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> Suit filed in Jackson County Circuit Court highlights potential pitfalls of firm merger
post Jul 25 2011, 12:35 PM
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Suit filed in Jackson County Circuit Court highlights potential pitfalls of firm merger

by Alyson Raletz and Christine Simmons

Dolan Media Newswires

ST. LOUIS, MO -- Law firm mergers are as much about sweating the small stuff as strategy.

More clients, deeper expertise and a bigger purse are the advantages of a successful merger. The details, such as melding benefits and deciding how much leeway to give lawyers and staff, can be tripwires.

A recent lawsuit against Polsinelli Shughart offers one example of potential trouble: changing policies on employee benefits.

A former Polsinelli Shughart legal secretary sued the recently merged firm, saying she wasn't paid or allowed to use a bank of personal leave accumulated at predecessor firm Shughart Thomson & Kilroy.

Under a policy that ended 10 years ago, Kathleen Hadley had accumulated 225 hours in accrued personal leave while working at the former Shughart Thomson, according to a lawsuit filed last week in Jackson County Circuit Court.

She alleges that with her hourly rate of nearly $24, Polsinelli owes her at least $5,300. Hadley worked at the two firms for a combined 16 years.

Hadley's attorney, Mark Jess, said in the lawsuit that he had taken the case pro bono. In an interview, he described Polsinelli's alleged actions as "simply shameful."

"We felt strongly enough that no employer, especially a law firm, should treat its employees this way," said Jess, of the Employee Rights Law Firm in Kansas City.

In a statement, Polsinelli Shughart Vice Chairman Jack Kilroy Jr. said Hadley received more benefits as a result of the merger than if she had continued to be employed at Shughart Thomson.

Shughart Thomson employee profit-sharing contributions went up from 3 percent to 5 percent at the new firm of Polsinelli Shughart, he said. Shughart Thomson employees also received a profit-sharing matching benefit at the new firm.
"She continued as an employee for about a year, taking advantage of those benefits, and we do not believe she has a basis for this lawsuit," Kilroy wrote.

Honoring promises

Changes to employee benefits aren't usually problems for staff in mergers, said Tom Clay, a partner at legal management consulting firm Altman Weil. If benefits and perks do change, the better of the two firms' policies are usually implemented, he said.

But pitfalls in employee benefits could be more present in today's economy. Law firms can pick and choose from each firm's policies to come up with personnel benefits that are more in tune with the market, said Greg Godfrey, executive director of 75-attorney Evans & Dixon, an insurance defense law firm that added nine attorneys with a merger last year.
One example could be picking the best pension plan but not the richest vacation benefits, Godfrey said.

But law firms must honor previous promises and contracts even after merging, said Ed Poll, a coach and consultant to lawyers and law firms at LawBiz Management in Venice, Calif. In some cases, if a firm misrepresented or didn't mention its prior promises, then that's potentially a breach of representation and warranties of the contract that created the merger, he said.

It could also tarnish the new relationship.

"The next thought is - what else did you not tell us? Is there a potential claim from a client out there?" Poll said.

The lawsuit does not allege that Polsinelli Shalton Flanigan Suelthaus was unaware of Shughart Thomson's previous leave policy when the firms joined in February 2009. The firm these days simply says that policy is no longer valid, and that its employee handbook allows it to revoke a policy at any time. But Hadley's attorney, Jess, argued that the new firm is liable for Shughart Thomson's obligations.

Hadley claims that Shughart Thomson employees before 2000 were allowed to accrue up to six weeks of personal leave time, which was to be included in the employee's final paycheck. As of August 2000, no new employees could receive that benefit, according to the lawsuit.

Hadley claims that after the acquisition, Polsinelli Shughart employees were told they could use their "STK Legacy" time when trying to take extended Family and Medical Leave Act leave if they'd exhausted vacation and other paid leave.
But Hadley alleges that when she attempted to access her "STK Legacy" fund, Polsinelli didn't allow her to use the time built up from the prior law firm.

While the lawsuit focuses on Hadley's personal leave, her petition alleges roughly 50 other employees from Shughart Thomson have been affected. If successful, Jess said he intends for the lawsuit to serve as a message to the firm to pay the rest of the employees, as well as Hadley.

Jess said many of the former Shughart Thomson employees still work for Polsinelli. "It would obviously be very scary in this economy for them to come forward," he said.

One of many

The Polsinelli Shughart merger was one of many in Missouri in the last three years. In 2009, Bryan Cave acquired Atlanta, Ga.-based Powell Goldstein and Lathrop & Gage added the Los Angeles boutique firm Spillane Shaeffer Aronoff Bandlow. Husch Blackwell Sanders - itself the product of a 2008 merger - added Chicago-based Welsh & Katz the same year. (Recently, the firm dropped Sanders from its name.)

After its merger, Polsinelli Shughart was ranked fourth on Missouri Lawyers Weekly's Money 20 listing of the state's largest firms, with $186.3 million in revenue in 2009.

Marion Crain, a Washington University School of Law professor who focuses on employment law, said firms should make sure to consult a labor and employment lawyer during a merger, especially if a merger results in loss of jobs, changes of benefits, and prior contractual commitments have been made to employees.

If a merger is done successfully, firms have more expertise, greater purchasing power and more access to clients. This may make them more persuasive in selling their services to clients who wouldn't have retained them before.

Mergers are more successful when laws firms have a complete and open discussion. This includes checking the compatibility of their firms' cultures, said James Godfrey Jr., a member of the Evans & Dixon management committee. Lawyers at Evans & Dixon felt comfortable when their firm merged with Amelung, Wulff, Willenbrock & Pankowski, because they had similar work and clients, he said.

But if one firm has a strict set of rules and it's merging with another firm with lenient policies, and expectations aren't addressed, there're bound to be some problems, Godfrey said.

"It's kind of analogous to a marriage and the chances of success are good if there's a long courtship," he said, "and the better you know each other."

As the managing partner of a top Los Angeles law firm, Norman H. Levine is no stranger to what might be called the Posada problem.

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