete with their employer for a certain period of time in exchange for valuable consideration such as monetary compensation. The non-competition clause is enforceable so long as it is no wider than necessary to protect the employer’s legitimate interests. Activities that the clause may cover are taking clients, soliciting competitors, or soliciting fellow employees. A non-competition clause can be appropriate when the risk of competition would disrupt the market. For example, if there are only two law firms who operate in a certain area of law, then a non-competition clause should be considered.
A non-solicitation clause restricts the behaviour of former employees and is less likely to be challenged than a non-competition clause because it only seeks to protect the employer’s client relationships with the knowledge that the employee cannot be freely hired by their former employer. The non-solicitation clause prohibits a lawyer from working with former clients for a period of time after leaving their employer. For example, a lawyer may be prohibited from representing a former client for a period of 3 years.
The law has become quite favourable to non-competition clauses in recent decades. The law is strongly inclined to enforce a non-competition clause unless it is overly broad or inherently unreasonable. Canadian courts have historically only enforced very narrow non-competition clauses but this is rapidly changing. Courts are now giving businesses wide latitude and are only likely to declare a non-competition clause unenforceable in extremely rare circumstances.
Generally, courts are willing to enforce a non-competition clause if it serves the legitimate interests of the employer. According to two doctors involved in a non-competition case against their former employer, the employer’s decision to enter into a joint-venture as well as merge practices was not a legitimate business interest. But in contrast the Supreme Court of Canada has held that the employer has a right to protect their clients and the value attached to them as well as their business contacts. Recently, one judge held that consistent with promoting competition a non-competition clause must be construed in favour of the employee. As one situation is unique to the context in a certain area of law, there is no real guidance about what the interests of an employer are.
Another issue is the dispute between lawyers under the profession’s code of conduct where there is an unequal economic relationship. The risk that one business will shut down in light of a non-competition clause is high, especially where there are not enough associations to maintain healthy competition for legal services. For example, in some areas where there are few people or very few clients requiring legal services, legal professional will invariably ‘follow clients’ when they leave one employment to go to another. This makes non-competition clauses much more problematic in rural areas.
Lawyer Employment Contract Negotiation: How To Do It
For lawyer employment contracts, there are a number of areas that are ripe for negotiation. Do not be afraid to have a full conversation about what your expectations are in terms of salary increases and bonuses. Now, this will vary for large firms versus a small firm versus a solo. Single attorney and small firms may be more reluctant to offer things like bonuses or annual reviews, while large firms will be looking for more structure and more detailed information about what the annual increases are going to be.
One big area that comes up is the issue of client origination. Whether you are bringing in clients with you or intend to bring in clients after you start, that can be an area that is ripe for negotiation. For a lot of attorneys, having a percentage of those fees from those clients is a big benefit. So, understand what those clients are paying now and if that can translate into something actual when you get to the new firm.
Another area for negotiation is the issue of partnership. At what point in time do you make partner? When do you become an equity partner? Oftentimes, for some law firms, that is tied to a billable hour requirement. Whereas, for other law firms, it may be tied to client origination. You need to be clear about what your expectations are and what your goals are in terms of making partner.
The bottom line is that when you are negotiating a lawyer employment agreement, it is really important to take a look at your own personal situation and determine what are the most important considerations for you. That could be flexibility to work from home three days a week; that could be a salary guarantee; that could be a certain number of vacation weeks. And it is so important to understand what your non-negotiables are before you even start the negotiation process.
Party Rights and Obligations Under Law Firm Contracts
Understanding Lawyer Employment Contracts: Key Considerations
Proceeding with the assumption that the lawyer is employed by a law firm according to the terms of a lawyer employment contract, both the employer and employee are bound by the provisions of the contract. For the employer law firm, there is an implied or express obligation to provide work within the contract parameters and to compensate the lawyer as stipulated in the employment agreement. The same is true for the lawyer-employees’ obligation to perform services in accordance with the contract. It is also important to consider if the lawyer is an employee, independent contractor or a partner. This is important because one who is an independent contractor is required to pay his or her own taxes, whereas an employee may have taxes withheld. In addition, partners share in the profits. The distinction between employee and independent contractors has been the subject of many lawsuits and is a primary concern for employers.
