Restrictive Covenants and Partnership Agreements

A partnership is the legal framework around which many law firms are organized, and the partnership agreement is the final word in the rights and responsibilities of the firm's partners. But law firm partnerships are limited in the terms they may include in their partnership agreements; these agreements must comply with legal ethics rules. Restrictive covenants, common in other industries, often run afoul of the legal ethics rules. This article examines the ethics of common partnership restrictive covenants, including non-compete and forfeiture-for-competition provisions, notice of withdrawal requirements, prohibitions on solicitation of partners, employees, and clients, and restrictions on using and taking documents, and suggests ways for firms to ethically protect the firm's interests.

Non-Compete and Forfeiture-for-Competition Provisions

Provisions that restrict the right of a partner to compete after leaving the partnership are unethical because Model Rules of Professional Conduct Rule 5.6 (a version of which has been adopted by almost all jurisdictions) prohibits agreements that “restrict the right of a lawyer to practice after termination of the relationship.” The rule embodies the long-standing doctrine of client choice with respect to legal representation: the “client's power to choose, discharge, or replace a lawyer borders on the absolute.” Robert William Hillman, The Ethics of Lawyer Mobility '2.3.1 (2d ed. 2009).

Because traditional non-competes are virtually unenforceable, many law firms have developed alternate ways to deter partners from leaving and grabbing firm clients. One popular partnership provision is a forfeiture-for-competition clause. Under a forfeiture-for-competition arrangement, a partner who withdraws from the firm foregoes future payments, like deferred payout of the partner's interest and profits, if he or she competes with the firm. In most jurisdictions, however, both the law of restrictive covenants and attorney ethics rules impose limits on the use of this device to restrain lawyer mobility.

Although forfeiture-for-competition provisions do not directly restrict an attorney's ability to practice law, courts in most U.S. jurisdictions have treated them as equivalent to traditional non-compete clauses for purposes of Rule 5.6. See, Cohen v. Lord, Day & Lord, 550 N.E.2d 410, 75 N.Y.2d 95 (N.Y. 1989); Pettingell v. Morrison, Mahon & Miller, 687 N.E.2d 1237 (Mass. 1997); Pierce v. Hand, Arendall, Bedsole, Greaves & Johnston, 678 So. 2d 765 (Ala. 1996); Whiteside v. Griffis & Griffis, P.C. , 902 S.W. 2d 739 (Tx. App. 1995); Jacob v. Norris, Mclaughlin & Marcus, 607 A.2d 142 (N.J. 1992); Spiegel v. Thomas, Mann & Smith, 811 S.W.2d 528, 529-31 (Tenn. 1991); Anderson v. Aspelmeier, Fisch, Power, Warner & Engberg, 461 N.W. 2d 598, 601-02 (Iowa 1990); Hagen v. O'Connell, Goyak & Ball, L.L.C., 683 P.2d 563, 564-65 (Or. App. 1984).

For instance, the court in Cohen concluded that the forfeiture provision had the same adverse impact on lawyer competition, and therefore client choice, as traditional non-compete provisions, and served as a direct bar on competition. The Cohen court limited its decision to those provisions requiring forfeiture of earned fees, as opposed to unearned, but other courts have criticized the distinction between earned and unearned fees, arguing that forfeiture of any income, whether earned or unearned, serves as a deterrent. See, e.g., Jacob, at 149-50.

A distinct minority of courts has rejected altogether the majority's rule that forfeiture-for-competition provisions are unethical. See, e.g., Howard v. Babcock, 863 P.2d 150 (Cal. 1994); Fearnow v. Ridenour, Swenson, Cleere & Evans, P.C., 138 P.3d 723 (Ariz. 2006); Capozzi v. Latsha & Capozzi, P.C., 797 A.2d 314 (Pa. Super. Ct. 2002). Recognizing that the departure of a partner and that partner's subsequent competition may severely financially impact the firm, those courts allow the financial costs of competition to be imposed on the departing partner so long as it tailored to compensate the firm for anticipated loss of profit caused by the departure and competition ' and not simply as a deterrent on competition.

Interestingly, while adopting the minority view, the Capozzi court ultimately refused to enforce the partnership agreement because it would have paid the founding partner only his original capital contribution of $5,000 if he competed with the firm, despite the fact that the firm's value had appreciated to $2.6 million. Applying traditional restrictive covenant rules, the court determined that the rule was “not reasonably necessary to protect the firm” and therefore constituted an “unreasonable restraint on competition.” Capozzi, at 321.

