Like Take That and flares, restrictive covenants are fixtures of a bygone age that are supposed to have outlived their usefulness, but will not actually go away. That is because law firms largely assume that, while they may lurk in rivals’ partnership deeds, no-one bothers enforcing covenants or even penal notice periods these days.
The standard practice when recruiting is to look at the formal exit terms of potential partner hires during the discussion stage — and then just ignore them.
Except, of course, firms on the receiving end don’t always ignore them, as can be seen by the increasingly fractious talks over the departure of Herbert Smith partner Chris de Pury. The real estate specialist is currently attempting to ensure he joins his new firm, Berwin Leighton Paisner (BLP), some time before 2009. Initially, discussions had focused on whether Herbert Smith would enforce the full 12-month notice period but now it emerges that there is serious talk of enforcing a highly unusual clause that would bar him from joining another law firm for a further 12 months. As a threat — and both sides have been attempting with no success to reach agreement since de Pury resigned in March — this looks like the toughest exit terms yet held over a departing partner.
This is a high-stakes situation for all involved that has already gone way past the usual shoulder-pushing. Losing a valued equity partner in their prime is virtually unheard of at Exchange House, so seeing one of the City’s few genuine real estate stars depart is not going down well. BLP must be a little unnerved at the prospect of its star lateral, for whom the firm has gone well above its lockstep, being out of action for a considerable time.
What the incident does illustrate is that, no matter how much restrictive covenants are seen as being out of step with modern law firms, they actually have a pretty good record of defending firms’ flanks from predatory recruitment. The £64m question is just how far you can push it. In the case of Herbert Smith, senior partner, seasoned litigator and partnership specialist David Gold is taking a personal interest in the discussions, so the firm must be feeling confident. Yet some partnership experts feel a fresh legal challenge of covenants would now result in a more liberal reading.
Sooner or later someone is sure to make such an attempt and its impact will go much further than Freshfields’ current spot of local difficulty with age discrimination laws.