Can a discrimination plaintiff's lawyers, as part of the settlement, agree to be hired by the defendant employer to advise it on its employment practices, with the plaintiff waiving the conflict?
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This page answers the general question as of 1998. Ezel answers yours: whether it's allowed on your facts, under the current Virginia Rules of Professional Conduct, with citations.
Plain-English summary
A settlement resolving an employment-discrimination case provided that the plaintiff's lawyers (A and B), who had gained insight into the employer's policies in discovery, would meet with the employer's managers for at least eight hours and advise on changes to its employment practices, for a set fee, with optional further work at an hourly rate. The plaintiff acknowledged she likely could not later represent herself against the employer, released her claims, promised never to reapply, and expressly waived any conflict. The committee was asked whether the agreement violated DR 2-106(B) (no agreement that "broadly restricts" the right to practice), offended the appearance-of-impropriety precepts, or violated DR 5-105(D) (former-client conflict).
The committee held the agreement did not violate DR 2-106(B). Whether an agreement "broadly" restricts practice is fact-intensive, but the pivotal point was that the settlement contained no provision in which the lawyers agreed not to prosecute future claims against the employer; unlike LEO 649, the only restriction arose from the ordinary conflict rules (DR 5-105), which permit such representation with informed consent. The lawyers did not practice solely in employment discrimination, were not local to the employer, and had no other adverse representation pending or expected. The committee took the agreement on its face and would not speculate that hiring the lawyers was a ruse to "conflict them out."
The committee also found no DR 5-105(D) violation: the plaintiff released all claims and agreed never to reapply, so the post-settlement work for the employer would not be adverse to her, and in any event she waived any conflict after disclosure. It found no proprietary interest in the cause of action under DR 5-103(A), since the lawyers' employment was derivative of the settlement, not of the cause of action. The committee did hold that the lawyers' post-settlement fee from the defendant was a financial or business interest under DR 5-101(A) that could affect their judgment in negotiating the settlement, requiring full and adequate disclosure to and consent from the plaintiff, which the agreement indicated had occurred.
Currency note
This opinion was issued in 1998, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. A Legal Ethics Committee note appended to the opinion adds that Rule 5.6(b) would permit such a restriction on the practice of law if approved by a tribunal or government entity. Treat this page as historical context, not current guidance, and verify against current rules before relying on any specific point here.
Common questions
Q: Can a settlement require the plaintiff's lawyers to go work for the defendant?
A: On the facts of this 1998 opinion, yes. The committee found no violation of the bar on broadly restricting practice, because the agreement contained no explicit restriction on future representation, only conflict rules curable by the plaintiff's informed consent.
Q: Didn't that "conflict out" the lawyers from future cases against the employer?
A: Practically, the resulting former-client conflict might limit future adverse representation, but the committee held that flows from the ordinary conflict rules (DR 5-105), not from an agreement "broadly restricting" practice, which is what DR 2-106(B) prohibits.
Q: Was the post-settlement fee from the defendant a problem?
A: It was a financial interest under DR 5-101(A) that could affect the lawyers' judgment in negotiating the settlement, so it required full and adequate disclosure to and consent from the plaintiff, which the committee found had occurred.
Background and rules framework
The opinion was decided under Virginia's former Code of Professional Responsibility: DR 2-106(B) (no settlement agreement that broadly restricts the right to practice), DR 5-105(D) (former-client conflict), DR 5-101(A) (a lawyer's own financial or business interest), and DR 5-103(A) (no proprietary interest in the cause of action). The modern analogues are Rule 5.6(b) (restrictions in settlement of a controversy), Rule 1.9 (former clients), and Rule 1.8.
Citations and references
Rules of Professional Conduct:
- Former Virginia DR 2-106(B), DR 5-105(D), DR 5-101(A), DR 5-103(A); EC 9-2, EC 9-6 (Code of Professional Responsibility)
- Virginia Rule 5.6(b) (settlement restrictions if approved by a tribunal or government entity; per the committee note)
Cases:
- People v. Franco, 698 P.2d 230 (Colo. 1985), proprietary interest in the subject of litigation under DR 5-103(A).
Other opinions cited:
- Virginia LEO 649: a plaintiff's lawyer may not agree, as a settlement condition, not to prosecute similar claims against the same defendant.
- Alabama Op. 85-115; ABA Informal Op. 1397: scope of "broadly" restricting practice and proprietary interests.
See also
Source
- Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
- Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1715.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
Committee Opinion
February 24, 1998
LEGAL ETHICS OPINION 1715
SETTLEMENT AGREEMENT; FUTURE
CONFLICTS; RESTRICTION OF
LAWYER'S PRACTICE.
