Can an in-house lawyer sign an employment contract with a non-compete that restricts practicing law after leaving the job?

Plain-English summary

A lawyer taking an in-house position involving both legal and business work asked whether he could sign an employment contract with a covenant not to compete barring work for a competitor for 12 to 24 months after leaving. The Board concluded he could not, to the extent the covenant would restrict the practice of law.

Although covenants not to compete are generally enforceable in Ohio if reasonable (Raimonde v. Van Vlerah), the Board explained that standard does not apply to lawyers. Prof.Cond.R. 5.6(a) prohibits a lawyer from participating in offering or making a partnership, shareholder, operating, employment, or similar agreement that restricts the lawyer's right to practice after the relationship ends, except an agreement about retirement benefits. Such a restriction limits the lawyer's professional autonomy and clients' freedom to choose counsel (Prof.Cond.R. 5.6, cmt. [1]; Kala v. Aluminum Smelting & Refining Co.; Hackett v. Moore, citing Adv. Op. 1991-3). The Board, agreeing with authority applying Rule 5.6(a) to client-employers and in-house counsel (ABA Op. 94-381; Conn. Ethics Op. 02-05; N.J. Ethics Op. 708), concluded an employment contract offered by a client that restricts an in-house lawyer's future legal services implicates the prohibition.

The Board noted the prohibition reaches only restrictions on future legal services, not on non-legal job functions. A lawyer in a combined legal and business role should consider how much a covenant would prevent future legal practice, and may sign a covenant drafted to restrict only activities that do not constitute the practice of law. In a footnote, the Board observed that Prof.Cond.R. 5.6(a) also bars a lawyer from drafting or offering such a restrictive covenant against another lawyer.

In practice

The opinion holds that, under the Ohio Rules of Professional Conduct as they stood at the time, an in-house lawyer may not accept an employment contract containing a covenant not to compete that restricts the right to practice law after separation (Prof.Cond.R. 5.6(a)). Per the opinion, the prohibition reaches employment agreements offered by client-employers, not just traditional law-firm agreements. The opinion concludes that a lawyer in a mixed legal and business role may ethically sign a covenant drafted to restrict only activities that do not constitute the practice of law.

Common questions

Q: Can an in-house lawyer sign a non-compete restricting future legal practice?

A: The opinion concludes no. Prof.Cond.R. 5.6(a) bars agreements that restrict a lawyer's right to practice after the relationship ends, and that applies to in-house employment contracts offered by a client-employer.

Q: Does the usual "reasonableness" test for non-competes apply to lawyers?

A: The opinion concludes it does not; while non-competes are generally enforceable in Ohio if reasonable, that standard does not apply to a lawyer faced with a covenant restricting the practice of law.

Q: Is there any non-compete an in-house lawyer can sign?

A: The opinion concludes a lawyer may sign a covenant drafted to restrict only future activities that do not constitute the practice of law.

Background and rules framework

The opinion interprets Ohio Prof.Cond.R. 5.6(a) (restrictions on the right to practice; Model Rule 5.6) and references Prof.Cond.R. 1.4 (communication; Model Rule 1.4). It contrasts the rule with Ohio's general common-law standard for enforcing non-compete covenants.

Citations and references

Rules of Professional Conduct:

• Ohio Prof.Cond.R. 5.6(a) and cmt. [1] (Model Rule 5.6)
• Ohio Prof.Cond.R. 1.4 (Model Rule 1.4)

Cases:

• Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 325 N.E.2d 544 (1975), enforceability of non-compete covenants generally
• Kala v. Aluminum Smelting & Refining Co., 81 Ohio St.3d 1, 1998-Ohio-439, client's interest in counsel of choice
• Hackett v. Moore, 160 Ohio Misc.2d 107, 2010-Ohio-6298

Other opinions cited:

• ABA Formal Op. 94-381 and ABA Informal Op. 1301: restrictions imposed by a client
• Conn. Ethics Op. 02-05 (2002) and N.J. Ethics Op. 708 (2006): Rule 5.6 and in-house counsel
• Ohio BPC Adv. Op. 1991-03: lawyer autonomy outweighs an employer's interest in restricting competition

See also

• Ohio BPC Op. 1990-014: Restrictive Covenant Against Competition Among Lawyers
• Ohio BPC Op. 2019-004: Practice Restrictions in Proposed Settlement Agreements
• Ohio BPC Op. 2018-003: Settlement Prohibiting Disclosure of a Court Record

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2020/02/Adv.-Op.-2020-01-Final.pdf

Original opinion text

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

OPINION 2020-01
Issued February 7, 2020

Covenant Not to Compete Offered to In-house Counsel

SYLLABUS: An in-house lawyer may not agree to an employment contract with a covenant not to compete that would restrict the lawyer’s right to practice after separation of employment.

