Can a law firm make an associate sign an employment agreement that financially penalizes the associate for taking firm clients after leaving?

Plain-English summary

An associate was asked to sign an employment agreement under which, for two years after termination, the associate would not seek the firm's clients or induce employees to leave; if the associate took a firm client, the associate would owe the firm the greater of 50% of any fee received or the firm's quantum meruit, and the firm could seek injunctive relief. The associate declined to sign, asserting the agreement was contrary to Rules 4-1.4, 4-1.5(g), and 4-5.6(a), and asked for guidance.

The committee set out Rule 4-5.6(a), which prohibits a partnership or employment agreement that restricts a lawyer's right to practice after termination (except agreements concerning retirement benefits), explaining the rule protects lawyers' professional autonomy and clients' access to the lawyer of their choosing. Although the provisions did not expressly bar representing firm clients, because they required payments from the departing attorney to the firm, the question became whether they created a financial disincentive that in fact precluded the departing attorney from accepting such representation. Following the Texas State Bar's reasoning in its Opinion 459 on a similar agreement, the committee found section (B)(1) ethically impermissible, since the firm would be entitled to 50% of any fee even from a client who came to the firm the day before the associate left. The committee noted it was not suggesting every termination-compensation clause violates Rule 4-5.6(a); an appropriately drawn clause designed to avoid quantum meruit disputes differs from an essentially punitive clause intended to restrict competition.

The committee also found section (A)(2), barring the departing attorney from hiring other firm lawyers, restricted the right of association between attorneys and indirectly the right to practice, in violation of Rule 4-5.6(a). It further agreed that Rule 4-1.4 was implicated: the duty to keep clients informed includes notifying them of the attorney's departure, so a prohibition on "indirect" solicitation that could limit that duty does not comport with the rules. Having found the agreement an impermissible restriction under Rule 4-5.6(a), the committee did not reach whether it also violated Rule 4-1.5(g).

Currency note

This opinion was issued in 1995, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a firm financially penalize an associate for representing firm clients after leaving?

A: Under this opinion, a clause requiring the departing associate to pay the firm 50% of fees from firm clients violated Rule 4-5.6(a), because it created a financial disincentive that would preclude representing those clients.

Q: Does every termination-compensation clause violate the rule?

A: No; the committee said an appropriately drawn clause designed to avoid quantum meruit disputes differs from a punitive clause intended to restrict competition, and only the latter offends Rule 4-5.6(a).

Q: What did the opinion say about notifying clients of a departure?

A: Per the opinion, the duty to keep clients informed (Rule 4-1.4) includes telling them of the attorney's departure, so a ban on "indirect" solicitation that would limit that duty does not comport with the rules.

Background and rules framework

The opinion applied Rule 4-5.6(a) (restrictions on the right to practice; Model Rule 5.6), Rule 4-1.4 (keeping clients informed; Model Rule 1.4), and referenced Rule 4-1.5(g) (fee division; Model Rule 1.5) without deciding it.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.6 / Fla. Rule 4-5.6(a) (restrictions on the right to practice)
• Model Rule 1.4 / Fla. Rule 4-1.4 (keeping clients informed)
• Model Rule 1.5 / Fla. Rule 4-1.5(g) (division of fees; not reached)

Cases:

• Rosenberg v. Levin, 409 So. 2d 1016 (Fla. 1982), clients' freedom to change counsel
• Dwyer v. Jung, 336 A.2d 498 (N.J. Super. Ct. Ch. Div. 1975), close scrutiny of termination agreements among lawyers
• Cohen v. Graham, 722 P.2d 1388 (Wash. Ct. App. 1986), appropriately drawn transition clauses

Other opinions cited:

• Fla. Ethics Ops. 66-44 (withdrawn), 69-1, 71-62, 84-1 (withdrawn); ABA Informal Opinion 1417; Texas Opinion 459

See also

• FL Bar Ethics Op. 04-2: Restrictions on the Right to Practice in Settlements
• FL Bar Ethics Op. 94-1: A Departing Lawyer's Fee Split With Her Former Firm
• FL Bar Ethics Op. 00-1: Keeping a Retired Partner's Name in the Firm Name

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-93-4/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-93-4.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 93-4
February 17, 1995
Advisory ethics opinions are not binding.
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.