The clauses dealing with restrictive covenants in a partnership deed are all too often overlooked by both sides at the time the associate is promoted or the collateral-hire appointed.
After all it is the honeymoon period and, in the past, firms took the then sensible view that clients should and would go where they liked. Â However, in more recent times, given the recession and its aftermath, firms are far more active in seeking to retain clients following a departure.
The starting point, of course, is that restrictive covenants are void. Â Only if they are reasonable in scope, geographical area and duration; protect legitimate business interests; and go no further than is reasonably necessary to protect those interests will the Court uphold them.
Restrictive covenants usually seek to protect a departing partner from seeking to attract the firmâ€™s clients to his new practice; from dealing with their business; or from trying to poach other members of the firm to join him.
For over a quarter of a century the Courts have enforced these covenants on the basis that partners had more or less equal bargaining power; the covenants applied to all partners; and the firm was entitled to protect its goodwill. Â However, if the firms of today, those factors are decreasingly at play with greater centralised management; a fluid legal market; and goodwill not featuring to the same extent as it once did. Â In the light of these circumstances, a Court may approach the enforcement of such covenants with considerable care.
Consequently, whether the managing partner or a prospective new partner, considerable thought ought to be given to those clauses within the partnership deed. Â That exercise should sensibly take place at a regular review of the arrangements of the partnership or on the admission of a new partner. Â When it shouldnâ€™t take place is at the point a partner is about to leave.