This responds to your letter dated December 15, 1997, requesting an advisory opinion
that addresses a proposed settlement agreement concluding an employment
discrimination case that a former employee, represented by Lawyers A and B, brought
against the former employer, XYZ Company and a supervisor. The relevant provisions of
the settlement agreement are, as follows:
- Payment to Plaintiff. Within five business days of the signing of this Agreement
by all parties, XYZ Co. will pay Plaintiff and her attorneys the sum of _
thousand dollars ($,000.00). - Employment Counseling and Training for XYZ Co. and its Parent. The
Parties recognize that Plaintiff's attorney, Lawyer A and Lawyer B, have as a result
of the discovery process in the litigation, gained an insight into XYZ Co.'s
employment policies that could be extremely useful in furthering the goals of (1)
XYZ Co. and its parent company to comply with the letter and the spirit of
employment-related laws, and (2) Plaintiff and her attorneys to help promote
employment policies that are beneficial to the many other employees, black and
white, of those companies and to advance the objectives of the various federal and
state laws at issue in the litigation. Therefore, the Parties agree that Lawyer A and
Lawyer B shall within 90 days of the execution of the Agreement, sit down with
various managers from XYZ Co. and from the parent of XYZ Co. for a total of at
least eight hours on two different days, at a place of XYZ Co.'s choosing in
____ County, Virginia, and based upon what they learned in the litigation and
additional employment-related information confided to them in the meeting, provide
advice and counseling to XYZ Co. and its parent on any changes to employment
policies and/or practices that either of the attorneys believes would be both practical
and beneficial to the companies, including but not limited to advice on how to deal
with current employment issues raised by the managers and how to avoid future
employment-related litigation. In exchange for this advice and counseling XYZ Co.
shall pay $3,250 in advance to each Lawyer A and Lawyer B. While XYZ Co. and
its parent would like to have further advice and counseling from Lawyer A and
Lawyer B beyond the initial meetings, neither Lawyer A nor Lawyer B is obligated
to provide such further advice or counseling.
XYZ Co. shall pay $200 per hour to each of Lawyer A and Lawyer B for
additional time (including travel) spent beyond the initial eight hours. - Disclosure and Waiver of Possible Conflict/No Reapplication for
Employment. Plaintiff recognizes that, as a result of this settlement, it is likely that
neither Lawyer A nor Lawyer B would be able to represent her in a further
employment-related dispute against XYZ Co., its employees or its parent. Plaintiff
Committee Opinion
February 24, 1998
also recognizes, however, that, as a result of this settlement she has given up any
such claim. Because Plaintiff hereby promises, as part of this settlement, never again
to apply for employment with XYZ Co. or its parent, she recognizes that she cannot
have any future employment-related claims against XYZ Co., its employees, or its
parent. Furthermore, as plaintiff has stated from the outset of this litigation, she did
not bring this litigation for the money; she brought it in order to improve things at
XYZ Co. for the employees who work there, some of whom are her friends. Plaintiff
sincerely desires XYZ Co. and its parent to have the benefit of the above-described
counseling from Lawyer A and Lawyer B because such counseling will help
accomplish her objective in this litigation. Therefore, Plaintiff hereby voluntarily
waives any actual or apparent conflict of interest inherent in or created by this
Agreement.
In the facts you present, plaintiff and defendants agree that plaintiff's lawyers are in a
unique position, by reason of their intensive discovery of defendants' employment
records, to provide valuable advice to defendants that will assist defendants in
conforming employment practices to the requirements of applicable law. In the facts you
present, plaintiff's lawyers have not represented any other client adverse to defendants
and do not have a present expectation of such representation in the future. Finally, in the
facts you present, plaintiff's stated objective in bringing the litigation against defendants
will be furthered if defendants' employment practices are improved in conformity with
applicable law as a result of advice provided to defendants by plaintiff's lawyers
following the settlement agreement.
Based on the facts presented, you have asked the committee to address the following
questions:
- Does the proposed settlement agreement violate DR:2-106(B) which prohibits a
lawyer from entering into a settlement agreement which "broadly restricts" the
lawyer's right to practice law? - Does the proposed agreement offend the ethical precepts set forth in Ethical
Considerations 9-2 and 9-6? And - Does DR:5-105(D) prohibit the proposed settlement agreement under which
Plaintiff's former attorneys will undertake to represent Defendants in a "substantially
related" matter?
The appropriate and controlling disciplinary rules relative to your inquiry are:
DR:2-106(B): In connection with the settlement of a controversy or suit, a lawyer
shall not enter into an agreement that broadly restricts his right to practice law.
