Salary Inquiry Ban Law: What It Means For Prospective Lateral Partners At Law Firms
Biglaw firms have been forced to tread lightly when it comes to asking questions regarding compensation history and related due diligence.
Michael Allen
Ed. note: This is the latest installment in a series of posts from Lateral Link’s team of expert contributors. Michael Allen is the CEO of Lateral Link. He is based in the Los Angeles office and focuses exclusively on Partner and General Counsel placements for top firms and companies. Prior to founding Lateral Link in 2006, he worked as an attorney at both Gibson, Dunn & Crutcher LLP and Irell & Manella LLP. Michael graduated summa cum laude from the University of California, San Diego before earning his JD, cum laude, from Harvard Law School.
In response to Congress failing to pass the Fair Labor Standards Act, several cities and states have passed similar salary inquiry ban laws to prohibit employers from inquiring about a job applicant’s salary history. Additionally, employers are also prohibited from relying on salary history to set compensation. Corporate executives and HR departments across the United States are taking notice of the new laws and have started to adjust their hiring practices. In the meantime, debate continues whether ending the ability to inquire about salary history is more helpful or hurtful to prospective lateral partner candidates.
The new salary inquiry ban law has made it even more difficult for law firms to determine market compensation for prospective partner candidates. Most Biglaw firms ask prospective lateral partners to fill out a diligence document called a Lateral Partner Questionnaire (LPQ). These LPQs cover the history of client originations for the past 3-5 years, the future expectation of their client billings, their bill rate history, what they anticipate generating, as well as the types of work they anticipate and the support needed to complete the same. These questions seem acceptable to ask a prospective lateral partner but also serve as the base formula for pegging a partner’s market salary in a non-lockstep world. Some firms still explicitly require partners to state their current compensation history by taking the position that partners are not employees for purposes of the salary inquiry ban law. Most firms, however, are no longer requesting compensation information. Although a bit of a stretch, the LPQ may become an issue altogether if it is deemed to tease out salary information.
Law firms are aware of the potential risks of hiring a prospective lateral partner. Without the ability to vet prospects and their books of business comes the potential risk of hiring an underperforming lateral partner. In other words, firms would in hindsight compensate a partner based on aspirational metrics initially communicated in an LPQ, which really doesn’t lend itself to proper diligence. A recent study by ALM Rival Edge found that 47 percent of lateral partner hires don’t stay a full five years at their new firms. This usually results in taking a loss for firms, as it takes time for a law firm to recover recruiting, onboarding, and compensation costs. Of course, an alternative scenario is that a partner overperforms and the firm under-delivers. There are always two sides of the story for a departure.
Biglaw firms have been forced to tread lightly when it comes to asking questions regarding compensation history and related due diligence. Employers may still ask a prospective partner about their target compensation and in turn an employer can set a salary range for a position. Nevertheless, employers not having the opportunity to ask prospective partners questions regarding their salary history makes it difficult to form a basis for market compensation. The less transparency, the lower likelihood of success for the marriage. At the end of the day, the salary inquiry ban laws will add more risk in lateral partner hiring and ultimately lead to more attrition.
An experienced legal recruiter can provide strong value for both a prospective lateral partner and an employer when setting compensation expectations (without relying on candidate-specific compensation information). We have seen it all and understand compensation ranges and perspectives from both sides. Partners should not want to receive more than their fair share, or they may have a target on their back without a long runway. Employers do not want to undercompensate an incoming lateral partner, or they will see that partner as part of the five-year statistic. When compensation is set fairly, both sides can focus on what really matters without distraction or alienation — such as practicing law and giving the best service possible to clients.
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