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Forfeiture-for-Competition Agreements
Lawyer mobility is at an all-time high. Every week, the New York Law Journal contains announcements of partners and entire practice groups leaving one firm to join another. More and more first-time partners joined their firms as lateral associate hires rather than right out of law school. This phenomenon, which parallels the higher rates of mobility among employees in other sectors of the economy, is relatively recent. Through the 1960s, it was rare for a partner to leave his law firm for another firm in the same geographic area. See Linda Ewald, Agreements Restricting the Practice of Law: A New Look at an Old Paradox, 26 J. of the Legal Prof. 1, 1 at n. 6 (hereinafter 'EWALD').
Individual lawyers command greater market power than at any time before. As law practice has become more specialized and corporate legal departments have taken over some of the basic legal work that used to support law firms, firms are competing for valuable business. Milton Regan, Law Firms, Competition Penalties & The Values of Professionalism, 13 Geo. J. Legal Ethics, 1, 7-9 (Fall 1999). Lawyers (or groups of lawyers) who have a portable book of business can command a larger share of the revenue from their business by going to the highest bidder. Firms also aggressively recruit highly profitable lawyers with promises of enhanced support for the lawyers' practice, including technology, staffing, and marketing. This is on top of the investments that firms make in developing and maintaining strong, long-term client relationships.
Law firms are constrained by professional ethics in how they address the issues of lawyer mobility. Rule 5.6 of the ABA Model Code of Professional Responsibility expressly prohibits lawyers from entering into agreements that restrict their right to practice, including covenants not to compete. The overwhelming majority of jurisdictions interpret the rule to preclude less direct restrictions on competition, including financial penalties known as 'forfeiture-for-competition' agreements.
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