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When can a partner be expelled for financial underperformance?

Post-EOFY, law firms are looking at who has delivered and who hasn’t, creating a reflective environment whereby financial performance by those at the top can come into question, says one legal consultant.

user iconJerome Doraisamy 03 July 2019 Big Law
When can a partner be expelled for financial underperformance?
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In a recent episode of The Lawyers Weekly Show, Shine Lawyers legal consultant Samantha Mangwana said the terms of a firm’s partnership deed will ultimately determine whether or not it is possible to expel a partner for financial underperformance.

“Expulsion of partners is dealt with very differently under Partnership Law than dismissal of employees. When you’re considering a partnership, there needs to be an express agreement about in what circumstances someone can be expelled or not,” she explained.

“Typically, you would look to the partnership deed to set out those circumstances. Now, if those circumstances include a certain level of expectation around financial performance, then that may come into it. It may be that there isnt a provision in the partnership deed that enables expulsion in those circumstances.

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“Thats important, because the power to expel in partnership cases is something that can only be enforced if there is an express term about it. Actually, even then its not enough in and of itself.”

There are also conditions that mean it has to be “done in absolute good faith”, Ms Mangwana continued, which then mean looking at the situation specifically.

“Has one partner been singled out in comparison to others? An expulsion must be for the benefit of the firm as a whole, its not good enough if it really just benefits the other partners financially at one partners expense,” she said.

“The reason for this is that the partnership relationship, essentially, is individuals working together for a common profit and sharing risk and reward in that process. That creates relationships of trust and that means that you have to look very closely to whether things are done in good faith or in bad faith.”

When asked how best partners can strategically put their best foot forward at this time of year, Ms Mangwana said the reality is that the financial performance of senior individuals within a firm “won’t come as a surprise” once EOFY hits.

“They will have been doing a lot of thinking about the reasons for it and how the year ahead, how their future looks with the business and whether there are any opportunities to alter the dynamics,” she said.

“Equally, partners who have performed very well will certainly be looking at the same issues and its a time, as I say, of reflection where people start to consider what their other options are.”

To listen to Jerome’s full conversation with Samantha Mangwana, click below:

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