Legal experts doubt PwC’s ‘rule of three’ would be enforced by courts

afr.com:

Two employment law experts believe that it might be difficult for PwC Australia to enforce its “rule of three” against departing partners because courts could view these types of clause as an unreasonable restraint of trade.

The condition, which demands PwC partners involved in a “group departure” to a rival firm pay back the fees they generated in the previous year, is designed to deter groups of partners moving to rivals by making it financially onerous.

One of the legal experts said that courts generally looked at whether a restraint was reasonable “to protect the interests of the business” and noted that having a clause that demanded a repayment of fees was “pretty rare”.

Both legal experts did not want to be named but have experience working on these types of cases.

PwC is seeking to enforce the clause as partners increasingly move to leave the embattled firm because the fallout from its tax leaks scandal is hurting their ability to win and retain clients.

The firm’s leadership believes that partners, as part-owners of the firm, enter into the agreement voluntarily and that the conditions are not dissimilar to the partnership agreements at other professional services firms.

Sharing the profits of PwC has been historically lucrative – the firm’s 850 partners earned an average of $930,000 in 2021-22 – but are not entitled to standard employment protections because they are business owners, not employees.

Departing partners are also now much more likely to hire lawyers to help them in exit negotiations with the firm, said a former PwC partner now at a rival big four firm.

The ex-partner said the shift in approach was due to the firm becoming more aggressive with departing partners by seeking to enforce the more