The Florida Bar
(February 17, 1995)
(February 17, 1995)
Certain provisions in a law firm-associate employment agreement violate Rule 4-5.6(a), which prohibits a lawyer from offering or making a partnership or employment agreement that restricts a lawyer's right to practice after termination of the relationship. The offending provisions create a substantial financial disincentive that would preclude the departing associate from accepting representation of firm clients, and impermissibly restricts the right of association among lawyers.
NOTE: This opinion was approved by the Board of Governors at it February 1995 meeting.
RPC: 4-1.4, 4-1.5(g), 4-5.6(a)
Opinions: 66-44, 69-1, 71-62, 84-1; ABA Informal Opinion 1417; Texas Opinion 459
Cases: Rosenberg v. Levin, 409 So.2d 1016 (Fla. 1982); Dwyer v. Jung, 336 A.2d 498 (N.J.Super. 1975); Cohen v. Graham, 722 P.2d 1388 (Wash.App. 1986)
The inquiring attorney, employed by a law firm as an associate, has been asked by the firm to sign an employment agreement containing the following provisions:
A. Employee acknowledges that the Employer has invested its trust and confidence in the Employee and a considerable amount of time and money in training and developing the skills and expertise of the Employee in the practice of law. As a condition of employment and the benefits thereof, Employee agrees that in the event Employee's Employment Agreement with the Employer is terminated, Employee will not, for a period two (2) years from date of termination, interfere with the business of the Employer by:
1. seeking, directly or indirectly, any of the Employer's clients; or
2. inducing, either directly or indirectly, any employee to quit or abandon the Employer.
B. Employee acknowledges that the above prohibitions are reasonable and necessary covenants not to interfere with the business of the Employer. In the event of a breach of any of these covenants by the Employee or in the event Employee accepts representation of a client of the Employer, it is agreed as follows:
1. Employee acknowledges that he (she) would work on any on-going case or on-going file matters for such client on behalf of and in the interest of the Employer and shall compensate to the Employer the greater of fifty percent (50%) of any fee received from said client or the Firm's quantum meruit.
2. As to subparagraph A.2. the Employer's damages are not readily calculable and that Employer is entitled to injunctive relief to enforce said covenants, there being no adequate remedy at law.
The associate is declining to sign the agreement, asserting that doing so would be contrary to Rules 4-1.4, 4-1.5(g), and 4-5.6(a) of the Rules of Professional Conduct of The Florida Bar. There being no direct authority in Florida on the ethics issues raised by this inquiry, the attorney asks for guidance from this Committee.
Rule 4-5.6 provides, in relevant part:
A lawyer shall not participate in offering or making:
(a) A partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement[.]
The prohibition contained in Rule 4-5.6 seeks to protect the professional autonomy of lawyers as well as clients' access to the lawyer of their choosing. Comment, Rule 4-5.6. As this state's highest court has noted: The "special trust and confidence" inherent in an attorney-client relationship dictates "that clients be given greater freedom to change legal representatives than might be tolerated in other employment relationships." Rosenberg v. Levin, 409 So. 2d 1016, 1021 (Fla. 1982). Thus, termination agreements among lawyers are scrutinized more closely than restrictive covenants found in traditional commercial settings. Dwyer v. Jung, 336 A. 2d 498, 500 (N.J. Super.Ct.Ch.Div. 1975).
On their face, the contract provisions in question do not expressly prohibit a lawyer who leaves the firm from thereafter representing "firm clients." Because the provisions mandate that payments be made from the departing attorney to the firm, however, the question becomes whether the contract creates a "financial disincentive" that in fact operates to preclude the departing attorney from accepting representation of such clients.
In varying contexts, courts and ethics committees from other jurisdictions have considered whether certain financial disincentive provisions in law firm partnership or employment agreements act as impermissible restrictions on an attorney's right to practice after termination of the partnership or employment relationship. In Opinion 459, for example, the Texas State Bar Professional Ethics Committee was faced with an inquiry substantially similar to the one presented here. For the same reasons given by the Texas Bar in disapproving the associate employment agreement at issue there, we find section (B)(1) of the employment contract in the instant inquiry ethically impermissible:
The interjection of a fee to a third party obviously impairs the creation of a lawyer-client relationship between the departing lawyer and clients of his former firm.... The lawyer may be unwilling to work at substantially reduced rates for even his best clients, and pressure against acceptance in favor of clients paying full value to the firm would rise within the new employer. The attorney would thus be compelled to decline employment and the client would be deprived of the attorney of his choice.
In reaching our conclusion, we do not suggest that every termination compensation clause in an employment agreement violates Rule 4-5.6(a). See Florida Ethics Opinion 84-1, as modified [withdrawn]. In fact, when appropriately drawn, such clauses "offer an orderly and practical transition for the dissolution of law practices." Cohen v. Graham, 722 P. 2d 1388, 1391 (Wash. Ct. App. 1986). Thus, a compensation provision that is specifically designed to avoid time-consuming, quantum meruit analyses may be contrasted with an essentially punitive clause intended to restrict competition. In our estimation the agreement presented here falls into the latter category because, by way of example, the firm would be entitled to 50% of any fee ultimately received by the departing associate from a client who came to the firm the day before the associate terminated employment. While perhaps less egregious, other examples of the restrictive nature of the termination clause could easily be imagined.
Similar concerns arise with respect to section (A)(2) of the employment agreement, at least as it applies to lawyers of the firm. By prohibiting a departing attorney from attempting to hire other lawyers from the firm, the agreement restricts the right of association between attorneys and, indirectly, the right to practice. ABA Informal Opinion 1417. In our opinion, therefore, this provision also violates Rule 4- 5.6(a) as it pertains to attorneys of the firm.
We also agree with the inquirer that Rule 4-1.4 of the Rules of Professional Conduct is implicated here. That rule provides:
(a) Informing Client of Status of Representation. A lawyer
shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.
(b) Duty to Explain Matters to Client. A lawyer shall
explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
The duty to provide clients with information relevant to their case would ostensibly include the fact that the attorney is leaving the firm. See Florida Ethics Opinions 66-44 [withdrawn]; 69-1; 71-62; 84-1 [withdrawn]. The employment agreement in question prohibits a departing employee from "seeking, directly or indirectly, any of the Employer's clients." To the extent that the prohibition on "indirect" solicitation could be read to limit an attorney's duty, imposed by the above rule, to notify clients of the attorney's departure from the firm, it does not comport with the Rules of Professional Conduct.
Because we have found the employment agreement to be an impermissible restriction on an attorney's right to practice in violation of Rule 4-5.6(a), we need not address whether the agreement also violates Rule 4-1.5(g), the fee division rule.