This nonbinding advisory opinion is issued by the Ohio Board of Professional Conduct in response to a prospective or hypothetical question regarding the application of ethics rules applicable to Ohio judges and lawyers. The Ohio Board of Professional Conduct is solely responsible for the content of this advisory opinion, and the advice contained in this opinion does not reflect and should not be construed as reflecting the opinion of the Supreme Court of Ohio. Questions regarding this advisory opinion should be directed to the staff of the Ohio Board of Professional Conduct. 65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431 Telephone: 614.387.9370 Fax: 614.387.9379 www.bpc.ohio.gov

HON. JOHN W. WISE
RICHARD A. DOVE
CHAIR
DIRECTOR
PATRICIA A. WISE
D. ALLAN ASBURY
VICE- CHAIR
SENIOR COUNSEL
KRISTI R. MCANAUL
COUNSEL

OPINION 2020-01
Issued February 7, 2020

Covenant Not to Compete Offered to In-house Counsel

SYLLABUS: An in-house lawyer may not agree to an employment contract with a covenant not to compete that would restrict the lawyer’s right to practice after separation of employment.

QUESTION PRESENTED: Whether a lawyer accepting employment as in-house
counsel performing a combination of both legal and business services may execute an employment contract with a covenant not to compete. The covenant would prohibit the lawyer from working for a business competitor for a term of 12-24 months after separation of employment.

APPLICABLE RULES: Prof. Cond. R 1.4, 5.6

OPINION: Employment contracts between businesses and licensed professionals may include a restrictive covenant preventing the employee from accepting employment with a competitor for a period of time or within a geographic area. A covenant not to compete is generally enforceable in Ohio if it is found to be reasonable. Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 26, 325 N.E.2d 544 (1975). However, this legal standard is not applicable to lawyers presented with a covenant not to compete by an employer. Prof.Cond.R. 5.6(a) prohibits a lawyer from entering into an agreement that restricts his or her right to practice law. The rule provides, in pertinent part:

A lawyer shall not participate in the offering or making:

(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to
Op. 2020-01
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practice after termination of the relationship, except an agreement concerning benefits upon retirement.

An agreement that restricts the right of a lawyer to practice after leaving employment limits the professional autonomy of the lawyer and the ability of clients to choose their lawyer. Prof.Cond.R. 5.6, cmt. [1]. In a case involving conflicts-of-interest, the Supreme Court of Ohio recognized that a strong public-policy interest exists in permitting a party’s “continued representation by counsel of his or her choice.” Kala v. Aluminum Smelting & Refining Co., 81 Ohio St.3d 1, 5-6, 1998-Ohio-439. Relying on Prof. Cond. R. 5.6 and a prior Board advisory opinion, an Ohio appellate court has recognized that a lawyer’s professional autonomy and a client's freedom of choice outweigh a business’s interest in protecting itself from competition. Hackett v. Moore, 160 Ohio Misc.2d 107, 2010-Ohio-6298 at ¶6, citing Adv. Op. 1991-3.

The prohibition in Prof.Cond.R. 5.6(a) has been interpreted as applying not only to a lawyer’s employment in a traditional law firm setting, but also to situations involving employment arrangements offered by clients. See generally, ABA Op. 94-381, ABA Informal Op. 1301 (the right to practice law is granted by the state and cannot be restricted by an agreement with a client restricting future employment.) Some jurisdictions have specifically concluded that the client-lawyer relationship formed when a business or corporation employs an in-house lawyer is subject to the prohibition contained Prof.Cond.R. 5.6(a). Conn. Ethics. Op. 02-05 (2002), N.J. Ethics Op. 708 (2006).

The Board similarly concludes that an employment contract offered by a client that restricts an in-house lawyer from providing legal services after separation from employment implicates the prohibition in Prof.Cond.R. 5.6(a). Consequently, a lawyer may not ethically agree to an employment contract with a covenant not to compete that will restrict his or her future legal practice after separation of employment.

In-house counsel engaging in both legal and business services

Lawyers occasionally are hired by businesses in positions providing a combination of both legal and business services. The prohibition in Prof.Cond.R. 5.6(a) applies to restrictions on a lawyer’s provision of future legal services, but not to job functions the lawyer may perform that do not constitute the practice of law. See Conn. Ethics. Op. 02- 05 (2002). A lawyer considering executing a contract with a covenant not to compete for a position that will provide both legal and business services should consider the extent
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the agreement will prevent the lawyer from providing legal services after separation of employment. As an alternative, a lawyer may execute an employment contract for an in- house position that is drafted in a manner to permissibly restrict only those future activities that do not constitute the practice of law. For example, the inclusion of a clause in an employment contact limiting the covenant not to compete to matters other than the practice of law allows the lawyer to ethically execute the contract without implicating the prohibition in Prof.Cond.R. 5.6(a). Id.1

CONCLUSION: A restriction on the right of a lawyer to practice limits the professional autonomy of the lawyer and ability of clients to select the counsel of their choice. A lawyer may not accept a contract for in-house employment that contains a covenant not to compete restricting his or her right to practice after separation of employment. In- house lawyers providing both business and legal functions should consider the impact of a restrictive covenant on their future practice. In such a situation a lawyer may ethically execute an employment agreement with a restrictive covenant that also contains a clause that limits the covenant only to matters other than the practice of law.

1While beyond the scope of this opinion, Prof.Cond.R. 5.6(a) also prohibits lawyers from participating in the drafting or offering of an employment contract that includes a covenant not to compete restricting another lawyer’s right to practice.