(emphasis added).
DR:5-101(A): A lawyer shall not accept employment if the exercise of his
professional judgment on behalf of his client may be affected by his own financial,
Committee Opinion
February 24, 1998
business, property; or personal interests, except with the consent of his client after
full and adequate disclosure under the circumstances.
DR:5-105(D): A lawyer who has represented a client in a matter shall not thereafter
represent another person in the same or substantially related matter if the interests of
that person is adverse in any material respect to the interest of the former client
unless the former client consents after disclosure.
EC:9-2: Public confidence in law and lawyers may be eroded by irresponsible or
improper conduct of a lawyer. On occasion, ethical conduct of a lawyer may appear
to laymen to be unethical. In order to avoid misunderstandings and hence to maintain
confidence, a lawyer should fully and promptly inform his client of material
developments in the matters being handled for the client. While a lawyer should
guard against otherwise proper conduct that has a tendency to diminish public
confidence in the legal system or in the legal profession, his duty to clients or to
the public should never be subordinate merely because the full discharge of his
obligation may be misunderstood or may tend to subject him or the legal profession
to criticism. When explicit ethical guidance does not exist, a lawyer should
determine his conduct by acting in a manner that promotes public confidence in the
integrity and efficiency of the legal system and the legal profession.
EC:9-6: Every lawyer owes a solemn duty to uphold the integrity and honor of his
profession; to encourage respect for the law and for the courts and the judges thereof;
to observe the Code of Professional Responsibility; to act as a member of a learned
profession, one dedicated to public service; to cooperate with his brother lawyers in
supporting the organized bar through the devoting of his time, efforts, and financial
support as his professional standing and ability reasonably permit; to conduct himself
so as to reflect credit on the legal profession and to inspire the confidence, respect,
and trust of his clients and of the public; and to strive to avoid not only professional
impropriety but also the appearance of impropriety.
In 1985, the committee expressed its opinion that "It is improper for a plaintiff's
attorney to enter into a settlement agreement which includes, as a condition of settlement,
that the plaintiff's attorney will not thereafter accept cases or prosecute similar claims
against the same defendant." LE Op. 649, citing DR:2-106(B) and not elaborating on its
prohibition against only those settlement agreements that broadly restrict a lawyer's right
to practice law. The Alabama ethics panel permitted a provision in a class action
settlement agreement that plaintiff's lawyer would not prosecute any other actions against
the class action defendants which involved the same violations alleged against them in
the settled action. Such a provision, it was concluded, did not "broadly" restrict the
lawyer's right to practice law. Alabama State Bar Opinion 85-115 (1986).
Whether a lawyer has entered into an agreement that "broadly" restricts the right to
practice law is a fact-intensive question and cannot be answered in an all-encompassing
fashion. For example, if a law firm with a boutique employment discrimination law
Committee Opinion
February 24, 1998
practice in a community agrees as a term of a client's settlement not to prosecute future
employment discrimination claims against the community's only significant employer,
it is likely that the agreement broadly restricts the right to practice law. A different
conclusion may obtain, however, if the law firm's practice is not substantially limited to
employment discrimination, or if the employer is but one of many significant employers
in the community.
In the facts you present, neither Lawyer A nor Lawyer B has his office in the same
community as XYZ Co. Lawyer A's office is in a town near XYZ Co.'s facility; Lawyer
B's office is in a large city. Although Lawyer A has a local practice, and Lawyer B a
broad geographical practice, employment discrimination law does not constitute the sole
practice of either of them. Neither of them represented a client against XYZ Co. before
their representation of plaintiff, and neither of them has an expectancy of such a
representation in the future.
Even if not prosecuting future claims against a single defendant "broadly restricts" the
lawyer's right to practice law, which is problematic on the facts presented, the pivotal
issue is whether the restriction is contained in an agreement that the lawyer entered into.
The settlement agreement in your hypothetical, unlike the settlement agreement in LE
Op. 649, does not include a provision that Lawyers A and B will thereafter refuse to
prosecute similar claims against XYZ Co. The settlement agreement itself does not
restrict Lawyers A and B from subsequent representation adverse to XYZ Co. Rather, the
restriction is rooted in DR:5-105(A) and (B), governing representation adverse to a
current client and in DR:5-105(D), governing representation adverse to a former client.
Such representation may be ethically permissible with the clients' informed consent. The
source of the restriction is significant since DR:2-106(B)'s prohibition is that a lawyer
shall not enter into "an agreement that broadly restricts his right to practice law." (italics
supplied.) The agreement in your hypothetical does not set forth any such restriction to
which Lawyers A and B have agreed. The common thread in the settlement agreements
uniformly disapproved by other ethics panels was an explicit provision that prohibited
representation of future clients against the same defendant. See ABA/BNA Lawyers'
Manual on Professional Conduct 51:1209-51:1212 (1995).
