Can a law partnership condition a withdrawing partner's payments on a promise not to compete in a geographic area?

Plain-English summary

A member described a partnership agreement under which a withdrawing partner receives his capital account, salary to the date of withdrawal, and a share of profits to that date, plus an additional amount based on a percentage of the partner's annual income that is payable only if the partner does not practice in Kentucky for two years after withdrawal. The Committee answered "Yes," the clause violates DR 2-108(A).

The opinion quoted DR 2-108(A), which bars a lawyer from being a party to a partnership or employment agreement that restricts a lawyer's right to practice after termination of the relationship, "except as a condition to payment of retirement benefits." It reasoned that the structure of the rule makes clear not every termination or withdrawal can be treated as a retirement, so offering inducements or conditioning benefits on compliance with a non-compete covenant would conflict with the disciplinary rules, citing Gray v. Martin.

The opinion noted the request was within its jurisdiction because it concerned the requestor's own past and future conduct and that of the firm. It declined, however, to opine on the enforceability of the provision or the parties' rights under the agreement, explaining that its jurisdiction does not extend to questions of law and that the subject matter is or is likely to be the subject of litigation.

Currency note

This opinion was issued in 1987 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a firm withhold a partner's payout unless the partner agrees not to compete?

A: No. The opinion concluded that conditioning a withdrawing partner's benefits on a two-year non-compete covenant conflicts with DR 2-108(A).

Q: Doesn't the rule allow non-competes tied to retirement benefits?

A: Only for genuine retirement. The opinion stressed that the rule's structure shows not every withdrawal is a retirement, so a non-compete condition on ordinary withdrawal payments is not within the retirement-benefits exception.

Q: Did the Committee decide whether the clause is enforceable in court?

A: No. The opinion concluded the matter was within its jurisdiction as to the lawyer's own conduct, but declined to opine on enforceability or the parties' rights, calling those questions of law likely to be litigated.

Background and rules framework

The opinion interprets DR 2-108(A) of the former Code of Professional Responsibility, which restricts agreements limiting a lawyer's right to practice after a relationship ends, except as a condition of retirement benefits. The modern analog is Model Rule 5.6(a), which bars a lawyer from making a partnership or employment agreement restricting the right to practice after termination, except for restrictions tied to retirement benefits. The analysis turns on whether the payment is a true retirement benefit.

Citations and references

Rules of Professional Conduct:

• DR 2-108(A) (former Code; restrictions on right to practice)
• MR 5.6 (restrictions on right to practice)

Cases:

• Gray v. Martin, 63 Or. App. 173, 663 P.2d 1285 (1983), non-compete tied to partnership payments

Other opinions cited:

• ABA/BNA Lawyers' Manual on Professional Conduct 51:1202, 1203-04

See also

• ABA Formal Op. 06-444: Retirement Restrictive Covenants

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-326.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-326
Issued: September 1987

This opinion was decided under the Code of Professional Responsibility,
which was in effect from 1971 to 1990. Lawyers should consult the current
version of the Rules of Professional Conduct and Comments, SCR 3.130
(available at http://www.kybar.org), before relying on this opinion.

Question:

Does a clause in partnership agreement tying a partner's right to certain
payments upon withdrawal from his or her firm to a covenant not to
compete within a geographical area violate DR 2-108(A)?

Answer:

Yes.

References:

DR 2-108(A); ABA/BNA Law. Man. Prof. Con. 51:1202, 1203-04; Gray v.
Martin. 63 Or.App. 173, 663 P.2d 1285 (1983).
OPINION

A member of the Association states that a partnership agreement allows a
withdrawing partner to receive (1) his or her capital account; (2) his or her salary to the date
of withdrawal; and (3) his or her share of the profits to the date of withdrawal. Moreover,
an additional amount based on a percentage of the withdrawing partner's year's income is
also payable conditioned on the withdrawing partner's not practicing in Kentucky for two
years after withdrawal.
Disciplinary Rule 2-108(A) provides that a "lawyer shall not be a party to or
participate in a partnership or employment agreement with another lawyer that restricts the
right of a lawyer to practice law after the termination of a relationship created by the
agreement, except as a condition to payment of retirement benefits". It is obvious from the
structure of this provision that not every termination of or withdrawal from a relationship
can be treated as a retirement. Accordingly, it would appear that the offering of
inducements or the conditioning of benefits on the basis of compliance with a non-compete
covenant would be in conflict with the disciplinary rules. Grey v. Martin, 663 P.2d 1285
(Or.App. 1983).
Since this request for an opinion involves the requestor's own conduct, as well as
that of his or her firm, and involves his or her own future conduct as well as past conduct,
it is within our jurisdiction. On the other hand, we decline to issue an opinion regarding
the enforceability of the provision, or any other opinion regarding the rights of the parties

under the agreement. Our jurisdiction does not extend to answering "questions of law",
and it is likely that the subject matter of this request is or will be the subject of litigation.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the
Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530
(or its predecessor rule). The Rule provides that formal opinions are advisory only.