Can a law firm partnership agreement make departing partners forfeit compensation if they compete with the firm?

Plain-English summary

A law firm partnership agreement provided that former partners who directly or indirectly competed with the firm during the year after withdrawing would forfeit 20% of the amounts otherwise payable to them as ex-partners. The provision applied to all departures, not only retirement.

The opinion concluded that such a provision violates Rule 5.6(a) and is improper. Rule 5.6(a) bars a lawyer from offering or making a partnership or employment agreement that restricts a lawyer's right to practice after the relationship ends, except an agreement concerning retirement benefits. The opinion reasoned that a forfeiture-for-competition clause is an improper restriction on the lawyer's right to practice and, more particularly, on a prospective client's right to be represented by counsel of the client's own choosing. It noted this had been the Association's consistent position, citing prior opinions 93-13, 91-12, 86-16, 84-15, and 628.

The opinion observed that Illinois courts had confirmed this view. It cited Stevens v. Rooks, Pitts & Poust, where the court held Rule 5.6(a) applied to a pre-existing agreement and treated a financial-disincentive clause requiring forfeiture of compensation for competing as a restrictive covenant violating Rule 5.6(a) and public policy, and Dowd & Dowd v. Gleason. On the second question, whether such a provision is unenforceable, the committee declined to opine, stating that enforceability is reserved to the courts to decide case by case.

Currency note

This opinion was issued in 1998, before Illinois adopted the 2010 Illinois Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in January 2010 as generally consistent with the 2010 Rules (referring to Rule 5.6 and its Comment [1]), while noting the specific standards referenced may differ from the 2010 Rules. 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 Treat this page as historical context, not current guidance.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 or requirement mentioned here.

Common questions

Q: Can a firm make a departing partner forfeit pay for competing?

A: No. The opinion concluded that a clause forfeiting a portion of a departing partner's compensation for competing with the firm violates Rule 5.6(a) as an improper restriction on the right to practice.

Q: Does the retirement-benefits exception save the clause?

A: No. The opinion noted the agreement did not concern only retirement benefits but applied to all departures, so the Rule 5.6(a) exception for retirement-benefit agreements did not apply.

Q: Did the opinion say the clause is unenforceable in court?

A: No. The committee declined to opine on enforceability, stating that whether such a contractual provision is enforceable is reserved to the courts to determine case by case.

Background and rules framework

The opinion interpreted Illinois Rule 5.6(a) (restrictions on a lawyer's right to practice; Model Rule 5.6(a)), which prohibits a partnership or employment agreement restricting practice after the relationship ends, except an agreement concerning retirement benefits. It read the rule against Illinois decisions applying it to forfeiture-for-competition clauses.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.6(a) (restrictions on the right to practice) / Illinois Rule 5.6(a)

Cases:

• Stevens v. Rooks, Pitts & Poust, 289 Ill.App.3d 991, 682 N.E.2d 1120 (1st Dist. 1997), forfeiture-for-competition clause violates Rule 5.6(a)
• Dowd & Dowd v. Gleason, 181 Ill.2d 460, 693 N.E.2d 358 (1998), noncompetition covenants under Rule 5.6

Other opinions cited:

• ISBA Advisory Opinions Nos. 93-13, 91-12, 86-16, 84-15, and 628: consistent position barring practice-restricting agreements

See also

• ISBA Ethics Op. 97-05: For-Profit Lawyer Referral Service
• ISBA Ethics Op. 97-07: Lawyer-Owned Public-Notice Advertising Company

Source

• Landing page: https://www.isba.org/ethics/opinions/9709