Could restraint reforms supercharge BigLaw team poaching?

Of particular relevance to team moves, the government is also proposing to prohibit co-worker non-solicitation clauses – restraints that can prevent departing employees from encouraging former colleagues to follow them to a new employer.

The change could have particular implications for Australia’s legal market, where lateral recruitment has increasingly involved partners moving with established teams rather than firms making individual hires.

But while the reforms could make team moves easier, there is considerably less certainty about whether they will actually result in more of them.

Removing the restraint

Co-worker non-solicitation restraints are already an important consideration when employees move between businesses, even if they are not usually the primary focus of restraint litigation.

Speaking to Lawyers Weekly, MinterEllison partner Gareth Jolly said proceedings more commonly centre on non-competes or client non-solicitation restraints, although there are exceptions.

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“However, there are exceptions to this (e.g. poaching of a large team en masse) and – even where a claim is primarily over a non-compete or client non-solicit – there is often a co-worker non-solicit adjunct to the case,” he said.

Asked whether prohibiting the clauses could materially make it easier for employers to recruit established teams, Jolly was clear.

“The answer to this question is yes, but with two observations,” he said.

The first concerns how far the proposed prohibition ultimately extends.

“Firstly, the effect will be much greater if the prohibition on co-worker non-solicitation provisions effectively permits solicitation within employment – that is, if the draft legislation permits an employee to solicit their team to leave before that employee has themselves left (or even resigned),” he said.

“The exposure draft is not altogether clear in relation to this. On its face, it would seem that a co-worker non-solicitation term extends to a prohibition on solicitation during employment.

“However, it is typically the employee’s duty of fidelity (an implied term of the employment contract) which prevents an employee [from] soliciting others to leave while still employed. It is not clear whether the duty of fidelity could constitute a co-worker non-solicitation term.”

The second qualification is more practical. Businesses can already attempt to navigate around co-worker restraints without involving the person bound by them.

“Prospective employers can attempt to bypass co-worker non-solicitation provisions by recruiting team members directly themselves, without involving the employee subject to the co-worker non-solicitation provision,” Jolly said.

Consultation on the proposed reforms closed on 2 October, with the government intending for the broader restraint reforms to commence in 2027 if passed.

A speedbump, not a roadblock

That ability to work around existing restraints is already evident in legal recruitment, where substantial team moves continue to occur under the current regime.

Burgess Paluch Legal Recruitment director Paul Burgess said well-drafted restraints are often scrutinised by firms acquiring partners and teams, but commercially, they are infrequently used to stop a team moving altogether.

“There are also commercial workarounds whereby team members can follow after the end of the non-solicitation period, for example,” he said.

Burgess said prohibiting co-worker non-solicitation clauses would “assist the process and streamline it”, but was less convinced it would fundamentally change the strategy surrounding an initial partner hire.

“Skilled recruiters and the hiring firm will usually find a way of making it happen, so while it might facilitate the process, we don’t feel it will add a lot of material value to the transaction in most cases,” Burgess said.

Nor does he expect the reform itself to unleash a wave of team raids.

“At most it will iron out a speedbump or two in the process, but it isn’t likely to drive the moves,” Burgess said.

Easier – or just more obvious?

While the commercial barriers may already be surmountable, Piper Alderman partner Ben Motro said the significance of co-worker restraints should not be understated.

Motro, who acts in restraint and employee-poaching disputes, said they are “more significant than most people would realise”, although their effect is generally confined to circumstances in which a former employee plays an active role in recruiting former colleagues.

A distinction needs to be drawn, he said, between an employee actively poaching former colleagues and people independently choosing to follow someone to another business.

Employees already change jobs for a host of reasons, including remuneration, career opportunities and workplace culture, and Motro does not expect the co-worker reforms alone to “magically” increase job mobility.

Instead, one immediate effect could be to make conduct that already occurs less discreet.

“There might be a question as to whether or not it’s just not necessarily changing the prevalence of such behaviour, but just making it more overt,” he said.

But Motro also sees circumstances in which team poaching could become more commonplace.

Businesses looking to accelerate growth may see greater value in acquiring an established team than recruiting one person and attempting to build capability organically around them, particularly where they cannot afford to spend six months to two years doing so.

“If these provisions are enacted as they currently stand, it is probably going to see that behaviour at least more overt and may very well become more commonplace as well,” he said.

