Ties that Bind and Restraints on Lawyer Competition: Restrictive Covenants as Conditions to the Payments of Retirement Benefits

Abstract:     
One of the more dynamic and litigated issues within the growing law of lawyer mobility concerns efforts to restrict contractually future competition by present members of a law firm. For the most part, contractual restraints on competition fall under the clearly articulated ethics codes' bans on bargained practice restrictions following departure from a firm, the raison d'etre being that clients should have the right to choose the lawyers who will represent them.

There exists one important, but largely undeveloped, exception to the ethics codes' ban on restrictive covenants. Both the Model Code of Professional Responsibility and the more recent Model Rules of Professional Conduct exempt from their anticompetition bans an agreement tying noncompetition to benefits paid on account of retirement. The retirement benefits exception is important because the departure of a partner from a law firm typically will prompt some type of payout in satisfaction of the lawyer's interest in the firm. To the extent that firms are able to categorize the payouts as retirement benefits, they have an effective means of protecting their client base by preventing competition from lawyers to whom client loyalties may run deeply.

The ethics codes are bereft of anything resembling legislative history, and the policy justification for linking retirement payments with a noncompetition commitment is not entirely clear. The lack of a definition for "retirement" heightens the interpretive challenges posed by the retirement benefit exception. This Article offers a framework for distinguishing impermissible restraints on competition from allowable retirement benefits conditioned on noncompetition.

Accepted Paper Series