What conduct will get you expelled?

Expulsion from a partnership is one of the most serious consequences a practitioner can face. It can affect your livelihood, capital entitlement, reputation, client relationships and potentially future career prospects and regulatory standing.

Yet the threshold of conduct required to justify removal is not always obvious, and the grounds for expulsion will depend heavily on the terms of the partnership agreement or LLP members’ agreement.

Note: regulatory or professional disciplinary removal, where a professional body suspends, strikes off or otherwise removes a member under its own rules, is a separate avenue. This article does not address that route.

The agreement is everything

A partner or member cannot be expelled without the agreement which governs the partnership providing for an express power of expulsion. The wording of the agreement is therefore central.

Expulsion clauses commonly set out specific triggers. Some are relatively objective; others, however, require judgement.

The threshold is inevitably context-specific. A single act may be enough if it’s sufficiently serious: theft, fraud, deliberate misuse of funds, a deliberate serious breach of duty, violence or harassment, and conduct causing serious reputational or regulatory risk to the firm.

By contrast, lesser performance concerns, personality clashes, isolated mistakes or good-faith disagreements about business strategy are less likely to justify expulsion unless the agreement clearly says so and a fair procedure is followed.

The key question is usually whether the conduct falls within the contractual trigger and whether expulsion is a proportionate and properly reached response.

Some agreements go further and contain what are sometimes called ‘green socks’ provisions. The phrase is shorthand for a clause which permits expulsion for any reason, or for no stated reason at all, the old example being that a partner could be expelled simply for wearing green socks. In that type of clause, the ‘conduct’ threshold may be very low or may not exist in any meaningful sense.

That doesn’t mean the power is risk-free. The firm must still follow the procedure in the agreement, use the required voting threshold and avoid exercising the power for an improper purpose or in bad faith. A ‘green socks’ clause can be attractive because it avoids arguments about whether misconduct has been proved, but it should be drafted with particular care because it gives significant power over someone’s economic rights and professional position.

Limits on the power to expel

Even where an agreement contains a broad expulsion power, it should not be treated as unfettered. Decision-makers are generally expected to comply with contractual procedures, act for a proper purpose, consider relevant matters and, depending on the wording and the character of the relationship, comply with duties of good faith and rationality.

A misstep in the exercise of an expulsion power can lead to claims for breach of contract, applications analogous to unfair prejudice in the LLP context, injunctions, damages, disputes over capital or profit share or challenges to the underlying decision. Expulsion may be commercially attractive, but it’s legally risky precisely because the consequences for the expelled individual are generally so severe.

Suspension: a distinct but related power

Suspension and expulsion should be treated as separate powers. Suspension can be a useful interim protective step while allegations are investigated, but a poorly drafted suspension clause may become oppressive if it excludes someone from management, profits, information or client relationships without adequate safeguards.

Best practice is to ensure that suspension is time-limited or subject to periodic review, linked to a genuine investigation and consistent with the terms of the agreement. A suspension clause will also provide the partnership with the breathing space it might need to step back and assess matters properly, rather than making hasty decisions.

Practical lessons

A well-drafted partnership or LLP agreement should:

• Set out clear and specific triggers for expulsion and state expressly whether any no-fault or ‘green socks’ power is intended
• Separate suspension and expulsion powers, with distinct safeguards for each
• Include fair procedures: notice, opportunity to respond and reasoned decision
• Require evidence and written reasons to be provided
• Preserve confidentiality and address regulatory reporting obligations
• Consider alternatives such as retirement, garden leave, mediation or agreed exit before resorting to expulsion.

Whatever the circumstances, the decision should be carefully documented. A measured, well-evidenced and procedurally fair approach is always preferable to a hasty removal that invites a costly dispute.