(Reuters) - Five former Nixon Peabody partners have sued the firm in New York state court, challenging the validity of a partnership agreement they accuse the firm of using to claw back or withhold millions of dollars in compensation.

In a lawsuit filed Tuesday, Thomas Gaynor, Abigail Reardon, Jinjian Huang, Stephen Reil and Maria Swiatek allege the agreement is unenforceable under New York law. They are seeking a court order that would require Nixon Peabody to participate in mediation before the dispute goes to arbitration.

The partners, who joined DLA Piper together in July 2019, claim Nixon Peabody is attempting to claw back bonuses they earned in the fiscal year ending Jan. 30, 2019 and prohibiting them from receiving wages, equity and capital. They allege the firm owes an amount that "exceeds several million dollars."

Nixon Peabody presents partners with a Hobson's choice, the lawsuit says: Either partners leave and lose money, or stay and keep their bonuses but see their practices suffer and "disregard the needs of their clients."

"Restrictions on lawyer movement are restrictions on clients' choices," said Andrew Celli Jr., a partner at Emery Celli Brinckerhoff Abady Ward & Maazel representing the plaintiffs, in a statement. "That's the ethical principle at stake here, and that's what New York law provides."

Nixon Peabody said in a statement that the claims have no merit.

"We are simply seeking to enforce a partnership contractual provision," the firm said. "The repayment obligation is fully compliant with New York law."

The partners claim they each received a bonus of least $100,000 for their work in fiscal year 2018. After they were fully paid, the plaintiffs allege, they told Nixon Peabody their plans to resign in June 2019, but the firm wouldn't let them leave for DLA Piper until July 2019.

The firm then demanded they return their bonuses under the partnership agreement, the suit says. The firm also allegedly distributed to other Nixon Peabody lawyers the money they earned during fiscal year 2019, including their equity distributions and their capital accounts, the lawsuit alleges.

"Nixon's efforts to claw back bonuses petitioners earned simply because petitioners chose to practice elsewhere constitute an undue restriction on petitioners' rights to practice law," the lawsuit says.

The plaintiffs also accuse Nixon Peabody of trying to railroad their dispute with the firm into arbitration, skipping a mediation procedure that's spelled out in the partnership agreement.

The lawsuit comes during a difficult stretch for Nixon Peabody, which announced this month it was laying off some staffers it furloughed in April due to the ongoing COVID-19 pandemic. The firm earlier this year laid off or furloughed 10% of its associates and a quarter of its staff. It also cut associate salaries by 10%, canceled its summer associate program without promising job offers and delayed its first-year associate start date.

Gaynor and Huang are partners in DLA Piper's corporate practice in San Francisco, while Reil is a Los Angeles-based corporate partner. Swiatek is an intellectual property and technology partner based in Silicon Valley, and Reardon is a New York litigator.

A sixth former Nixon Peabody partner who joined DLA Piper with them, Christopher Mooney, is not a plaintiff in the litigation.

The case is Thomas E. Gaynor, et al., v. Nixon Peabody LLP, Supreme Court of the State of New York, County of New York, No. 654451/2020.

For plaintiffs: Andrew G. Celli Jr. and Samuel Shapiro, of Emery Celli Brinckerhoff Abady Ward & Maazel.