Does a law firm employment agreement requiring a departing lawyer to pay the firm a buy-out amount violate the rule against restrictions on the right to practice?

Plain-English summary

The Committee was asked whether an employment agreement with a buy-out provision violates MRPC 5.6(a) when the provision requires an attorney who leaves the firm to pay the firm a specified amount because of the decision to terminate. The facts involved a lawyer who wanted to open a second office staffed by an employee attorney and to include a buy-out provision protecting the firm's investment in training that attorney.

The opinion set out MRPC 5.6, which bars a lawyer from offering or making a partnership or employment agreement that restricts the right of a lawyer to practice after the relationship ends (except agreements about retirement benefits), and explained that the rule's purpose is to prohibit agreements restricting one from practicing law and limiting clients' freedom to choose a lawyer. It contrasted a 1991 matter (E.O. 193, citing ABA Opinion 1301 (1975)) in which a partnership agreement imposed a penalty that was reduced only if the departing partner agreed not to compete; the Committee had found that arrangement restricted practice in violation of Rule 5.6.

The opinion concluded that the buy-out provision before it was different: it did not appear to restrict the attorney's ability to compete with the former firm, and its stated purpose was to protect the resources the firm invested in training, supervising, and equipping the departing attorney. On those facts, the Committee was of the opinion that such a provision is not a per se violation of MRPC 5.6.

Currency note

This opinion was issued in 2001, interpreting the Mississippi Rules of Professional Conduct (adopted effective June 22, 1994, and amended February 5, 1999). Mississippi did not adopt the ABA's 2002 Ethics 2000 revisions wholesale, but subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Does Rule 5.6 forbid all financial consequences for a lawyer who leaves a firm?

A: No. The opinion concluded that a buy-out provision requiring a departing attorney to pay the firm an amount to recoup the firm's investment in training is not a per se violation of MRPC 5.6, distinguishing it from agreements that condition payments on the lawyer agreeing not to compete.

Q: What kind of departure provision did the Committee find improper?

A: In the 1991 matter the opinion discussed (E.O. 193), a partnership penalty was reduced only if the withdrawing partner promised not to practice in substantial competition with the firm for five years; the Committee found that arrangement restricted practice in violation of Rule 5.6.

Q: What made the buy-out in this opinion acceptable?

A: Per the opinion, the provision did not appear to restrict the attorney's ability to compete after leaving, and was designed to protect the firm's investment in training, supervising, and equipping the attorney rather than to bar competition.

Background and rules framework

The opinion interprets Mississippi Rule of Professional Conduct 5.6(a) (restrictions on the right to practice; cf. Model Rule 5.6), quoting the rule and its Comment. It relies on the Committee's prior Ethics Opinion 193 (1991) and ABA Opinion 1301 (1975).

Citations and references

Rules of Professional Conduct (Mississippi; cf. Model Rules):

• MRPC 5.6(a) (restrictions on the right to practice) (cf. Model Rule 5.6)

Other opinions cited:

• Mississippi Ethics Opinion 193 (1991)
• ABA Opinion 1301 (1975)

See also

• ABA Formal Op. 06-444: Restrictive Covenants and Retirement Benefits
• ABA Formal Op. 489: Notice When Lawyers Change Firms
• ABA Formal Op. 96-400: Job Negotiations With Adverse Firm or Party

Source

• Landing page: https://www.msbar.org/ethics-discipline/ethics-opinions/formal-opinions/249/
• Original PDF: https://www.msbar.org/media/1484/35a_et_op_249.pdf

Original opinion text

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

ETHICS OPINION NO. 249

OF THE MISSISSIPPI BAR

RENDERED September 13, 2001

RESTRICTIONS ON THE RIGHT TO PRACTICE - A buy-out agreement requiring an attorney to pay a liquidated damages amount to the firm in the attorney leaves the firm is not a per se violation of MRPC 5.6.

The Ethics Committee of The Mississippi Bar has been asked to render an opinion involving the following facts:

Attorney A operates a practice in City X, and he wishes to expand his law practice to City Y by employing Attorney B to operate the new office. Attorney A intends to structure an employment agreement between his firm and Attorney B that will include a buy-out provision in the event that Attorney B should terminate his employment with the firm. This buy-out agreement is designed to protect the significant financial resources and other resources invested in training Attorney B.

The question presented to the Ethics Commission is as follows:

Does an employment agreement with a buy-out provision violate MRPC 5.6(a) if the provision requires an Attorney who is departing the employ of a firm to pay a specified amount to the firm because of his decision to terminate?

MRPC 5.6 states:

A lawyer shall not participate in offering or making:

(a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

(b) an agreement to which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties.

The Comment section to MRPC 5.6 states:

An agreement restricting the right of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph (a) prohibits such agreements for restrictions incident to provisions concerning retirement benefits for service with the firm.

Thus, the purpose of MRPC 5.6 is to prohibit agreements restricting one from practicing law. The question presented to this Committee is whether a buy-out provision in an employment contract which requires an attorney to pay money to a firm is a violation of MRPC 5.6.

In 1991, the Ethics Committee considered a hypothetical involving a law firm's partnership agreement which provided for a substantial penalty for the withdrawal of a partner. The penalty would be reduced if the "withdrawing lawyer [had] been a partner for a period of ten years and [assured] the remaining partners in writing that he [would] not engage in the private practice of law in substantial competition with the law firm for a period of five years." The Committee found that the covenant required the departing partner to restrict his practice in violation of Rule 5.6 in order to obtain funds from his capital account. The Committee noted that the American Bar Association has addressed the question of the propriety of restrictive covenants of this sort and found them to be unethical. ABA Opinion 1301 (1975) (cited in E.O. 193 (1991).

The hypothetical situation we are faced with today does not appear to restrict the attorney's ability to compete with his prior law firm. According to the requesting attorney, the purpose of the buy-out agreement is to protect the investment made by the law firm in the departing attorney. This is not a violation of MRPC 5.6. The requesting attorney further states that "by training Attorney B, supervising his work, providing him with a physical place to practice, and allowing him to make full use of the contacts, forms, and goodwill of the firm, Attorney A will invest significant resources in Attorney B." Therefore, the Committee is of the opinion that such a provision designed to protect the investments in the departing attorney is not a per se violation of MRPC 5.6.