However, even courts prohibiting forfeiture for competition clauses generally have recognized the existence of valid competing firm interests. For instance, in Jacob, the New Jersey Supreme Court suggested that a law firm could address the real adverse financial impact caused by a departing partner, so long as it did so for all departing attorneys regardless of whether they compete with the firm. 607 A.2d at 151-52. An Oregon court that rejected an economic penalty premised on competition nonetheless recognized the firm's ability to account for its reduced future revenue in valuing the departing partner's capital account. See, Hagen, at 565.

Conclusion

Under either the majority or minority rule, law firms that wish to account for the costs of a departing lawyer are less likely to run afoul of the ethics rules if they do so in a way that is neutral with respect to competition.

Notice of Withdrawal Provisions

Courts and ethics opinions have not fully addressed whether provisions requiring partners to give advance notice of withdrawal or intent to compete operate as impermissible restrictions on the right to practice. Since Rule 5.6 speaks of restrictions after termination of the relationship, a provision that requires partners to give advance notice of withdrawal would not, on its face, seem to violate the ethics rules. However, any notice period that operates to restrict an attorney's right to practice during the notice period (such as a garden leave, or non-working notice provision), or that impacts the ability of the partner to practice after the notice period (such as by limiting client contact during the notice period), would arguably operate as an impermissible restriction on the practice of law in violation of Rule 5.6. See, e.g., Ronald C. Minkoff, “Poaching Lawyers: The Legal Risks,” Frankfurt Kurnit Klein & Selz, P.C.

Further, a requirement that partners give notice of withdrawal prior to taking steps to compete may operate as an impermissible restriction on the right of the lawyer to practice after termination. Courts agree that a partner has a right to prepare in secret to compete, so long as the partner abides by his fiduciary responsibilities to the firm. See, e.g., Dowd & Dowd v. Gleason, 693 N.E. 2d 358, 379 (1998); Bray v. Squires, 702 S.W.2d 266, 270 (Tex.Ct.App.1985); Meehan v. Shaughnessy, 535 N.E.2d 1255, 1264 (1989); see also , Graubard Mollen Dannett & Horowitz v. Moskovitz , 86 N.Y.2d 112, 120 (1995) (an attorney who takes steps to find alternative space and establish affiliations prior to notifying the partnership does not violate the fiduciary duty); see also, Restatement (Second) of Agency '393, Comment e (1958) (recognizing that agent may make certain preparations for own venture prior to termination of agency).

For instance, a departing partner may locate alternative space or order supplies before notifying the partnership of his decision to withdraw. As explained in Dowd & Dowd : “As a practical matter ' some preliminary preparations by lawyers who are leaving a firm must be allowed, and [] it is appropriate for lawyers in these circumstances to make arrangements, prior to their departure, to obtain new office space, equipment, and other materials necessary for the practice of law.” 693 N.E. 2d at 379.

Contractually limiting an attorney's ability to take such steps may limit lawyer mobility, thus restricting client choice and running afoul of the ethics rules.

Conclusion

Partnership agreements may require that a partner give advance notice of withdrawal, but should not require partners to give notice prior to making preparations to leave. Further, the agreement should not require partners who have given notice to stop working on client matters.

Restrictions on Soliciting Other Partners And Employees

A law firm's most valuable asset is its attorneys. It is not surprising, then, that law firms wish to protect this valuable asset by including non-solicitation provisions within the partnership agreement. Law firms that try to limit the ability of partners to “raid” their ranks through non-solicitation agreements or that impose non-competition agreements on their associates in an attempt to insulate them from solicitation may find themselves in violation of ethics rules, however.

Provisions prohibiting solicitation of partners or employees violate the ethical rules because they indirectly restrict attorneys' abilities to practice law. See , ABA Comm. on Ethics and Prof'l Responsibility, Informal Op. 1417 (1978); D.C. Bar Assoc. Op. 181 (1987) (cited in Jacob, at 146-47). As the ABA has explained: “Although the agreement ' does not restrict the right of an individual lawyer to practice law directly, by restricting the right of association between attorneys it restricts such right indirectly and so falls within the prohibition of [the rule].” Informal Op. 1417.

