Bar News - November 18, 2011
Ethics Corner: Non-Compete Clauses: Safe for Lawyers
I am a solo practitioner with a successful practice in a rural part of the state. I rely on several institutional clients – a bank and an insurance company – to provide a steady income stream. Last week, I was approached by an energetic and impressive, recent law school graduate. She proposed working with me. I was impressed with her and see a potential to increase my caseload and earnings. However, I don’t want to risk losing one of these important clients should she stay for a few years, provide good service and then leave. I have drafted non-compete clauses for some of my business clients and am considering requiring one in this situation. I know that New Hampshire law places a reasonableness requirement on the time period and geographic area covered by such agreements. I had planned to comply with these requirements to be sure the agreement is enforceable. However, I was recently having dinner with another lawyer who thought this could present ethical problems for me. Can you help?
Your friend is correct. New Hampshire’s ethics rules prohibit non-compete agreements among lawyers.
The New Hampshire Rules of Professional Conduct prohibit "offering or making…a partnership, shareholders, operating, employment, or other similar agreement that restricts the right of a lawyer to practice after termination of the relationship, except [for] an agreement concerning benefits upon retirement." NHRPC 5.6(a). This provision has not yet been interpreted by the NH Supreme Court or in the reported opinions of the Professional Conduct Committee. However, both the ABA, commenting on an identical rule, and courts in other jurisdictions have interpreted this language to bar your proposal. See e.g., Dowd and Dowd v. Gleason, 693 N.E.2d 358 (Ill. 1998)(finding unenforceable a provision that barred a lawyer for two years from "endeavoring to entice away" clients without the firm’s written permission); Pettingill v. Morrison, Mahoney and Miller, 687 N.E.2d 1237 (Mass. 1997)(invalidating an agreement requiring departing partners to forfeit their right to the firm’s annual partnership interest if they competed with the firm).
At first blush, this rule may seem unfair since such agreements are customary in industry and with other professionals. The reason that lawyers’ ethics rules set a higher standard is the belief that restrictive covenants diminish the pool of legal talent and interfere with the paramount right of a client to choose the counsel. See Gray v. Martin, 663 P.2d 1285 (Or. Ct. App. 1983); 2004 ABA Model Code Comment  ("An agreement restricting the right of lawyers to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer."). Rule 5.6(a) places these values above a lawyer’s desire to retain existing clients and to prevent departing employees from adversely affecting one’s practice.
In short, if you choose to expand the size of your firm, you will have to accept the reality that if your associate leaves, your clients will have the choice to stay with you, leave with the associate or hire another firm.
The Ethics Committee provides general guidance on the NH Rules of Professional Conduct with regard to a lawyer’s own prospective conduct. New Hampshire lawyers may contact the Ethics Committee for confidential and informal guidance by emailing Robin E. Knippers. Brief ethics commentaries based upon member inquiries and suggestions will be published monthly in the NH Bar News.