Beyond professional services

Motro said industries where human capital is a key business asset, including law, accounting and consulting, could be particularly affected by the reforms.

However, he said the impact could extend beyond professional services, particularly to industries already grappling with labour shortages.

“I don’t think it’s purely white collar. It’s going to be your blue collar as well,” Motro said.

He said industries where employers already struggle to recruit could be particularly exposed, pointing to transport as one example of a sector that has experienced worker shortages.

Within the legal profession, the prevalence of team moves also demonstrates why the existence of a restraint does not necessarily mean it will be enforced.

Motro said some law firms may decide not to prevent a partner from taking their team where the departure reflects a change in the firm’s strategic direction.

For example, if a partner is the only practitioner working in a particular area and the firm no longer wants to maintain that practice, it may be commercially preferable to allow the partner and their team to leave rather than retain employees for whom there is insufficient work.

In those circumstances, Motro said enforcing the restraint could instead leave the firm facing redundancy costs or attempting to redeploy employees whose specialist skills may not readily transfer to another practice area.

That commercial reality helps explain why removing the restraint may make team moves easier without necessarily producing a corresponding surge in their number.

What protection do employers lose?

Even if the reforms do not dramatically increase the number of team moves, their significance may lie in what employers can do when a former senior employee actively tries to recruit their people.

Motro said senior employees and managers may have detailed knowledge of their teams, including remuneration information that could assist them in targeting former colleagues.

While pay secrecy laws now give employees the right to disclose their own remuneration, Motro said that does not necessarily address circumstances in which a manager has acquired knowledge of numerous employees’ pay through their role.

He argued this illustrates a broader purpose served by co-worker restraints: protecting businesses in circumstances where misuse of confidential information may be extremely difficult to prove.

“It’s so hard to ever prove that somebody has used confidential information to, you know, against their former business, and that’s why you have solicitation provisions and non-competes because of the extreme difficulty in ever proving an actual breach of confidential information,” he said.

Other protections would remain if co-worker non-solicitation clauses were prohibited, including statutory, contractual and equitable obligations of confidence.

However, Motro said implied duties such as an employee’s duty of fidelity generally cease once the employment relationship ends.

The difficulty then becomes establishing that a surviving obligation has actually been breached.

Even proving that a former employee actively poached a colleague can be difficult without a “smoking gun”, Motro added, while seeking preliminary discovery can be costly and time-consuming.

Those costs already contribute to employers deciding not to enforce restraints, even where they suspect a breach has occurred.

The broader economic question

The government has framed its broader restraint reforms as a means of increasing job mobility, supporting wage growth and delivering wider economic benefits.

Motro said the potential effect on businesses repeatedly losing established teams should also form part of that discussion.

“If businesses are constantly having teams poached willy-nilly, then what effect is that going to have on individual business’s profitability over time, and how is that going to ultimately affect the economy as a whole?” he said.

Employers attracted to the prospect of having greater freedom to recruit teams from competitors should also be conscious that the same freedom would be available to businesses targeting their own staff, he warned.

“The very same thing is probably going to happen to them in the future as well,” Motro said.

Will BigLaw raids actually increase?

For law firms, the result of the reforms, if passed, may ultimately be a change in how easily team moves can be executed rather than in the forces causing those moves in the first place.

Jolly said enforcement of restraints remains “the exception rather than the rule”, although he expects the reforms to have an impact in industries where restraints are vigorously enforced.

Burgess similarly sees the proposed prohibition as removing friction from an existing process rather than creating the commercial impetus for a team to leave.

Motro is somewhat less certain.

While he acknowledged some team recruitment may already be occurring discreetly under the current regime, he said removing co-worker restraints could make that activity more overt and potentially more commonplace.

The three perspectives point to an important distinction between making team raids easier and creating the reasons for them to happen.

Remuneration, career opportunities, workplace culture, and a firm’s strategic appetite for a particular practice will continue to influence whether lawyers actually move. As Burgess observed, firms and recruiters can already find ways to navigate restraints where there is sufficient commercial incentive to do so.

The proposed reforms would not create that incentive. But by removing one of the legal obstacles to actively bringing former colleagues across, they could make it easier for firms to act on it – while leaving employers with fewer tools to stop them once they do.