Concept
The Rule and Its Reach
Employment or partnership agreements restricting a lawyer's right to practice (Rule 5.6(a))
Lawyer Noncompete Agreements
The Rule and Its Reach
Rule 5.6(a) of the Model Rules of Professional Conduct forbids a lawyer to participate in offering or making a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship. One carve-out exists, for an agreement concerning benefits upon retirement.1
Three questions organize that sentence, and an exam problem usually turns on whether the facts answer each one. Where may the restraint appear? What does it restrain, and when? Who is at fault? A restraint that answers the first two questions but that no lawyer helped offer or make does not violate the rule, so all three need an answer.
The list of documents answers where. Its last item, “other similar type of agreement,” shows that the list is illustrative. The phrase “after termination of the relationship” answers what and when: the restraint takes hold once the relationship has ended and the lawyer is trying to work somewhere new. The phrase “participate in offering or making” answers who: the lawyer who takes part in creating the restraint, whether by proposing it or by signing it.
The rule is written by function rather than by document type because the harm does not depend on the label. A lawyer who leaves a firm and is barred from practicing in the area, or from accepting clients who want to follow, becomes unavailable to those clients, and the lawyer's own freedom to move is cut off. The injury is the same whether the restraint sits in a partnership deed, a shareholders' agreement, or an offer letter. A rule that listed only certain documents would invite a firm to move the restraint into a form the list left out. A rule that reaches every agreement with the same effect leaves nothing to relabel. The rest of this unit takes the three questions in order; the retirement-benefits exception waits until the core prohibition is clear.
Covered Agreements
The rule answers its first question with a list: a “partnership, shareholders, operating, employment, or other similar type of agreement.”2 Each named form is a way a lawyer joins or works in a practice. A partnership agreement binds lawyers who own a firm together; a shareholders' agreement does the same for a professional corporation; an operating agreement does it for a limited liability company; and an employment agreement binds a lawyer who works for pay. The rule treats them alike, because a restraint on later practice does the same damage in any of them.
The list ends with an open phrase, “other similar type of agreement,” and that phrase has a job to do. Had the rule named only four documents, a firm could delete the noncompete from its partnership agreement and place identical language in a document with a different title. The catch-all closes that route. It moves the question from what the document is called to what it does.
The employer on the other side need not be a law firm. A lawyer may be hired as in-house counsel, and the client-employer's authority over the lawyer raises none of the concerns that bar laypersons from owning or directing a law practice.3 That the arrangement is permissible does not make every term of the contract permissible. Rule 5.6(a) names “employment” agreements without limiting who the employer may be,4 and the harm of a restraint on later practice falls on the lawyer, whose mobility is cut off, and on the clients who might later want that lawyer. Neither harm depends on who signed the offer. Discipline attaches to a lawyer who takes part in offering or making the term,5 for example the in-house lawyer who accepts it or the lawyer who drafts it for the company.
The contrast that completes the picture is a restraint on someone who is not a lawyer. In Valley Medical Specialists v. Farber, the Arizona Supreme Court reviewed a covenant not to compete between physicians. It noted that restrictive covenants between attorneys are prohibited because they limit the lawyer's autonomy and the client's freedom to choose counsel. The court said it does not enact ethical rules for the medical profession, yet it found the policy behind the lawyer ban relevant by analogy, and it held that each physician covenant would be strictly construed for reasonableness.6 Under that inquiry, a restriction fails if it is greater than necessary to protect the employer's legitimate interest, or if that interest is outweighed by the hardship to the employee and the likely injury to the public.7 A physician's covenant can therefore survive if it is reasonable. The text of Rule 5.6(a), by contrast, contains no exception for a lawyer's restraint that happens to be modest in time or area.8
Two questions sort these cases, in this order. First, is the person bound a lawyer? Second, if so, is the document, under whatever label, a partnership, shareholders, operating, employment, or similar agreement? A covenant with the same words, the same radius, and the same duration leads to different analyses depending on the answer to the first question. Students who see “noncompete” and start weighing duration, geography, and legitimate business interest have skipped both. Whether a financial penalty counts as a restraint is a question for later in this chapter.
Restrictions After Termination
The phrase that decides most problems under Rule 5.6(a) is its last one: an agreement “that restricts the right of a lawyer to practice after termination of the relationship.”10 The previous subsection asked which documents may carry a restraint; this one asks what the restraint does and when. The forbidden restraint takes hold once the relationship has ended, when the lawyer is trying to keep practicing elsewhere. A term that operates earlier, while the lawyer remains inside the relationship, is a different kind of term, and the rule's text does not reach it.