As with many employment issues, if the employment arrangement goes awry a court will likely evaluate the provisions in the contract to determine if the obligations and rights of the parties have been violated . In doing so, courts will look at whether it has been breached by either the employer or the employee and if so what damages are due to the aggrieved party.
As such, for employer law firm, the obligations imposed by the provisions of the lawyer employment contract will impact the level of enforcement permissible by a reviewing court. Moreover, the employer must be cognizant of any prohibitions against restraint, being too broad in nature. If a lawyer does not perform under the contract the employer may be able to obtain an injunction against the lawyer in addition to loss of compensation. Employers seeking to have the contract enforced must obtain a temporary restraining order preventing the lawyer from violating the terms of the contract. In most cases an injunction will be granted to the employer in order to maintain the status quo. Government agencies will often seek an injunction in attempts to stop violations of the law. Citing that legal counsel was necessary to enforce the contract in no way summarily grants fees to the non-breaching party, especially where there is no contractual provision regarding attorneys’ fees. Generally an attorney must be the prevailing party in order to be entitled to attorneys’ fees.
Employment Contract for Lawyers: Common Mistakes And Remedies
As with any contract, there are some common pitfalls and mistakes made in the drafting of lawyer employment agreements, and/or in the execution and enforcement of said agreements, of which you should be aware.
The first issue is whether the drafter of the agreement truly understands all of the rules for mandatory disclosures in California, as well as the mandatory requirements for the retention of a client file and its transmittal to the client or successor counsel. The biggest problem I have encountered with attorney employment agreements is an attempt to limit successor counsel’s ability to contact a former partner’s client, and to limit the former partner’s use of "confidential" client information. All of those provisions are a violation of California Business and Professions Code Section 6140.4.
Another significant issue I have encountered with attorney employment agreements is the attempt to limit or restrict solicitation of a partner’s clients or customers after the partner has left the firm. In many jurisdictions, including both California and other states, that is a violation of the restraint of trade statutes. While a non-solicitation clause may be enforceable for a limited period of time, in a finite geographical area, and for a legitimate business purpose, most common law cases have limited the enforceability of those restrictions in a professional service context because such restrictions are deemed to violate public policy.
Additionally, many employment agreements simply amend a law firm’s policies and procedures manual or its personnel manual. That could be a big mistake, since it is possible that at some point in the future, the law firm will consider those mandatory policies and procedures to not be binding on partners (such as when the firm wants to bring on another partner). The best practice is to include the mandatory policies and procedures into the body of the employment agreement. The agreement should be completely "self-contained," and not cross-reference other documents. That way, the incoming partner must fully understand his or her obligations and how the agreement dovetails with the firms policies and procedures.
Another problem I have seen with many attorney employment agreements is that they will state that the partner has a capital contribution to the firm "unless otherwise agreed upon in writing." When such other writing has not been executed because the former partner has since left the firm, one confronts the problem of what the capital contribution will be. Better practice is simply to set forth what the capital contribution will be. If it does change, partners can always amend the agreement at a later date.
Conclusion and Recommended Practices
This article was intended to provide a broad overview of the most common aspects of lawyer employment contracts. However, because every lawyer’s practice is different — and house counsel and law firm associate employment contracts tend to differ in specific respects — this article is general in nature and cannot be relied upon as legal advice for any particular situation. When negotiating or entering into an employment contract, we strongly recommend discussing the arrangement with your own legal counsel. We also encourage in-house counsel and associate attorneys to read our checklist of the most common issues that may arise when entering into a lawyer employment contract.
In summary, the most common employer and employee contract issues are:
In particular, the areas of compensation and termination can be very complex and drawn out. When negotiating these employment contracts, it is important to realize that the future could be at lease five years (if not much longer) away and that your respective interests and goals could be vastly different from each other five years from now. Thus , it is important to understand not only your rights and obligations under the contract at the outset of the relationship, but also what happens if relations between you and your employer or employee turn sour after several years of employment. Whether you are a senior associate, mid-level associat, or senior counsel at a law firm, or a house counsel or general counsel of a corporation, you should be well informed about the terms of your employment contract and fully understand both your rights and obligations during the course of your employment and at the time of separation. And as an employer (whether a law firm or corporate employer), you should not expect your new or existing associates and house counsel or general counsel to simply "know what is in their contract." It is up to you to educate and communicate with them on all important aspects of your employment agreement with them.