Further, the prohibition on non-solicitation provisions is not limited to solicitation of attorneys, but also to solicitation of paraprofessional staff. “Paraprofessionals, no less than lawyers, should not have their career mobility inhibited, especially when the inhibition derives from an agreement to which they were not a party.” Jacob, at 153.

Most courts considering the issue agree that a partner has a right to confer with others in secret regarding plans to leave a firm. See, e.g., Graubard Mollen Dannett & Horowitz v. Moskovitz, 653 N.E.2d 1179, 1183 (N.Y. 1995) (“That this may be a delicate venture, requiring confidentiality, is simple common sense ' .”); Beasley v. Cadwalader, Wickersham & Taft, No. CL-94-8646, 1996 WL 438777, at 6 (Fla. Cir. Ct. July 23, 1996) (partner did not breach fiduciary duty by secretly soliciting three associates); but see, Gibbs v. Breed, Abbott & Morgan, 710 N.Y.S.2d 578, 583 (App. Div. 2000) (finding that partners who conferred together secretly regarding a move did not violate their duty by doing so, but finding that they did violate their fiduciary duty by recruiting employees of the firm prior to serving notice and while still members of the firm and by using confidential information to further their recruitment efforts). For instance, two partners may discuss leaving together to establish their own firm prior to giving notice of withdrawal.

Requiring partners to give notice of withdrawal prior to engaging in such discussions would likely run afoul of the ethics rules, since it could limit lawyer mobility and thus restrict client choice. A less objectionable approach is a provision requiring advance notice before soliciting associates or other employees. See, Arthur J. Ciampi, “Lateral Partner Moves: Law Firm Partnership Law,” N.Y.L.J., March 24, 2006, at 22 (proposing sample partnership provision requiring that partners submit lists of other partners or employees he or she wishes to solicit).

Even if not formally required by the partnership agreement, however, a partner who fails to provide sufficient notice of a planned migration of key attorneys and staff may breach fiduciary duties. See , Rest. (Second) of Agency '393, Comment (e) (1958) (“a court may find that it is a breach of duty for a number of key officers or employees to leave their employment simultaneously and without giving the employer an opportunity to hire and train replacements.”). This is especially true where secrecy is maintained to garner an unfair business advantage. See, Sperry Rand Corp. v. Rothlein, 241 F. Supp. 549 (D. Conn. 1964) (finding that employees who subsequently started their own business violated the duty of loyalty owed to their employer).

In Reeves v. Hanlon, 33 Cal.4th 1140 (2004), the court considered whether departing lawyers (a partner and an associate) could be liable for tortious interference with contractual relations for enticing their old firm's at-will employees to join them at their new firm. The court held that the attorneys were liable because they recruited the employees while the attorneys were still employed by their old law firm and they did so with the intent “to cripple the [old firm's] ability to provide legal services ' .” Id. at 1154.

Notably, the court found that the departing attorneys had “mounted a campaign against the [old] firm involving destruction of computer records, misuse of confidential information, and unethical conduct, of which the cultivation of employee discontent was only a component. This campaign unfairly impaired the Reeves firm's ability to retain its employees.” Id. at 1147-48.

Conclusion

Provisions prohibiting solicitation or other attorneys or staff are impermissible, but a provision requiring a partner to give notice before engaging in solicitation may be permissible.

Restrictions on Soliciting Clients

As with lawyer solicitation clauses, blanket restrictions on client solicitation are impermissible under the ethics rules, since the client must be free to choose whether to stay with the firm or leave with the departing attorney and must be given sufficient time/notice to make the decision. As the American Bar Association has explained: “Clients are not merchandise[,] [l]awyers are not tradesmen,” and restrictive covenants inappropriately “barter in clients.” ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 61-300. Any partnership provision that restricts a departing partner's ability to communicate with or solicit shared clients violates the ethics rules. However, joint notification of shared clients is preferred under the ethics rule. See , ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 99-414. For that reason, the partnership agreement may wish to specify the manner and timing of joint notification.

Notably, the blanket prohibition on non-solicitation extends only to clients with whom the departing attorney has a relationship. Id . In other words, a firm may limit a departing attorney's contact with clients with whom the departing attorney has no pre-existing relationship. However, once the attorney has left the firm, non-solicitation restrictions fall away and the departing attorney is free to contact those clients within the parameters of the ethics rules on advertising and solicitation. Id.

