Academic journal article Defense Counsel Journal

Enforceability of Non-Competition Clauses Affecting Lawyers

Academic journal article Defense Counsel Journal

Enforceability of Non-Competition Clauses Affecting Lawyers

Article excerpt

AS MORE law firms break up and lawyers change firms more frequently, there is an emerging interest in the enforceability of noncompete clauses as used by lawyers in the law firm setting.

To begin, Rule 5.6 of the American Bar Association Model Rules of Professional Conduct, as well as Disciplinary Rule 2-108 of the former ABA Model Code of Professional Responsibility, prohibit lawyers from entering into partnership or employment agreements that restrict their right to practice law after withdrawing from the law firm with which they have been associated. All the states have their own disciplinary rules, which typically are identical to, or modeled after, the ABA rules.

Rule 5.6 of the ABA Model Rules states:

RULE 5.6 RESTRICTIONS ON RIGHT TO PRACTICE

A lawyer shall not participate in offering or making:

(a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties.

The comment to Rule 5.6 provides additional insight into its underlying policy:

An agreement restricting the right of partners

or associates to practice after leaving a firm not

only limits their professional autonomy but also

limits the freedom of clients to choose a lawyer.

Paragraph (a) prohibits such agreements except

for restrictions incident to provisions concerning

retirement benefits for service with the firm.

Paragraph (b) prohibits a lawyer from agreeing

not to represent other persons in connection with

settling a claim on behalf of a client.

This rule does not apply to prohibit restrictions

that may be included in the terms of the sale of a law practice pursuant to Rule 1.17.

In general, the focus in determining whether such an agreement is enforceable is to look at the effect of the agreement on the right to practice law and the ability of clients to have free access to lawyers of their choice. The intent of the parties entering the agreement is not the primary focus. Indirect restrictions on the practice of law, such as financial disincentives to withdrawing lawyers, as well as the more obvious direct prohibitions, generally are prohibited by this rule.

There are two major exceptions to the general rule. First, a lawyer can be restricted from practice pursuant to an agreement providing for the payment of retirement benefits. This exception is expressly stated in Rule 5.6. Second, in a small number of states an ongoing law practice can be sold pursuant to the provisions of ABA Model Rule 1.17, and the sale may include restricting the selling lawyer's right to practice in a particular jurisdiction or geographic area. The ABA added this rule, entitled "Sale of Law Practice," to its Model Rules in 1990, but it has been adopted so far by only a few states.

Other issues that arise in this context include the lawyer's fiduciary duties to the client on the lawyer's withdrawal from the law firm, protection of client confidences and secrets, fee splitting between the withdrawing lawyer and the law firm, and whether the unenforceable non-compete portion of an employment agreement can be severed, thus leaving an otherwise enforceable employment contract.

NON-COMPETE CLAUSES GENERALLY Not ENFORCEABLE

Restrictive covenants in the practice of law typically fall within one of two categories. Either they directly prohibit the practice of law in a particular jurisdiction or geographic area and for a set period of time, or they indirectly restrict the practice of law by way of financial disincentives that result from competitive activities following withdrawal from the law firm. …

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