Non-compete agreementHere’s a reminder that when it comes to running a law business, the ethics rules limit the ability to restrict competition.

The Indiana Supreme Court recently issued a public reprimand to a lawyer who violated the state’s version of Model Rule 5.6(a), which bars employment agreements restricting a lawyer’s right to practice after termination.  The sole exception to the prohibition is an agreement regarding retirement benefits.

Covenant not to compete

The respondent’s practice mainly focused on Social Security disability law.  He hired an associate in 2006 to work under an employment agreement.  The agreement had a non-compete provision that prohibited the associate from practicing Social Security disability law for two years if his employment with respondent was terminated.

After seven years, the respondent fired the associate, and sent letters to the clients the associate had been handling, informing them that the respondent would be taking over their cases and enclosing the necessary substitution-of-counsel forms.

The respondent did not attempt to enforce the non-compete agreement, and the associate continued to practice Social Disability law elsewhere; at least two clients opted to have the associate continue to handle their cases.  After the disciplinary case was filed against him, the respondent provided the two clients’ files to the associate.

The Indiana Supreme Court accepted the stipulation of agreed facts and proposed discipline that respondent and Disciplinary Commission submitted, and publicly reprimanded the respondent.

The light discipline imposed here is likely explained by the fact that the respondent did not try to enforce the non-compete provision.  Reading between the lines, though, the respondent does appear to have delayed turning over the files of the cases that the associate took with him to his new employment situation.   That delay possibly prompted the grievance.

Rationale supporting prohibition

It bears reminding that almost all jurisdictions have some version of Model Rule 5.6(a).  The rationale for the restriction expressed in the rule’s comments is that non-competition agreements (1) limit a lawyer’s “professional autonomy,” and (2) limit “the freedom of clients to choose a lawyer.”

There are other disciplinary opinions similar to the Indiana one.  And courts also have invalidated agreements found to violate Rule 5.6(a).

The ABA Ethics Committee has also opined, in Formal Opinion 94-381 (May 9, 1994), that Model Rule 5.6(a) prohibits a retainer agreement that would bar counsel for a corporation from representing anyone against the corporation in the future.

In short, remember Rule 5.6(a), including when you consider bringing new personnel into your firm —  attempts outside the retirement context to negate their future ability to compete with you can have adverse consequences.