While a firm may be tempted to limit what client information a departing attorney may access as an alternative to a non-solicitation clause, they should think carefully before doing so. Although a client list may be proprietary information for purposes of partnership law, a departing attorney generally is able to use a client list for purposes of conducting a conflict check with a new firm or notifying the clients of the departure. See, ABA Comm. on Ethics & Prof'l Responsibility, Formal Ethics Op. 99-414, at 6 FN 12; Meehan v. Shaughnessy, 404 Mass. 419, 435-36, 535 N.E.2d 1255, 1264 (1989) (finding departing attorneys' preparation and use of a list of clients expected to leave former firm was a logistical arrangement to establish a physical plant for the new firm, which was permissible); Robert W. Hillman, “Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms,” 55 Wash. & Lee L. Rev'. 997, 1023 (1998) (“The information that may be disclosed [to another firm] is the minimum necessary to allow a general assessment of the nature of the partner's practice, the resources required to support the practice, potential conflicts with existing clients of the firm, and an appropriate range of compensation.”); see also, N.Y. State Bar Ass'n Eth. Op. 720 (Aug. 27, 1999). Restricting departing attorneys' ability to use that client information may run afoul of Rule 5.6.

Conclusion

A partnership agreement should not include blanket restrictions on contacting firm clients. It may specify the means by which shared clients will be notified of a departure, and may limit a departing attorney's contact with clients with whom he or she has no relationship.

Restrictions on Using Documents

Broad restrictions on which documents an attorney may access or take with her must be carefully considered in light of the ethics rules. Client files belong to the client, and clients who are following the departing attorney may take their file with them. See, Model Rules of Professional Conduct Rule 1.16; see also, Sage Realty Corp. v. Proskauer Rose Goetz & Mendelson, LLP, 91 N.Y.2d 30, 666 N.Y.S.2d 985 (1997). A departing attorney may not take client files without client consent, however, and agreements that state as much are permissible. See, e.g., In re Cupples, 952 S.W.2d 226, 236-37 (Mo. 1997) (lawyer reprimanded for removing files without client consent); Maryland Attorney grievance Comm'n. v. Potter, 844 A.2d 367 (Md. 2004) (attorney suspended for removing client files and destroying firm's computer records for those clients).

Departing attorneys often wish to take more than just client documents, however; templates, memoranda, or briefs may all be useful for the new practice. The ABA has opined that a departing lawyer is entitled to take copies of documents such as research memoranda, pleadings and forms, “to the extent that they were prepared by the lawyer and are considered the lawyer's property or are in the public domain” and should take into consideration who prepared the material and what measures the firm has undertaken to keep it confidential and proprietary. ABA Formal Op. 99-414. Documents and templates the attorney has developed over time may comprise part of the attorneys' knowledge base and limiting use of that information may operate as a restriction on practice.

As one ethics committee opined in a different context, “Indeed, what a lawyer learns in a representation necessarily becomes part of the storehouse of knowledge and experience that the lawyer may draw on in the lawyer's career and that is part of the value the lawyer brings to each successive representation.” N.Y. City Bar Ass'n Comm. on Prof'l and Judicial Ethics, Ethical Op. 2005-02, 2005 WL 682188 (2005). But law firms have a recognizable interest in protecting the documents, checklists, and other intellectual property that may be proprietary to the firm. As to truly proprietary firm materials ' materials that the firm (as opposed to the attorney) created and which the firm has taken steps to protect ' the partnership agreement may limit subsequent use of those materials. Cf. id .

Conclusion

Partnership agreement provisions concerning subsequent taking and use of documents should be narrowly tailored to protect the firm's proprietary information and should not restrict the right of partners to take or use files or documents they have created themselves.

While it may seem a daunting task, with a little thought and careful evaluation of applicable ethics rules, firms can craft partnership agreements that protect the firm's interest and comply with the ethics rules.

Cara E. Greene, a member of the Board of Editors of A&FP 's sibling newsletter Law Firm Partnership & Benefits Report, is a partner at Outten & Golden LLP in New York City. She regularly writes and speaks on attorneys' ethical obligations. Ms. Greene wishes to thank Wayne Outten for his contributions to this article.