Two restraints mark the core of the prohibition. A departing lawyer may not be bound by a noncompetition agreement that would prevent the lawyer from continuing to practice in the geographic area, and may not be bound by one that would preclude the lawyer from accepting retention by former clients of the firm.11 Each does its damage differently. A geographic ban forces the lawyer to leave the community, and with it the clients and referral sources who know the lawyer's work. A client ban lets the lawyer stay and practice, but makes the lawyer unavailable to the people most likely to want that lawyer's help. The second example shows that a restraint need not shut down the lawyer's practice to fall within the rule. It is enough that the restraint narrows whom the lawyer may serve.
The line falls at termination because of who is hurt at each stage. While a lawyer remains with the firm, a term limiting outside work strands no client and traps no lawyer, since the lawyer can end the term by leaving. After the relationship ends, a similar promise decides whether the lawyer may serve clients who want that lawyer, or stay in the community where the practice was built. The end of the relationship is therefore the moment when a client's wish to follow a trusted lawyer, and the lawyer's freedom to move, are actually at stake.
California's version of the rule draws the same line in its official discussion, which is a state analogue rather than the Model Rule. As quoted in Howard v. Babcock, the discussion says a shareholder, partner, or associate “may agree not to have a separate practice during the existence of the relationship,” but that “upon termination of the relationship (whether voluntary or involuntary), the member is free to practice law without any contractual restriction.”12 Two points follow. The during-the-relationship term is allowed, and the freedom that arrives at termination does not depend on who ended the relationship, so a lawyer forced out is as free as one who resigned.
The clause in that example is an exclusivity term, and what sets it apart from the covenants above is when it operates, not its title. A promise drafted as a no-outside-practice term but written to continue for two years after the lawyer leaves has become a post-termination restraint under another name, and the analysis follows the effect. The usual exam error is reading any limit on a lawyer's practice as a Rule 5.6(a) problem, when the first question is whether the limit survives the end of the relationship.
One more piece of the shape of the restraint concerns clients who choose to follow a departing lawyer. In Meehan v. Shaughnessy, a Massachusetts partnership agreement let a departing partner remove cases from the dissolved firm on payment of a “fair charge,” and the court read that privilege to cover cases that had not come to the firm through the departing partner's own efforts. One of its reasons was that a lawyer may not participate in an agreement restricting the right to practice after the relationship ends. The court added that the strong public interest in letting clients retain counsel of their choice outweighs any professional benefit from a restrictive covenant, so the partners could not restrict a departing partner's right to remove any clients who freely choose to retain that partner. The word freely locates the decision with the client, and the firm may not use its contract to take that decision away. The departing lawyer remains bound by fiduciary obligations, however, and the court made the privilege depend on compliance with them.13 Whether a payment the lawyer must make for taking those clients is itself a restraint is a separate question, taken up later in this chapter.
Offering or Making
The prohibitions in Rule 5.6 hang from one lead-in: “A lawyer shall not participate in offering or making.”15 Subsection (a) supplies the first of the arrangements that follow, a partnership, shareholders, operating, employment, or similar agreement that restricts the right to practice after the relationship ends.16 Together the two pieces say whom the rule regulates, a lawyer, and what conduct triggers discipline, taking part in offering or making the covered agreement. The earlier subsections asked which documents and which restraints the rule reaches; this one asks what a lawyer must have done with such a document to be at fault.
The lead-in uses two verbs, and each does separate work. Making describes an agreement concluded by assent on both sides. Offering describes the step before that, a proposal put to someone else, whether or not the other person ever agrees. Because the rule lists both, a lawyer who proposes a restraint has violated it at the moment of the proposal. The violation stays complete if the recipient refuses to sign, bargains the clause away, or never answers. The lawyer who drafts the covenant and puts it in front of another lawyer is therefore the one exposed.
Reaching the offer also closes a loophole. A rule limited to signed agreements would let a lawyer propose a restraint at no risk: a signature would deliver the restraint, and a refusal would cost the proposer nothing. Reaching the offer removes that one-way bet and gives a lawyer no reason to propose a restraint in the hope that someone accepts.
A stem that reports the associate's refusal tells you what the recipient did, not what the proposer did. A stem that reports the firm's later withdrawal of the clause tells you only that an offer came first. Either way, the question is what the lawyer put forward. Whether a clause that was signed could be enforced is a separate matter, taken up later in this chapter, because discipline attaches to a lawyer's conduct while enforceability concerns the agreement itself.
The verb participate also reaches the lawyer who receives the offer. An associate who is a lawyer and signs a post-termination noncompete takes part in making it, so fault does not rest with the firm's lawyers alone. A recipient who declines the clause, or negotiates it out of the draft, has taken no part in making it. The rule's reach to the offering stage thus protects the lawyer who says no while holding accountable the lawyer who proposed.
Because the lead-in sits above the whole list of subsections, the same participation standard governs each of them. When subsection (b) comes up later in this chapter, “offering” will work there exactly as it does here, and the content of that subsection can be learned on its own terms at that point.