An under-performing partner and a high settlement
The real-life impacts of an outdated partnership agreement
For any relationship to be successful, you need to be sure that you can trust someone to fulfil their commitments, and behave in a way that’s in line with your beliefs, ethics and morals.
Sadly this doesn’t always happen – even if things seem promising at the start. A new partner joining your practice is no exception – it’s a time of change for your partnership, and it’s essential to update your partnership agreement accordingly.
To illustrate the dangers of neglecting your partnership agreement, we’re sharing a short case study – where a minor problem spiralled into something more serious.
Five partners ran a successful family practice for many years in Canterbury. Only the three longest serving partners had signed up to the partnership agreement. The agreement had always served them well, and their busy workload meant they never got round to updating it.
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Unfortunately the newest partner, Dr Bloggs* (not his real name), began to significantly under-perform. He wasn’t contributing to the management or administrative functions of the practice, and there were more serious concerns regarding his competency. After some time, the rest of the partners felt that they had no choice but to expel him. However, when they tried to expel Dr Bloggs under the terms of their existing partnership agreement, they encountered some unexpected complications.
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Dr Bloggs claimed that, because he had never signed up to the agreement in the first place, he was not bound by it and was therefore operating as a Partnership at Will. This meant that he could therefore not be expelled without dissolving the partnership (an automatic provision introduced by the Partnership Act 1890).
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To avoid escalating costs – both financially and in terms of time spent – the partners opted for mediation. They managed to expel Dr Bloggs, but only after he managed to negotiate a significantly higher settlement than he would otherwise have been entitled to. The case took two years to resolve, placing a considerable strain on the partners’ working and personal lives.
Issues like this can be avoided by ensuring that your partnership agreement is up-to-date and that all partners – including new ones – are signed up to its terms.
For advice on updating your partnership agreement, we can help. We work on a fixed-fee basis for the first draft, and offer discounted rates to BMA members.