A partnership is the legal framework around which many law firms are organized, and the partnership agreement is the final word in the rights and responsibilities of the firm's partners. But law firm partnerships are limited in the terms they may include in their partnership agreements; these agreements must comply with legal ethics rules. Restrictive covenants, common in other industries, often run afoul of the legal ethics rules. This article examines the ethics of common partnership restrictive covenants, including non-compete and forfeiture-for-competition provisions, notice of withdrawal requirements, prohibitions on solicitation of partners, employees, and clients, and restrictions on using and taking documents, and suggests ways for firms to ethically protect the firm's interests.

Non-Compete and Forfeiture-for-Competition Provisions

Provisions that restrict the right of a partner to compete after leaving the partnership are unethical because Model Rules of Professional Conduct Rule 5.6 (a version of which has been adopted by almost all jurisdictions) prohibits agreements that “restrict the right of a lawyer to practice after termination of the relationship.” The rule embodies the long-standing doctrine of client choice with respect to legal representation: the “client's power to choose, discharge, or replace a lawyer borders on the absolute.” Robert William Hillman, The Ethics of Lawyer Mobility '2.3.1 (2d ed. 2009).

Because traditional non-competes are virtually unenforceable, many law firms have developed alternate ways to deter partners from leaving and grabbing firm clients. One popular partnership provision is a forfeiture-for-competition clause. Under a forfeiture-for-competition arrangement, a partner who withdraws from the firm foregoes future payments, like deferred payout of the partner's interest and profits, if he or she competes with the firm. In most jurisdictions, however, both the law of restrictive covenants and attorney ethics rules impose limits on the use of this device to restrain lawyer mobility.

Although forfeiture-for-competition provisions do not directly restrict an attorney's ability to practice law, courts in most U.S. jurisdictions have treated them as equivalent to traditional non-compete clauses for purposes of Rule 5.6. See, Cohen v. Lord, Day & Lord, 550 N.E.2d 410, 75 N.Y.2d 95 (N.Y. 1989); Pettingell v. Morrison, Mahon & Miller, 687 N.E.2d 1237 (Mass. 1997); Pierce v. Hand, Arendall, Bedsole, Greaves & Johnston, 678 So. 2d 765 (Ala. 1996); Whiteside v. Griffis & Griffis, P.C. , 902 S.W. 2d 739 (Tx. App. 1995); Jacob v. Norris, Mclaughlin & Marcus, 607 A.2d 142 (N.J. 1992); Spiegel v. Thomas, Mann & Smith, 811 S.W.2d 528, 529-31 (Tenn. 1991); Anderson v. Aspelmeier, Fisch, Power, Warner & Engberg, 461 N.W. 2d 598, 601-02 (Iowa 1990); Hagen v. O'Connell, Goyak & Ball, L.L.C., 683 P.2d 563, 564-65 (Or. App. 1984).

For instance, the court in Cohen concluded that the forfeiture provision had the same adverse impact on lawyer competition, and therefore client choice, as traditional non-compete provisions, and served as a direct bar on competition. The Cohen court limited its decision to those provisions requiring forfeiture of earned fees, as opposed to unearned, but other courts have criticized the distinction between earned and unearned fees, arguing that forfeiture of any income, whether earned or unearned, serves as a deterrent. See, e.g., Jacob, at 149-50.

A distinct minority of courts has rejected altogether the majority's rule that forfeiture-for-competition provisions are unethical. See, e.g., Howard v. Babcock, 863 P.2d 150 (Cal. 1994); Fearnow v. Ridenour, Swenson, Cleere & Evans, P.C., 138 P.3d 723 (Ariz. 2006); Capozzi v. Latsha & Capozzi, P.C., 797 A.2d 314 (Pa. Super. Ct. 2002). Recognizing that the departure of a partner and that partner's subsequent competition may severely financially impact the firm, those courts allow the financial costs of competition to be imposed on the departing partner so long as it tailored to compensate the firm for anticipated loss of profit caused by the departure and competition ' and not simply as a deterrent on competition.

Interestingly, while adopting the minority view, the Capozzi court ultimately refused to enforce the partnership agreement because it would have paid the founding partner only his original capital contribution of $5,000 if he competed with the firm, despite the fact that the firm's value had appreciated to $2.6 million. Applying traditional restrictive covenant rules, the court determined that the rule was “not reasonably necessary to protect the firm” and therefore constituted an “unreasonable restraint on competition.” Capozzi, at 321.

However, even courts prohibiting forfeiture for competition clauses generally have recognized the existence of valid competing firm interests. For instance, in Jacob, the New Jersey Supreme Court suggested that a law firm could address the real adverse financial impact caused by a departing partner, so long as it did so for all departing attorneys regardless of whether they compete with the firm. 607 A.2d at 151-52. An Oregon court that rejected an economic penalty premised on competition nonetheless recognized the firm's ability to account for its reduced future revenue in valuing the departing partner's capital account. See, Hagen, at 565.

Conclusion

Under either the majority or minority rule, law firms that wish to account for the costs of a departing lawyer are less likely to run afoul of the ethics rules if they do so in a way that is neutral with respect to competition.

Notice of Withdrawal Provisions

Courts and ethics opinions have not fully addressed whether provisions requiring partners to give advance notice of withdrawal or intent to compete operate as impermissible restrictions on the right to practice. Since Rule 5.6 speaks of restrictions after termination of the relationship, a provision that requires partners to give advance notice of withdrawal would not, on its face, seem to violate the ethics rules. However, any notice period that operates to restrict an attorney's right to practice during the notice period (such as a garden leave, or non-working notice provision), or that impacts the ability of the partner to practice after the notice period (such as by limiting client contact during the notice period), would arguably operate as an impermissible restriction on the practice of law in violation of Rule 5.6. See, e.g., Ronald C. Minkoff, “Poaching Lawyers: The Legal Risks,” Frankfurt Kurnit Klein & Selz, P.C.

Further, a requirement that partners give notice of withdrawal prior to taking steps to compete may operate as an impermissible restriction on the right of the lawyer to practice after termination. Courts agree that a partner has a right to prepare in secret to compete, so long as the partner abides by his fiduciary responsibilities to the firm. See, e.g., Dowd & Dowd v. Gleason, 693 N.E. 2d 358, 379 (1998); Bray v. Squires, 702 S.W.2d 266, 270 (Tex.Ct.App.1985); Meehan v. Shaughnessy, 535 N.E.2d 1255, 1264 (1989); see also , Graubard Mollen Dannett & Horowitz v. Moskovitz , 86 N.Y.2d 112, 120 (1995) (an attorney who takes steps to find alternative space and establish affiliations prior to notifying the partnership does not violate the fiduciary duty); see also , Restatement (Second) of Agency '393, Comment e (1958) (recognizing that agent may make certain preparations for own venture prior to termination of agency).

For instance, a departing partner may locate alternative space or order supplies before notifying the partnership of his decision to withdraw. As explained in Dowd & Dowd : “As a practical matter ' some preliminary preparations by lawyers who are leaving a firm must be allowed, and [] it is appropriate for lawyers in these circumstances to make arrangements, prior to their departure, to obtain new office space, equipment, and other materials necessary for the practice of law.” 693 N.E. 2d at 379.

Contractually limiting an attorney's ability to take such steps may limit lawyer mobility, thus restricting client choice and running afoul of the ethics rules.

Conclusion

Partnership agreements may require that a partner give advance notice of withdrawal, but should not require partners to give notice prior to making preparations to leave. Further, the agreement should not require partners who have given notice to stop working on client matters.

Restrictions on Soliciting Other Partners And Employees

A law firm's most valuable asset is its attorneys. It is not surprising, then, that law firms wish to protect this valuable asset by including non-solicitation provisions within the partnership agreement. Law firms that try to limit the ability of partners to “raid” their ranks through non-solicitation agreements or that impose non-competition agreements on their associates in an attempt to insulate them from solicitation may find themselves in violation of ethics rules, however.

Provisions prohibiting solicitation of partners or employees violate the ethical rules because they indirectly restrict attorneys' abilities to practice law. See , ABA Comm. on Ethics and Prof'l Responsibility, Informal Op. 1417 (1978); D.C. Bar Assoc. Op. 181 (1987) (cited in Jacob, at 146-47). As the ABA has explained: “Although the agreement ' does not restrict the right of an individual lawyer to practice law directly, by restricting the right of association between attorneys it restricts such right indirectly and so falls within the prohibition of [the rule].” Informal Op. 1417.

Further, the prohibition on non-solicitation provisions is not limited to solicitation of attorneys, but also to solicitation of paraprofessional staff. “Paraprofessionals, no less than lawyers, should not have their career mobility inhibited, especially when the inhibition derives from an agreement to which they were not a party.” Jacob, at 153.

Most courts considering the issue agree that a partner has a right to confer with others in secret regarding plans to leave a firm. See, e.g., Graubard Mollen Dannett & Horowitz v. Moskovitz, 653 N.E.2d 1179, 1183 (N.Y. 1995) (“That this may be a delicate venture, requiring confidentiality, is simple common sense ' .”); Beasley v. Cadwalader, Wickersham & Taft, No. CL-94-8646, 1996 WL 438777, at 6 (Fla. Cir. Ct. July 23, 1996) (partner did not breach fiduciary duty by secretly soliciting three associates); but see, Gibbs v. Breed, Abbott & Morgan, 710 N.Y.S.2d 578, 583 (App. Div. 2000) (finding that partners who conferred together secretly regarding a move did not violate their duty by doing so, but finding that they did violate their fiduciary duty by recruiting employees of the firm prior to serving notice and while still members of the firm and by using confidential information to further their recruitment efforts). For instance, two partners may discuss leaving together to establish their own firm prior to giving notice of withdrawal.

Requiring partners to give notice of withdrawal prior to engaging in such discussions would likely run afoul of the ethics rules, since it could limit lawyer mobility and thus restrict client choice. A less objectionable approach is a provision requiring advance notice before soliciting associates or other employees. See, Arthur J. Ciampi, “Lateral Partner Moves: Law Firm Partnership Law,” N.Y.L.J., March 24, 2006, at 22 (proposing sample partnership provision requiring that partners submit lists of other partners or employees he or she wishes to solicit).

Even if not formally required by the partnership agreement, however, a partner who fails to provide sufficient notice of a planned migration of key attorneys and staff may breach fiduciary duties. See , Rest. (Second) of Agency '393, Comment (e) (1958) (“a court may find that it is a breach of duty for a number of key officers or employees to leave their employment simultaneously and without giving the employer an opportunity to hire and train replacements.”). This is especially true where secrecy is maintained to garner an unfair business advantage. See, Sperry Rand Corp. v. Rothlein, 241 F. Supp. 549 (D. Conn. 1964) (finding that employees who subsequently started their own business violated the duty of loyalty owed to their employer).

In Reeves v. Hanlon, 33 Cal.4th 1140 (2004), the court considered whether departing lawyers (a partner and an associate) could be liable for tortious interference with contractual relations for enticing their old firm's at-will employees to join them at their new firm. The court held that the attorneys were liable because they recruited the employees while the attorneys were still employed by their old law firm and they did so with the intent “to cripple the [old firm's] ability to provide legal services ' .” Id. at 1154.

Notably, the court found that the departing attorneys had “mounted a campaign against the [old] firm involving destruction of computer records, misuse of confidential information, and unethical conduct, of which the cultivation of employee discontent was only a component. This campaign unfairly impaired the Reeves firm's ability to retain its employees.” Id. at 1147-48.

Conclusion

Provisions prohibiting solicitation or other attorneys or staff are impermissible, but a provision requiring a partner to give notice before engaging in solicitation may be permissible.

Restrictions on Soliciting Clients

As with lawyer solicitation clauses, blanket restrictions on client solicitation are impermissible under the ethics rules, since the client must be free to choose whether to stay with the firm or leave with the departing attorney and must be given sufficient time/notice to make the decision. As the American Bar Association has explained: “Clients are not merchandise[,] [l]awyers are not tradesmen,” and restrictive covenants inappropriately “barter in clients.” ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 61-300. Any partnership provision that restricts a departing partner's ability to communicate with or solicit shared clients violates the ethics rules. However, joint notification of shared clients is preferred under the ethics rule. See , ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 99-414. For that reason, the partnership agreement may wish to specify the manner and timing of joint notification.

Notably, the blanket prohibition on non-solicitation extends only to clients with whom the departing attorney has a relationship. Id . In other words, a firm may limit a departing attorney's contact with clients with whom the departing attorney has no pre-existing relationship. However, once the attorney has left the firm, non-solicitation restrictions fall away and the departing attorney is free to contact those clients within the parameters of the ethics rules on advertising and solicitation. Id.

