Unenforceable Agreements

Unenforceable Agreements

Rule 5.6(a) addresses lawyers. It forbids a lawyer to participate in offering or making a partnership, shareholders, operating, employment, or similar agreement that restricts the right to practice after the relationship ends, and its only exception covers agreements concerning benefits upon retirement.¹ The rule is an ethics rule, yet a firm that wrote such a clause can still sue to enforce it, and the question is what the court does then. Most courts would probably enforce the rule by invalidating any agreement that violates it.² A violation therefore carries two consequences: the lawyer who offered or made the restraint faces discipline, and the agreement itself is not enforced.

Nonenforcement matters because discipline alone would leave the restraint in place. Discipline falls on the lawyer who proposed the clause. It does nothing for the departing lawyer sued on the contract, or for the client who wants that lawyer. The fundamental reason for the rule is protection of clients' right to engage lawyers of their choice, not protection of the judicial process.³ That interest belongs to clients, who did not sign the agreement, and the rule's only exception covers retirement benefits. A lawyer's knowing consent therefore does not rescue the clause.

Commercial covenants show the contrast. A seller's promise not to compete with the buyer is unenforceable only insofar as the restraint exceeds the good will the buyer purchased, and a former owner who stays on as an employee is treated as a seller.⁴ A court reviewing that covenant measures how far the restraint reaches. A court applying Rule 5.6 asks a different question: does the agreement restrict the lawyer's right to practice after the relationship ends? If it does, the agreement is invalidated rather than trimmed to a reasonable scope.

Courts have refused to enforce restrictive covenants on public-policy grounds even when the party seeking enforcement had an interest to protect. In Valley Medical Specialists v. Farber, the court held the restrictive covenant between Dr. Steven Farber and Valley Medical Specialists unenforceable because public policy concerns outweighed the practice's protectable interests in enforcing it.⁵ For lawyers, the Illinois Supreme Court held in Dowd & Dowd, Ltd. v. Gleason that attorney restrictive covenants were void as against the public policy underlying Rule 5.6(a). The court described the rule as designed both to give clients greater freedom in choosing counsel and to protect lawyers from onerous conditions that would unduly limit their mobility.⁶

An arbitration award does not change the analysis. One state supreme court, deciding the point for the first time, held that a trial court reviewing an arbitration decision that interprets and applies rule 5.6 should review de novo, not with the deference arbitration decisions traditionally receive.⁷ The same case posed the substantive question that the retirement-plan discussion above addresses: whether a forfeiture-upon-competition provision violates the public policy embodied in rule 5.6 when it is applied to postemployment benefits that former partners receive without regard to whether they fully retire.

Jurisdictions also differ on whether a particular clause restricts practice at all. Howard v. Babcock took the minority view that an agreement assessing a reasonable cost against a partner who chooses to compete with former partners does not restrict the practice of law. The court was not persuaded that the rule was intended to or should prohibit such an agreement, because the agreement attaches an economic consequence to a departing partner's unrestricted choice to pursue a particular kind of practice.⁸ That holding does not retreat from the principle. It disputes only whether a toll counts as a restriction, the question the section on financial penalties takes up.

The usual exam error is to reason that Rule 5.6(a) is only a disciplinary rule, so the signed clause remains a binding contract term. In most courts the clause is unenforceable as well, and a lawyer's knowing consent or bargaining strength does not change that. The one real exception is the jurisdiction that treats a reasonable cost on competing as no restriction on practice, where such a cost is enforced.