Can a law firm condition a partner's retirement benefits on the partner agreeing not to keep practicing law?

Plain-English summary

The opinion interprets Model Rule 5.6(a), which broadly prohibits agreements that restrict a lawyer's right to practice after leaving a firm or an employer. The committee explains that such restrictions are disfavored because they limit the lawyer's professional autonomy and the freedom of clients to choose their counsel, so even time-limited or geographically limited non-compete covenants, and provisions that forfeit money if the departing lawyer competes, are generally impermissible. The Rule contains one exception: restrictions incident to provisions concerning retirement benefits for service with the firm.

The committee's central point is that the label "retirement benefit" is not dispositive. A firm cannot simply relabel a capital account or earned income to penalize lawyers who leave and compete. To qualify, a benefit must be one that is available only to lawyers who are in fact retiring and thereby winding down their legal careers, which generally requires minimum age and years-of-service thresholds consistent with retirement. The committee declines to require the "Rule of 75" benchmark some firms use, but it lists non-dispositive indicia of a genuine retirement benefit: benefit-calculation formulas, benefits that increase with years of service, lifetime payouts, coordination with other retirement income such as Social Security, and a structure that separates withdrawal provisions from retirement provisions.

Once a benefit qualifies, the committee says the firm has room to design the restriction. It may require permanent cessation of practice, or limit the restriction by time, geography, or type of practice, and may carve out non-competitive public-interest work such as service as a judge, professor, government lawyer, public defender, or legal-services or nonprofit in-house counsel. Because these covenants are preconditions to receiving benefits rather than absolute bans, a lawyer remains free to keep practicing and forfeit the benefits, with penalties that may include forfeiture of future benefits and even disgorgement of benefits already received. The committee stresses that the exception "must therefore be construed strictly and narrowly."

In practice

Under this opinion, a firm may tie a true retirement benefit to a covenant not to practice, but it cannot use the retirement label to claw back a departing lawyer's earned compensation or capital. The opinion makes the analysis turn on whether the benefit is genuinely available only to retiring lawyers, identifying age and years-of-service gating and the other listed indicia as the markers. Because the opinion interprets the Model Rule and many states have their own 5.6 case law, the page reflects the committee's framework rather than the rule in any particular jurisdiction.

Common questions

Q: Can my firm make me give up my pension if I join a competitor after I leave?

A: Only if the pension is a genuine retirement benefit. The opinion concludes Rule 5.6(a) permits a restriction tied to a benefit that "is available only to lawyers who are in fact retiring and thereby terminating or winding down their legal careers."

Q: Does calling a payment a "retirement benefit" make the covenant valid?

A: No. The committee said the label "is, of course, not dispositive," and a forfeiture of income already earned, like a capital account, cannot be restricted under the retirement exception.

Q: Can the firm require me to stop practicing law entirely to collect?

A: Yes, for a qualifying benefit. The opinion states a firm "may properly require that a lawyer receiving bona fide 'retirement benefits' cease the practice of law permanently," and may also limit the restriction by time, geography, or practice area.

Q: Is there a bright-line test like the "Rule of 75"?

A: No. The committee declined to hold that Rule 5.6(a) requires the Rule of 75, and said meeting it does not by itself make a payment a retirement benefit; it instead listed several non-dispositive indicia.

Background and rules framework

The opinion interprets Model Rule 5.6(a) and its Comment [1], which permits "restrictions incident to provisions concerning retirement benefits," and references Model Rule 1.17 (sale of a law practice) by analogy. It surveys a substantial body of state-court decisions applying Rule 5.6 to forfeiture-on-competition and non-compete provisions in partnership and shareholder agreements.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 5.6(a) and Comment [1] (restrictions on the right to practice; retirement-benefits exception)
• ABA Model Rule 1.17 (sale of a law practice), cited by analogy

Cases:

• Cohen v. Lord, Day & Lord, 551 N.Y.S.2d 157 (N.Y. 1989), forfeiture-for-competition provision
• Borteck v. Riker, Danzig, 844 A.2d 521 (N.J. 2004), retirement-benefit exception
• Schoonmaker v. Cummings & Lockwood, 747 A.2d 1017 (Conn. 2000), enforceability of departure terms

Other opinions cited:

• D.C. Bar Legal Ethics Op. 325 (2004)
• Indiana State Bar Op. 3 of 1994; South Carolina Op. 91-20; Connecticut Op. 89-26

See also

• ABA Formal Op. 468: Facilitating the Sale of a Law Practice
• ABA Formal Op. 489: Obligations Related to Notice When Lawyers Change Firms
• ABA Formal Op. 487: Fee Division With a Client's Prior Counsel

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: 06-444.pdf