Can a company make in-house counsel sign a non-compete or a broad confidentiality clause that limits practicing law after leaving?

Plain-English summary

The Committee addressed whether employment or stock-award agreements imposing a covenant not to compete or a confidentiality agreement on in-house counsel violate Rule 5.6. The facts involved an in-house lawyer who, in consideration for a stock award, signed a one-year non-compete barring "any activities worldwide" similar to the employer's, plus a confidentiality clause covering anything resulting from "any task" assigned to the lawyer; after termination the lawyer took an in-house role at a competitor and the former employer sought to enforce the covenants.

The Committee concludes the covenant not to compete violates Rule 5.6, which is identical to Model Rule 5.6 and bars agreements that restrict a lawyer's right to practice after the relationship ends, except agreements concerning retirement benefits. Rule 5.6 applies to in-house counsel, not just law firms, and bars both offering and accepting such restrictions (citing ABA Formal Op. 94-381). Because the non-compete did not distinguish between legal and non-legal work and, by its unqualified terms, restricted the practice of law, it violated Rule 5.6. The Committee distinguishes cases like Howard v. Babcock and Fearnow, where agreements merely attached a financial consequence to competition; here the agreement conditioned the stock award itself on not competing, an outright restraint rather than a financial disincentive. A generic severance clause does not cure the violation; compliance requires a carve-out or a specific savings clause referencing Rule 5.6.

The Committee also concludes the confidentiality clause was too broad and violated Rule 5.6. A confidentiality agreement is acceptable only if it does not exceed Rule 1.6 and does not restrict the right to practice. Here, the clause reached beyond client confidences to all information "suggested by or resulting from any task," which would bar the lawyer from using legal knowledge and research acquired on the job, expanding Rule 1.6 and 1.9 and restraining practice. The Committee notes that an in-house lawyer is already bound by Rule 1.6 and Rule 1.9(c), so a broader contractual confidentiality restriction is both superfluous and improper, and recommends a self-executing savings clause referencing Rules 5.6, 1.6, and 1.9.

In practice

Under this opinion, a Nevada company and its in-house counsel both risk a Rule 5.6 violation if an employment or stock agreement restricts the lawyer's right to practice after leaving. Per the opinion, an outright non-compete that reaches legal work is impermissible, while an agreement that merely attaches a reasonable economic consequence to competition is treated differently. A confidentiality clause must not exceed the lawyer's existing Rule 1.6 and Rule 1.9 duties or restrict practice. The Committee identifies a cure: a self-executing savings clause that specifically references Rules 5.6, 1.6, and 1.9 and provides that the covenants are interpreted consistent with those Rules.

Common questions

Q: Does Rule 5.6 apply to in-house counsel, or only to law firms?

A: It applies to in-house counsel. The opinion concludes Rule 5.6 contains no language limiting it to law firms and bars both offering and accepting in-house employment terms that restrict the lawyer's right to practice.

Q: Is a one-year non-compete on an in-house lawyer enforceable as an ethics matter?

A: No, as written. The opinion concludes that an unqualified non-compete reaching legal work restricts the lawyer's practice and the next employer's freedom to hire, violating Rule 5.6.

Q: What about an agreement that just imposes a financial cost for competing?

A: That is treated differently. The opinion distinguishes cases upholding provisions that attach a reasonable economic consequence to competition, as opposed to an outright bar; here the stock award itself was conditioned on not competing.

Q: Can a company require a confidentiality agreement from in-house counsel?

A: Yes, if narrow. The opinion concludes a confidentiality clause is permissible only if it does not exceed Rule 1.6 and does not restrict the right to practice; an overbroad clause covering all work product violates Rule 5.6.

Q: How can the agreement be fixed?

A: With a savings clause. The opinion recommends a self-executing clause that specifically references Rules 5.6, 1.6, and 1.9 and requires the covenants to be interpreted consistent with those Rules.

Background and rules framework

The opinion interprets Nevada RPC 5.6 (restrictions on a lawyer's right to practice), which is identical to Model Rule 5.6, together with Nevada RPC 1.6 (confidentiality) and Rule 1.9 (duties to former clients). It applies Rule 8.5 (disciplinary authority over Nevada lawyers, including in-house counsel admitted for limited practice under SCR 49.10).

Citations and references

Rules of Professional Conduct:

• Nevada RPC 5.6 / Model Rule 5.6 (no agreement restricting the right to practice, except retirement)
• Nevada RPC 1.6 / Model Rule 1.6 (confidentiality of information)
• Nevada RPC 1.9 / Model Rule 1.9 (duties to former clients)
• Nevada RPC 8.5 (disciplinary authority)

Court rules:

• Nevada S.C.R. 49.10 (limited practice as in-house counsel)

Cases:

• Howard v. Babcock, 863 P.2d 150 (Cal. 1994), reasonable economic toll on competing partners does not restrict practice
• Fearnow v. Ridenour, Swenson, Cleere & Evans, P.C., 138 P.3d 723 (Ariz. 2006), financial disincentive evaluated for reasonableness
• Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 550 N.E.2d 410 (1989), forfeiture of earned income conditioned on not competing is unenforceable

Other opinions cited:

• ABA Formal Op. 94-381 (1994), Informal Op. 1301 (1975), Formal Op. 06-444 (2006)
• NJ ACPE Op. 708 (2006); NY State Bar Op. 858 (2011); WA Advisory Op. 2100 (2005); CT Informal Op. 02-05 (2002)

See also

• NJ ACPE Op. 708: Restrictive Covenants for In-House Counsel
• ABA Formal Op. 06-444: Restrictive Covenants and Retirement Benefits
• NV Ethics Op. 57: Out-of-State In-House Counsel

Source

• Landing page: https://nvbar.org/for-lawyers/ethics-discipline/ethics-opinions/
• Original PDF: https://nvbar.org/wp-content/uploads/NV-Ethics-Opinion-56-re-In-House-Employment_Stock-Agreement.pdf