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Risk and Compliance Service

Ethical exits - what to do when you lose key staff

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Tracey Calvert looks at how to meet all the compliance and ethical obligations the regulator requires when one or more fee earners or staff leave a legal business.

What happens if a fee earner or a whole team hands in their notice? What are the compliance and ethical repercussions? Luckily in the UK, this decision normally requires the outgoing individual(s) to serve a period of notice (not the norm in many other jurisdictions).

Starting point

The ethical starting point will always be the client’s best interests with the default position that clients have a legal contract with the law firm and not the individual fee earner (again, not always the case in other parts of the world). This means that a fee earner can neither assume that they can take a client with them nor can they tell the client about where they will be going during their notice period except upon a client’s specific request for such information. The firm’s position will be to explain that the fee earner is leaving and to update client care information as to who will take responsibility for the client’s matter and/or supervision of their matter. It is best practice to do this during the notice period.

Client confidentiality

The concept that the client is in a contractual relationship with the firm, triggers a need to protect confidential information. Again, confidentiality is owed to the client by the firm and systems must be designed to protect information from being disclosed except with the client’s permission or where such disclosure is legally required.

The departing fee earner will be required to keep all matters confidential (again, unless this is with the client’s permission or to meet a legal requirement). In practice individuals must consider this responsibility on a daily basis both throughout their career and beyond. All information acquired in respect of a client or former client is subject to this duty and an individual can therefore be subject to disciplinary action for breach. This overriding duty must be factored into all future decisions about whether it is ethical to act for another client to whom a duty of disclosure is required; i.e. every day, the fee earner must evaluate and be confident that there is not a conflict between the everlasting duty of confidentiality and this duty of disclosure.

Managing the risk

How does the firm manage risks of improper use of confidential information? Should consideration be given to removing access to confidential materials, case management systems and other computer-based records during the notice period? Get this wrong and it may be a breach not only of your ethical duties but also a data breach. With this in mind, should firms allow fee earners and other staff access to all databases or should access be restricted to what is strictly necessary to fulfil employment duties and duties to clients?

Often a fee earner will be subject to restrictive covenants designed to prevent them from acting for clients of the firm. This may prevent the individual from approaching clients after they have left the firm (not necessarily unethical) and may be a discussion which will be had during the notice period. It is perhaps worth making the point that whilst enforcement of a contractual term would be a matter for the courts, from a regulatory perspective the client’s best interests must always be borne in mind.

Team departures

What if a whole team or department decides to leave? This is not so unusual these days and clearly the larger the move, the more likely it is that the team will want to bring a client base to their new home. Again, this requires careful management on both the part of the managers of the firm which they are leaving and the team itself.

In these circumstances, it is not only necessary to discuss the client care, confidentiality and contractual issues already covered. This also needs to be viewed as a resource issue. Consider the following:

  • Does a larger scale change mean that the firm no longer has the competence to provide a proper standard of service to the clients?
  • Who will be left to act for the firm’s clients?
  • Can their matters be adequately supervised?

 The firm should consider whether it needs to facilitate a move of client files on the basis that it is no longer able to provide an adequate service.

The departure of a team, with its collective fee generating capacity, may also have a significant impact on the financial viability of the firm. The SRA requires evidence that such considerations are factored into the firm’s risk strategies.

Further guidance

Both the SRA and The Law Society provide guidance to support solicitors facing the ethical and other dilemmas arising from such circumstances. The SRA has guidance on ‘Protecting and maintain client confidentiality’ which gives pointers to deal with high risk scenarios and the Law Society has produced a practice note, ‘Closing down your practice: regulatory requirements’ and on subsidiary but related topics such as file retention and professional indemnity insurance.

Tracey Calvert, is a compliance consultant at Oakalls Consultancy Limited tcalvert@oakallsconsultancy.co.uk.

 

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