It can be argued that XYZ Co.'s employment of plaintiff's counsel, as a term and
condition of the settlement agreement, is merely a ruse to circumvent DR:2-106(B). The
committee necessarily takes the settlement agreement on its face and cannot speculate
about, let alone analyze, the motive or subjective intent of the parties. As recited in the
agreement, defendants are to employ Lawyers A and B in a substantial way to seek
their guidance on how to reform their existing employment policies and practices.
According to the agreement, this is also plaintiff's primary objective, paramount to any
monetary compensation derived from the settlement. DR:7-101(A) obligates Lawyers A
and B to seek the lawful objectives of their client by all available means permitted by law
and the Disciplinary Rules. The facts presented in your hypothetical do not suggest that
defendants are trying to "buy off" plaintiff's counsel, or that defendants are deliberately
seeking to "conflict out" successive employment of Lawyers A and B by prospective
clients with similar employment-related claims.
Committee Opinion
February 24, 1998
In the facts you present, the committee believes that the proposed agreement does not
place plaintiff's counsel at risk of violating DR:5-105(D). Under the terms of the
proposed agreement, plaintiff has released any and all claims she has or may have against
defendants arising out of her employment at XYZ Co. and further agrees never to seek
employment with that company in the future. Consequently, plaintiff would not have any
employment related claims in the future against defendants. XYZ Co.'s employment of
plaintiff's counsel upon conclusion of the present case would not be adverse to any
interest of plaintiff. Even if successive employment of plaintiff's counsel by defendants
were in some way adverse to plaintiff's interests, by the terms of the agreement she has
authorized her lawyers to counsel and advise defendants and has expressly waived any
conflict of interest. Therefore, the committee concludes that there is no violation of
DR:5-105(D).
In considering the settlement agreement, and defendants' employment of plaintiff's
lawyers post-settlement, the committee also examined DR:5-103(A)'s prohibition against
a lawyer acquiring a proprietary interest in the cause of action or subject matter of
litigation conducted for a client. The committee is of the opinion that the provision of the
settlement agreement calling for defendants' payment of legal fees to plaintiff's lawyers
for post-settlement advice to defendants does not constitute the acquisition of a
proprietary interest in plaintiff's cause of action or the subject matter of plaintiff's
litigation. See C. Wolfram, Modern Legal Ethics § 8.13 at 491 (1986); ABA, Annotated
Model Rules of Professional Conduct, Rule 1:8(j) comment (3rd ed. 1996) (prohibition
rooted in common law doctrines of maintenance and champerty). ABA Informal Opinion
1397 (1977) illustrates the proscribed proprietary interest contemplated in DR:5-103(A).
There the lawyer, as consideration for legal services, had acquired a one-fourth interest in
the client's real estate that was the subject of the dispute in which he represented the
client. In People v. Franco, 698 P.2d 230 (Colo. 1985), there was a violation of DR:5103(A) where a lawyer, as security for the payment of fees, took a deed of trust on real
estate that was the subject of a court-ordered sale and division of proceeds between the
husband and the wife. See LE Op. 1653.
In contrast, Lawyers A and B have not acquired a proprietary or financial interest in
their client's cause of action. On the facts presented, the client's cause of action has been
settled by some monetary payment and, in fulfillment of the client's express desire, by
XYZ Co.'s employment of Lawyers A and B to conform its employment practices to
applicable laws. The employment of Lawyers A and B is not, however, an element of her
cause of action against XYZ Co. The employment is derivative of the settlement but not
of the cause of action itself.
The committee observes, however, that the provision of the settlement agreement for
defendants' payment of legal fees to plaintiff's lawyers for post-settlement legal advice
constitutes a financial or business interest on the lawyers' part under DR:5-101(A). Since
such an interest may affect the lawyers' professional judgment on behalf of plaintiff in
negotiating the settlement agreement, DR:5-101(A) requires full and adequate disclosure
to plaintiff and consent from plaintiff with respect to her lawyers' interest in the
Committee Opinion
February 24, 1998
settlement. If plaintiff's stated consent in the settlement agreement is a product of her
lawyers' full and adequate disclosure, which the settlement agreement suggests has
occurred, then defendants' post-settlement employment of plaintiff's lawyers with her
consent does not offend DR:5-101(A).
Legal Ethics Committee Notes. – Rule 5.6(b) would permit such a restriction on
practice of law if “approved by a tribunal or government entity.”
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