We have acted successfully in assisting firms with a range of scenarios for exits of partners from all types of professional firms. This has included enforcing restraints of trade, achieving settlements and, in a few instances, acting on matters that have been decided by the courts.
Unfortunately, as has been seen in a number of recent news articles and cases involving litigated disputes between exiting partners and their former professional firms, exiting a partner from a professional firm, whether it is a partnership or an incorporated practice, can be stressful, emotionally challenging, uncertain and damaging to both the brand of the exited partner and the professional firm.
HOW TO MANAGE RISK
Recent publicised cases have served as a reminder for all professionals that managing risks during an exit process is key. Some tips and tricks to help with that are provided below.
1. MAKE SURE THAT YOU UNDERSTAND THE POSITION DOCUMENTED IN THE EXITING PARTNER’S ENGAGEMENT WITH THE FIRM (BE IT A PARTNERSHIP AGREEMENT, SHAREHOLDERS AGREEMENT OR CONTRACT OF EMPLOYMENT)
It is important to review the terms of the exiting partners engagement with the firm and determine the firm’s rights, as well as the obligations of the exiting partner.
2. THE ISSUE OF “SALARIED PARTNERS” AND WHETHER THEY ARE EMPLOYEES
There have been a number of matters in which parties are raising the issue of whether being a partner in a professional firm means that a person is not entitled to the protections afforded under the Fair Work Act 2009 (Cth) (Fair Work Act).
In particular, one of the issues appears to be whether salaried partners who do not receive a share of the profits of the business should be able to access the protections in the Fair Work Act, including those that apply when an employer is attempting to terminate an employee.
We continue to monitor this issue and recommend that parties bear this issue in mind.
3. BE CAREFUL TO NOT MAKE FALSE REPRESENTATIONS TO THE PARTNER THAT HAS EXITS
In some instances, making false representations can result in an action being bought by the exited partner under the ‘tort of deceit’.
Some of the key issues to look out for are:
- representations that were made with the knowledge that they were false, or the maker was reckless as to the truth of those statements;
- there was an intention that the representations be relied upon; and
- the recipient of the representations actually relied on the representations and suffered harm as a result.
Parties should be aware that aggravated and exemplary damages have been awarded for breaches of the tort of deceit.
4. BE CAREFUL TO NOT INVOKE THE COURT’S PROCESSES INAPPROPRIATELY
Whilst exiting a partner from a professional firm can end up being decided by the courts, parties need to be aware that the ‘tort of abuse of process’ can apply where a party invokes the court’s processes for purposes that are:
- illegitimate or collateral;
- would be unjustifiably oppressive; or
- bring the administration of justice into disrepute.
Damages can be awarded by the court for a breach of the tort of abuse of process.
5. REPUTATIONAL RISK AND SUPPRESSING A PROFESSIONAL FIRM’S GOVERNING DOCUMENTS FROM COURT RECORDS
Unfortunately, where parties seek to litigate disputes related to the exit of a partner in a professional firm, many parties face the issue of having their personal information being made available in court decisions or news articles on the matter.
We have seen professional firms be successful in having their governing documents suppressed from the court records.
However, this suppression is not standard. For instance, in some courts, a party must prove that the suppression is ‘necessary to prevent prejudice to the proper administration of justice'.
6. ENGAGING INDEPENDENT ADVISORS
We recommend that, despite professionals and professional firms having a breath of experience themselves, it is advisable to bring in independent advisors to assist with any issues that arise and to try to make any transition smoother for all parties.
HOW CAN WE HELP YOU?
McInnes Wilson Lawyers can help you by:
- drafting professional firm governing documents;
- reviewing arrangements between professionals and their professional firms;
- assisting with preparing documents and negotiating the exit of a partner from a professional firm; and
- advising on the responsibilities of professional firms in the event of an exit of a partner.
If you require assistance or any further information please contact: