Can a law firm make an associate sign an agreement to pay the firm a percentage of fees earned after departure from clients who follow the associate?
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This page answers the general question as of 2021. Ezel answers yours: whether it's allowed on your facts, under the current Ohio Rules of Professional Conduct, with citations.
Plain-English summary
A firm proposed requiring associates, at the start of employment, to sign a separation provision: on departure, client files would be interim-billed; the associate could leave with the files of clients who chose to follow; if the departing client had been generated by the associate, no payment was owed; but if the client had not been generated by the associate, the associate had to pay the firm a percentage of fees generated thereafter for two years. The Board concluded the firm may not require this.
The Board analyzed the provision under Prof.Cond.R. 5.6, which bars offering or making an employment agreement that restricts a lawyer's right to practice after the relationship ends (except incident to retirement benefits or sale of a practice). The rationale, drawn from the comments and prior authority, is that such restrictions limit a lawyer's professional autonomy and a client's freedom to choose counsel, and that a client does not belong to a lawyer or firm. The Board recalled its Adv. Op. 2019-04 analysis: a provision can restrict the right to practice even without directly barring representation, if it gives the lawyer significantly less discretion in pursuing future claims. Citing Cincinnati Bar Assn. v. Hackett, where the court struck a 95-percent fee-payback clause, the Board reasoned that requiring a departing attorney to pay a percentage of future fees burdens the attorney and impairs the client's right to choose counsel, operating as an economic deterrent whose purpose is to discourage competition.
The Board also found the provision implicates Prof.Cond.R. 1.5(e), which permits division of fees between lawyers not in the same firm only on specified conditions (proportional services or joint responsibility, written client consent, signed closing statement for contingent fees, and a reasonable total fee). Comment [8] addresses fees for work done while previously associated, but the rule is silent as to work done after departure. Enforcing the provision would impose a division of fees without the client's input or consent, and without the firm maintaining joint responsibility.
In practice
Under this opinion, an Ohio firm may not require an associate to agree, as a condition of employment, to pay the firm a percentage of fees earned after departure from clients who elect to remain with the associate. Per the opinion, the analysis turns on whether the provision restricts the lawyer's right to practice (an economic deterrent that gives the departing lawyer significantly less discretion than a lawyer not bound by it impairs the client's choice of counsel under Prof.Cond.R. 5.6) and on whether it imposes a fee division that fails the conditions of Prof.Cond.R. 1.5(e).
Common questions
Q: Can a firm make a departing associate pay back a share of future fees from clients who follow them?
A: The opinion concludes no. Such a provision is an impermissible restriction on the right to practice under Prof.Cond.R. 5.6, because it operates as an economic deterrent that impairs the client's freedom to choose counsel.
Q: Does it matter whether the associate originally brought in the client?
A: The proposed provision exempted clients the associate had generated and applied only to other clients. The Board nonetheless concluded the payback requirement on those other clients impermissibly restricted the right to practice and improperly divided fees.
Q: Why is the clause also a fee-division problem?
A: Per the opinion, Prof.Cond.R. 1.5(e) allows division of fees between lawyers not in the same firm only with client consent and the other listed conditions. Enforcing the clause would divide fees paid by the client without the client's consent and without the firm maintaining joint responsibility.
Background and rules framework
The opinion interprets Ohio Prof.Cond.R. 5.6 (restrictions on the right to practice; Model Rule 5.6) and Prof.Cond.R. 1.5(e) and cmt. [8] (division of fees between lawyers not in the same firm; Model Rule 1.5). It draws on the Board's prior Adv. Op. 2019-04 and on the Ohio Ethics Guide "Switching Firms" (2017). The opinion withdraws Adv. Op. 91-03.
Citations and references
Rules of Professional Conduct:
- Ohio Prof.Cond.R. 5.6 and cmts. [1], [3] (Model Rule 5.6)
- Ohio Prof.Cond.R. 1.5(e) and cmt. [8] (Model Rule 1.5)
Cases:
- Cincinnati Bar Assn. v. Hackett, 129 Ohio St.3d 186, 2011-Ohio-3096, striking a fee-payback clause that deterred client choice of counsel
- Kala v. Aluminum Smelting & Refining Co., 81 Ohio St.3d 1, 688 N.E.2d 258 (1997), public-policy interest in a party's choice of counsel
Other opinions and authorities cited:
- Ohio BPC Adv. Op. 2019-04: less obvious restrictions on the right to practice
- Ohio BPC Adv. Op. 90-14
- Ohio Bd. of Prof. Cond., "Switching Firms," Ohio Ethics Guide (2017)
- Ohio BPC Adv. Op. 91-03 (withdrawn by this opinion)
See also
- Ohio BPC Op. 1991-003: Separation Provision and Fee Payback by a Departing Associate
- Ohio BPC Op. 2020-001: Covenant Not to Compete Offered to In-House Counsel
- Ohio BPC Op. 1990-014: Restrictive Covenant Against Competition Among Lawyers
Source
- Landing page: https://ohioadvop.org/advisory-opinion-index/
- Original PDF: https://www.ohioadvop.org/wp-content/uploads/2021/08/Adv.-Op.-2021-07-Final.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
OPINION 2021-7
Issued August 6, 2021
Withdraws Adv. Op. 91-03
Employment Agreements Regarding Division of Fees Earned Post-Separation
SYLLABUS: A law firm may not require an associate to sign an employment agreement
that requires the associate, upon leaving the firm, to pay the firm a percentage of fees
earned thereafter from clients who have elected to remain clients of the departing
associate.
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
PATRICIA A. WISE RICHARD A. DOVE
CHAIR DIRECTOR
HON. D. CHRIS COOK D. ALLAN ASBURY
VICE- CHAIR SENIOR COUNSEL
KRISTI R. MCANAUL
COUNSEL
OPINION 2021-7
Issued August 6, 2021
Withdraws Adv. Op. 91-03
Employment Agreements Regarding Division of Fees Earned Post-Separation
SYLLABUS: A law firm may not require an associate to sign an employment agreement
that requires the associate, upon leaving the firm, to pay the firm a percentage of fees
earned thereafter from clients who have elected to remain clients of the departing
associate.
QUESTION PRESENTED:
May a law firm require associates to sign an employment agreement, upon initial
employment, that contains a separation provision requiring a departing associate to pay
the firm a percentage of fees earned thereafter from clients who have elected to remain
clients of the departing associate?
The proposed separation provision in the employment agreement requires that: 1)
when an associate decides to depart, the clients' files would be interim billed; 2) the
associate could then leave with the files of the clients who choose to depart with the
associate; 3) if the departing client was generated by the departing attorney, then no
follow-up payment to the law firm is required; 4) if the departing client was not generated
by the departing associate, then the departing attorney is required to pay the firm a
percentage of fees generated thereafter for the next two years.
APPLICABLE RULES: Prof.Cond.R. 1.5 and 5.6.
Op. 2021-07 2
OPINION:
Restriction on right to practice
Lawyers are prohibited from offering or entering into an employment agreement
that restricts the right of a lawyer to practice after termination of the relationship, except
when incident to retirement benefits or upon sale of a law practice. Prof.Cond.R. 5.6, cmt.
[1], [3]. The rationale behind the rule is that restrictive covenants can limit a lawyer’s
professional autonomy and a client’s freedom to choose a lawyer. Id. at cmt. [1]; Adv.
Op. 90-14. The Court has recognized there is a strong public policy interest 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, 688 N.E.2d 258 (1997). Furthermore, a client does
not belong to a lawyer or a law firm, but rather the client has the power to choose counsel
of his or her choice. Ohio Bd. of Prof. Cond., Switching Firms, Ohio Ethics Guide (2017).
In a prior advisory opinion, the Board addressed Prof.Cond.R. 5.6 in the context
of settlement provisions. Adv. Op. 2019-04. The Board noted that while a proposed
provision in an agreement may not directly bar future representation by a lawyer, it may
have the practical effect of limiting the lawyer’s right to practice. Id. The Board further
reasoned, “[a]n analysis of less obvious restrictions under Prof.Cond.R. 5.6 requires a
determination of whether the lawyer is given significantly less discretion in pursuing
future claims than a lawyer not subject to the agreement. In those instances, the provision
constitutes an impermissible restriction on the practice of the lawyer.” Id.
In Cincinnati Bar Assn. v. Hackett, 129 Ohio St.3d 186, 2011-Ohio-3096, the Court
addressed a similar employment agreement wherein the departing associate was
required to pay the firm 95 percent of the attorney fees generated on cases in which the
clients followed the departing lawyer, regardless of the proportion of work each attorney
performed. The Court observed that a client’s absolute right to discharge a lawyer, at
any time with or without cause, subject to compensation for services rendered, would be
hollow if the discharged attorney could prevent other attorneys from representing the
client. Id. at ¶8. The Court concluded that if the employment agreement were enforced,
it would create an “economic deterrent for the departing attorney that would adversely
affect the clients’ right to retain an attorney of their own choosing.” Id. at ¶9.
Op. 2021-07 3
In the Board’s view, financial disincentives in an employment agreement, such as
requiring a departing attorney to pay a percentage of fees generated from work occurring
subsequent to departure, places both a burden on the departing attorney and impairs a
client’s right to choose counsel. The economic deterrent for the departing attorney may
discourage or prevent the departing associate from agreeing to continue to represent the
client, despite the client’s wishes. The purpose of the provision in the employment
agreement is to discourage competition. Moreover, as a result of the agreement, the
departing lawyer has significantly less discretion in agreeing to continue to represent the
client than a lawyer not subject to the agreement.
Fee Splitting
The proposed employment agreement also implicates Prof.Cond.R. 1.5(e), which
provides that lawyers not in the same firm may only divide fees if: 1) the fees are divided
in proportion to the services performed or both lawyers agree to be jointly responsible
for the representation; 2) the client gives written consent to the division of fees; 3) in the
event the fee agreement is contingent, both lawyers and the client sign the closing
statement; and 4) the total fees are reasonable. Comment [8] to the rule indicates that it
does not prohibit or regulate the division of fees to be received in the future for work done
when lawyers were previously associated in a law firm. The rule and comments are silent as
to fees related to work occurring by a lawyer subsequent to departure from a firm. If the
employment agreement were enforced, it would operate to impose the division of fees
paid by the client without input from the client. The client would not be required to
consent to the disposition of his or her fees and the law firm would not be required to
maintain joint responsibility for a matter which was ongoing and from which the firm
may ultimately benefit financially.
The Board advises against the use of employment agreements with a pre-arranged
separation provision requiring a departing associate to pay the firm a percentage of fees
earned thereafter from clients who have elected to remain clients of departing associate.
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