Can a D.C. law firm make a departing lawyer pay liquidated damages for competing, or penalize the lawyer for working with former colleagues?
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Plain-English summary
Opinion 368 (published February 2015) answers three questions about restrictions a D.C. firm might place on a departing lawyer. Rule 5.6(a) prohibits a partnership, employment, or similar agreement that restricts a lawyer's right to practice after the relationship ends (except for retirement benefits), because such restrictions limit both clients' freedom to choose counsel and the lawyer's professional autonomy. The opinion notes the D.C. Court of Appeals enforced this principle in Neuman v. Akman, and that the prohibition reaches not only outright non-competes but also, per Comment [2], restrictions that impose a substantial financial penalty for competing.
On the first question, liquidated damages, the opinion concludes a departing lawyer may not be subjected to liquidated damages for later competing with the former firm. It explains that liquidated damages are fixed before any breach and are viewed skeptically by D.C. courts, and that using them to penalize competition runs into Rule 5.6(a). The opinion preserves the firm's and lawyer's ability to be responsible to one another for the value of work completed before the lawyer left.
On the second question, the opinion concludes a firm may not impose a financial penalty on a departing lawyer for professionally associating or affiliating with the firm's former partners or employees (lawyer or nonlawyer), except to the extent such activity is limited by law outside the Rules. On the third question, choice of law, the opinion concludes the answer is more complex: whether a choice-of-law clause in a partnership or employment agreement can displace D.C. Rule 5.6(a) in favor of another jurisdiction's differing rule usually depends, under Rule 8.5(b)(2), on the jurisdiction where the departing lawyer principally practiced.
In practice
Under the D.C. rules as they stood at the time of the opinion, a firm drafting or enforcing a departure agreement may not include liquidated damages triggered by a former lawyer's competition, and may not penalize a departed lawyer for associating with the firm's former partners or employees, beyond limits imposed by law outside the Rules. The opinion concludes the firm and the departing lawyer may still allocate responsibility for the value of work completed before departure.
The opinion concludes that a choice-of-law clause attempting to substitute another jurisdiction's rule for D.C. Rule 5.6(a) usually will be evaluated under Rule 8.5(b)(2) by reference to where the departing lawyer principally practiced. Because the opinion predates later rule developments, verify the current D.C. rules before relying on specific requirements.
Common questions
Q: Can a D.C. firm charge a departing lawyer liquidated damages for competing?
A: The opinion concludes no. Under Rule 5.6(a), a firm may not provide for or impose liquidated damages on a lawyer who competes with the firm after departure.
Q: Can the firm penalize the lawyer for working with former firm colleagues?
A: The opinion concludes no; a firm may not impose a financial penalty on a departed lawyer for professionally associating with the firm's former partners or employees, except as limited by law outside the Rules.
Q: Can the firm and the departing lawyer still owe each other anything?
A: The opinion concludes yes; they may be responsible to one another for the value of work completed before the lawyer's departure.
Q: Can a choice-of-law clause avoid D.C.'s rule against practice restrictions?
A: The opinion concludes it usually depends, under Rule 8.5(b)(2), on the jurisdiction where the departing lawyer principally practiced.
Background and rules framework
The opinion interprets D.C. Rule 5.6(a) (no agreement restricting a lawyer's right to practice after the relationship ends, except retirement benefits) and its Comments [1] and [2], together with Rule 8.5(b)(2) (disciplinary authority and choice of law) and Rule 8.4. It relies on Neuman v. Akman (D.C. 1998) and a line of D.C. opinions (65, 122, 194, 241, 325).
Citations and references
Rules of Professional Conduct:
- D.C. RPC 5.6(a) / Model Rule 5.6 (no restrictions on the right to practice)
- D.C. RPC 8.5(b)(2) / Model Rule 8.5 (disciplinary authority; choice of law)
- D.C. RPC 8.4 / Model Rule 8.4 (misconduct)
Cases:
- Neuman v. Akman, 715 A.2d 127 (D.C. 1998), restrictions limiting practice are prohibited
- Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989), financial-penalty restriction invalid
- District Cablevision Ltd. P'ship v. Bassin, 828 A.2d 714 (D.C. 2003), scrutiny of liquidated damages
Other opinions cited:
- D.C. Bar Legal Ethics Ops. 65, 122, 194, 241, 325: restrictions on lawyer mobility disapproved
See also
- ABA Formal Op. 06-444: Restrictive Covenants and Retirement Benefits
- ABA Formal Op. 99-414: Ethical Obligations When Changing Firms
- DC Ethics Op. 372: Ethical Considerations in Law Firm Dissolutions
- DC Ethics Op. 391: Firm-Government Agreements Limiting Practice
Source
- Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-368
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