Excerpts from my 2000 LL.M. thesis:
The legal profession in the US is a highly mobile field in the sense that a lawyer may shift from one law firm to another is so short a time depending on the economic perks and other professional incentives available and offered. A lawyer’s loyalty to his law firm tends to give way to the economic package offered by its competitors. When he departs from his former law firm, more often than not, he brings along with him a number of clients that he has served during his stint with his former law firm. This situation has forced many law firms in the US to impose on the departing lawyer a post-employment condition not to compete with his former law firm.
The prevailing sentiment in US federal courts declares as invalid lawyers= agreements that prohibit competition with their former firms in order to preserve clients’ unrestricted freedom to choose their attorneys.
US courts analyze most post-employment covenants not to compete under a
reasonableness test, balancing the interests of employers, employees, and the public. A restrictive covenant will be found unreasonable if it (1) is broader than necessary to protect a legitimate interest of the employer; (2) imposes an undue burden on the employee; or (3) tends to create a monopoly or restrict production. (Glenn S. Draper, Enforcing Lawyers’ Covenant No To Compete, Washington Law Review, Vol. 69, No. 1, January 1994, pp. 161-182, citing Mantek Div. Of NCH Corp. v. Share Corp., 780 F. 2d 702, 711 [7th Cir. 1986]; Ferrofluids Corp. v. Advanced Vacuum Components Inc., 789 F. Supp. 1201, 1210 [DNH 1991]; Dow v. Gotch, 201 NW 655, 657 [Neb. 1924]; Karlin v. Weinberg, 390 A. 2d 1161 [NJ 1978]; Olson v. Hillside Dental Ltd., 371 NW 2d 429 [Wis. Ct. App. 1985]; Kaeser v. Adamson, No. CA-800 [Ohio Ct. App. 1985]; Mailman, Ross, Toyes & Shapiro v. Edelson, 444 A. 2d 75 [NJ Super. Ct. Ch. Div. 1982]).
The ABA Model Rule 5.6 prohibits lawyers from entering into agreements that restrict their right to practice after termination of a relationship with a firm. The intent of the rule is to prevent lawyers from signing agreements that restrict clients' freedom to select their attorneys. (Draper, supra, p. 163). US courts see lawyers= post-employment covenants not to compete as contrary to public policy and public interest. (id., pp. 165-167, citing Dwyer v. Jung, 336 A. 2d 498 [NJ Super. Ct. Ch. Div. 1975]; Karlin v. Weinberg, 372 A. 2d 616 [Super. Ct. App. Div. 1977], affirmed 390 A 2d 1161 [NJ 1978]; Gray v. Martin, 663 P. 2d 1285 [Or. Ct. App. 1983]; In Re Silverberg, 427 NYS 2d 480 [App. Div. 1980]; Jacob v. Norris, McLaughlin & Marcus, 607 A. 2d 142 [NJ 1992]; Hagan v. O=Connell, Goyak & Ball, P.C., 683 P. 2d 563 [Or. Ct. App. 1984]).
However, in Howard v. Babcock, 1993 Cal. Lexis 6006, December 6, 1993 (citing Haight, Brown & Bonesteel v. Superior Court, 285 Cal. Rptr. 845 [Cal. Ct. App. 1991]), the California Supreme Court refused to invalidate a forfeiture-for-competition clause that deprived departing partners of all withdrawal benefits other than the return of their capital contributions. The Court noted that the California Business and Professional Code, section 16602, which authorizes non-compete clauses in partnership agreements, did not contain an exception for lawyers. It added that an agreement among law partners imposing a reasonable cost on departing partners who compete with the firm was not inconsistent with the California Rules of Professional Conduct nor contrary to public policy. (Id., p. 168).
Although courts have generally refused to enforce contracts containing financial disincentives to competition , lawyers continue to sign and attempt to enforce these agreements because firms and attorneys have a significant financial interests at stake. Courts are aware of those interests, and some have suggested ways to accommodate them. (id., p. 169, citing Jacob v. Norris, McLaughlin & Marcus, supra; Hagan v. O’Connell, Goyak & Ball, supra. See also: Cohen v. Lord, Day, & Lord, 550 NE 2d 410 [NY 1989], in Steven Brill, “The Partnership Breakup Follies”, Am. Law, March 1998, p. 3; Gail Dianne Cox, “Defect at Your Own Risk”, Nat’l L. J., Oct. 14, 1991, p. 13).
