Does a law firm partnership agreement that makes retirement payments contingent on whether a departing member keeps practicing law violate California's rule against agreements restricting the right to practice?
LACBA Ethics Opinion 460: Retirement Payments Conditioned on Ceasing Practice
Short answer: The committee concluded that a partnership agreement making retirement payments contingent on whether a departing member continues to practice law does not violate former California Rule 1-500(A)'s prohibition on agreements restricting the right to practice, because such payments fall within the Rule 1-500(B)(2) exception for retirement payments.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Los Angeles County Bar Association's view of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The committee was asked about two partnership-agreement structures. Agreement A paid any withdrawing attorney a vested percentage of $100,000, increased by $400,000 if the employee permanently retired from the practice of law. Agreement B paid a fixed retirement compensation on a sliding scale by age, but suspended payments for a member under age 60 who continued to practice law elsewhere after termination, until that member reached age 60.
The committee concluded that the mere agreement to pay or suspend retirement compensation contingent on a member ceasing to practice law upon withdrawal is, in the first instance, a restrictive agreement within Rule 1-500(A), and it rejected the argument that the rule reaches only express prohibitions on practice rather than financial disincentives. The committee relied on Muggill v. Reuben H. Donnelley Corp. and on Cohen v. Lord, Day & Lord, which read a parallel disciplinary rule's express retirement exception as confirming that financial disincentives are otherwise covered.
The committee then held that both agreements fit the Rule 1-500(B)(2) exception, which permits agreements that require "payments to a member upon the member's retirement from the practice of law." Agreement A treated all retiring partners equally and paid more to those who retired, which the committee said the rule expressly authorizes. Agreement B's suspension of payments for a member who kept practicing was likewise within the exception; the committee noted the new rule had dropped the former requirement that retirement be "permanent," indicating the determination can be ongoing.
The committee added that a bona fide definition of retirement that is less restrictive than complete cessation of practice (for example, allowing a member to practice after age 60 or to enter public service) does not violate Rule 1-500, provided the agreement viewed as a whole does not proscribe the practice of law or the representation of clients.
Currency note
This opinion was issued in 1990, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. It interprets former Rule 1-500 (restrictions on a member's right to practice), which derived from former Rule 2-109 and corresponds to current Rule 5.6. 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 mentioned here.
Common questions
Q: Can a California law firm condition extra retirement money on a partner not practicing law after leaving?
A: Per the opinion, yes. The committee concluded that retirement payments contingent on a member's retirement from practice fall within the Rule 1-500(B)(2) exception, even though such a condition would otherwise be a restrictive agreement under Rule 1-500(A).
Q: Does it matter that the agreement is only a financial disincentive rather than an outright ban on practice?
A: The committee rejected the argument that Rule 1-500(A) reaches only express prohibitions. Citing Cohen v. Lord, Day & Lord, it treated financial disincentives as within the general prohibition, which is why the analysis turned on whether the (B)(2) retirement exception applied.
Q: Can the agreement define "retirement" to allow some continued practice?
A: Per the opinion, yes. The committee concluded that a bona fide definition of retirement less restrictive than complete cessation (such as permitting practice after age 60 or in public service) is within the (B)(2) exception, as long as the agreement does not otherwise restrict the right to practice or preclude clients from seeking the member's services.
Background and rules framework
The opinion interprets former California Rule of Professional Conduct 1-500 (agreements restricting a member's right to practice), which derived from former Rule 2-109 and corresponds to ABA Model Rule 5.6. Subsection (A) prohibits agreements that restrict the right of a member to practice law; subsection (B)(2) excepts agreements requiring payments to a member upon retirement from the practice of law. The committee identified the rule's public policy as ensuring that a client's right to counsel of choice is not interfered with by restrictive covenants between lawyers, and it analyzed the relationship between Rule 1-500 and Business and Professions Code section 16600 (restraints on lawful professions).
Citations and references
Rules of Professional Conduct (former):
- California Rule 1-500 (agreements restricting the right to practice), derived from former Rule 2-109
Statutes:
- California Business and Professions Code section 16600 (restraint of lawful profession, trade, or business)
Cases:
- Muggill v. Reuben H. Donnelley Corp., 62 Cal.2d 239 (1965), suspension of retirement pay on competition void under section 16600
- Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989), financial disincentives reached by parallel disciplinary rule
- Gray v. Martin, 63 Or.App. 173 (1983)
- Miller v. Foulston, Siefkin, Powers & Eberhard, 246 Kan. 450 (1990), purpose of the rule is the public's right to counsel of choice
See also
- LACBA Ethics Op. 480: Restriction on Lawyer Competition in a Partnership Agreement
- LACBA Ethics Op. 468: Restrictions on Practice Through Settlement Agreements
- LACBA Ethics Op. 532: Lawyer Indemnity of Opposing Party as a Settlement Condition
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010983