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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.
Jerome Doraisamy
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.
“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 isn’t a provision in the partnership deed that enables expulsion in those circumstances.
“That’s 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 it’s 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, it’s not good enough if it really just benefits the other partners financially at one partner’s 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 it’s 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:
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly and HR Leader. He has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. In June 2024, he also assumed the editorship of HR Leader. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of the Minds Count Foundation.
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