While a firm may be tempted to limit what client information a departing attorney may access as an alternative to a non-solicitation clause, they should think carefully before doing so. Although a client list may be proprietary information for purposes of partnership law, a departing attorney generally is able to use a client list for purposes of conducting a conflict check with a new firm or notifying the clients of the departure. See, ABA Comm. on Ethics & Prof'l Responsibility, Formal Ethics Op. 99-414, at 6 FN 12; Meehan v. Shaughnessy, 404 Mass. 419, 435-36, 535 N.E.2d 1255, 1264 (1989) (finding departing attorneys' preparation and use of a list of clients expected to leave former firm was a logistical arrangement to establish a physical plant for the new firm, which was permissible); Robert W. Hillman, “Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms,” 55 Wash. & Lee L. Rev'. 997, 1023 (1998) (“The information that may be disclosed [to another firm] is the minimum necessary to allow a general assessment of the nature of the partner's practice, the resources required to support the practice, potential conflicts with existing clients of the firm, and an appropriate range of compensation.”); see also, N.Y. State Bar Ass'n Eth. Op. 720 (Aug. 27, 1999). Restricting departing attorneys' ability to use that client information may run afoul of Rule 5.6.

Conclusion

A partnership agreement should not include blanket restrictions on contacting firm clients. It may specify the means by which shared clients will be notified of a departure, and may limit a departing attorney's contact with clients with whom he or she has no relationship.

Restrictions on Using Documents

Broad restrictions on which documents an attorney may access or take with her must be carefully considered in light of the ethics rules. Client files belong to the client, and clients who are following the departing attorney may take their file with them. See, Model Rules of Professional Conduct Rule 1.16; see also, Sage Realty Corp. v. Proskauer Rose Goetz & Mendelson, LLP, 91 N.Y.2d 30, 666 N.Y.S.2d 985 (1997). A departing attorney may not take client files without client consent, however, and agreements that state as much are permissible. See, e.g., In re Cupples, 952 S.W.2d 226, 236-37 (Mo. 1997) (lawyer reprimanded for removing files without client consent); Maryland Attorney grievance Comm'n. v. Potter, 844 A.2d 367 (Md. 2004) (attorney suspended for removing client files and destroying firm's computer records for those clients).

Departing attorneys often wish to take more than just client documents, however; templates, memoranda, or briefs may all be useful for the new practice. The ABA has opined that a departing lawyer is entitled to take copies of documents such as research memoranda, pleadings and forms, “to the extent that they were prepared by the lawyer and are considered the lawyer's property or are in the public domain” and should take into consideration who prepared the material and what measures the firm has undertaken to keep it confidential and proprietary. ABA Formal Op. 99-414. Documents and templates the attorney has developed over time may comprise part of the attorneys' knowledge base and limiting use of that information may operate as a restriction on practice.

As one ethics committee opined in a different context, “Indeed, what a lawyer learns in a representation necessarily becomes part of the storehouse of knowledge and experience that the lawyer may draw on in the lawyer's career and that is part of the value the lawyer brings to each successive representation.” N.Y. City Bar Ass'n Comm. on Prof'l and Judicial Ethics, Ethical Op. 2005-02, 2005 WL 682188 (2005). But law firms have a recognizable interest in protecting the documents, checklists, and other intellectual property that may be proprietary to the firm. As to truly proprietary firm materials ' materials that the firm (as opposed to the attorney) created and which the firm has taken steps to protect ' the partnership agreement may limit subsequent use of those materials. Cf. id .

Conclusion

Partnership agreement provisions concerning subsequent taking and use of documents should be narrowly tailored to protect the firm's proprietary information and should not restrict the right of partners to take or use files or documents they have created themselves.

While it may seem a daunting task, with a little thought and careful evaluation of applicable ethics rules, firms can craft partnership agreements that protect the firm's interest and comply with the ethics rules.

Cara E. Greene, a member of the Board of Editors of A&FP 's sibling newsletter Law Firm Partnership & Benefits Report, is a partner at Outten & Golden LLP in New York City. She regularly writes and speaks on attorneys' ethical obligations. Ms. Greene wishes to thank Wayne Outten for his contributions to this article.