How law firms are structuring partnership agreements to curb lateral movement
More law firms are using clawback provisions and forgivable loans as a partner retention tool, according to recruiters who spoke with Law.com.
The publication spoke with one legal recruiter, Larry Watanabe, who said three top-grossing law firms have added clawback provisions to their partnership agreements since January. The provisions will allow the law firms to recover bonuses paid in 2022 to departing partners, he said.
But clawbacks can pose problems, Law.com points out. They can conflict with state noncompete laws and can be difficult to enforce. Onerous clawback provisions can also raise red flags during recruiting.
An alternative is to offer bonuses in the form of forgivable loans that require the partner to stay with the law firm for a designated time. When equity partners leave, the law firm can recover the forgivable loan through their capital contribution accounts.
“The forgivable loan is better because it represents the other side of the coin. Now, the departing partner has to sue the firm to recover funds,” an employment lawyer told Law.com. The lawyer did not want to be identified because they represent lawyers and law firms involved in clawback disputes.