In a North Carolina settlement, can a lawyer agree not to represent other employees with similar claims, and can the lawyer later take those claims after a confidential settlement?

Plain-English summary

A lawyer represents one plaintiff in an employment dispute. Several other employees have factually similar potential claims that the lawyer does not yet represent. The opinion answers three questions about what settlement terms the employer's counsel may propose and what the lawyer may do afterward.

On a term barring the lawyer from representing other employees with similar claims, the opinion concludes the lawyer may not participate. Rule 5.6(b) prohibits a lawyer from offering or making an agreement that restricts the lawyer's right to practice as part of settling a controversy between private parties. The opinion explains that such a term denies the public access to the lawyer best suited to represent them (citing RPC 179), creates a personal conflict for the lawyer asked to give up future representations (citing ABA Formal Opinion 00-417), and risks tying the settlement figure to buying off opposing counsel rather than the merits.

On a confidentiality-only term that restricts disclosure of the agreement's terms but not the lawyer's later representation of similar claimants, the opinion concludes the lawyer may participate. Rule 5.6(b) does not reach a provision that merely limits revealing information about the matter or settlement, and such a term is consistent with the lawyer's continuing duty of confidentiality under Rules 1.6 and 1.9(c). On later representing the other employees, the opinion concludes the lawyer may do so only if it can be done without revealing the former client's confidential information, including the settlement terms, and without exposing the former client to liability under the agreement. Rule 1.9(c) bars using information from the former representation to the former client's disadvantage; if the lawyer could not use that information without exposing the former client to liability, the inability to use it would materially limit the new representation under Rule 1.7(a)(2). The opinion adds that interpreting the contractual language of the settlement is beyond the committee's purview.

In practice

Under the North Carolina rules as they stood at the time of the opinion, the analysis turns on the difference between a term that restricts the lawyer's right to practice and a term that only restricts disclosure. The opinion holds the first is barred by Rule 5.6(b) and the second is permitted and consistent with the duty of confidentiality.

Per the opinion, a lawyer may take the other employees' similar claims only where doing so neither reveals the former client's confidential information nor exposes the former client to liability under the settlement; otherwise the constraints of Rule 1.9(c) and the resulting material limitation under Rule 1.7(a)(2) prevent the representation.

Common questions

Q: Can a settlement bar a lawyer from representing other people with similar claims?

A: No. The opinion concludes Rule 5.6(b) prohibits a lawyer from participating in a settlement that restricts the lawyer's right to practice, including agreeing not to represent other claimants against the same opponent.

Q: Is a confidentiality clause about the settlement terms allowed?

A: Yes. The opinion concludes a provision that only restricts disclosure of the agreement and its terms is not barred by Rule 5.6(b) and is consistent with the duty of confidentiality under Rules 1.6 and 1.9(c).

Q: After settling, can the lawyer take the other employees' claims?

A: Only if it can be done without revealing the former client's confidential information, including the settlement terms, and without exposing the former client to liability under the agreement.

Q: What if the lawyer would need the former client's information to advance the new claims?

A: The opinion concludes that using that information to the former client's disadvantage would violate Rule 1.9(c), and being unable to use it would materially limit the new representation under Rule 1.7(a)(2), so the lawyer could not proceed.

Background and rules framework

The opinion interprets Rule 5.6(b) (no settlement term restricting a lawyer's right to practice, corresponding to Model Rule 5.6) and reads it alongside the continuing duty of confidentiality in Rule 1.6 and the duty to a former client in Rule 1.9(c) (corresponding to Model Rules 1.6 and 1.9), with the material-limitation conflict standard in Rule 1.7(a)(2) (Model Rule 1.7).

Citations and references

Rules of Professional Conduct:

• MR 5.6 / NC Rule 5.6(b) (restriction on right to practice in a settlement)
• MR 1.6 / NC Rule 1.6 (confidentiality)
• MR 1.9 / NC Rule 1.9(c) (use of a former client's information)
• MR 1.7 / NC Rule 1.7(a)(2) (material-limitation conflict)

Other opinions cited:

• NC RPC 179: full access to legal assistance prevails over the policy favoring settlement.
• ABA Formal Opinion 00-417: settlement terms limiting a lawyer's use of information and future practice.

See also

• ABA Formal Op. 00-417: Settlement Terms Limiting Use of Information
• ABA Formal Op. 93-371: Restrictions on Representing Future Clients
• ABA Formal Op. 94-381: Restrictions on Right to Practice

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2003-formal-ethics-opinion-9/

Original opinion text

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

Inquiry #1:

Attorney represents Plaintiff in an employment dispute with Employer. There are several other employees with factually similar potential claims. Attorney does not represent these employees and they have not yet asserted claims against Employer.

Attorney negotiates his client's claim with counsel for Employer. Counsel for Employer explains to Attorney that Employer is willing to negotiate the matter and perhaps settle it if it can be done confidentially to avoid additional claims by the other potential plaintiffs. At this point Attorney has no intention of representing the other potential plaintiffs and tells Counsel for Employer this. Based on this representation, Counsel for Employer agrees to provide Attorney with information about Employer's financial status, insurance coverage, and other facts about the case.

While negotiating the terms of a settlement that will be favorable to Plaintiff, Counsel for Employer requests that the settlement agreement include a provision prohibiting Attorney from representing any other employee who has a factually similar potential claim against Employer. May Counsel for Employer propose such a settlement provision and, if so, may Attorney participate in a settlement agreement that includes such a provision?

Opinion #1:

No. Rule 5.6(b) of the Rules of Professional Conduct provides that "[a] lawyer shall not participate in offering or making. . . an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties." An agreement not to represent other claimants against the opposing party denies members of the public access to the very lawyer who may be best suited, by experience and background, to represent them. RPC 179 ("Although public policy favors settlement, the policy that favors full access to legal assistance should prevail.") In addition, such agreements result in a personal conflict for the lawyer who is asked to give up future representations in the interest of a current client. ABA Formal Opinion 00-417, 1101: 204 (2000). Restrictive provisions of this nature also raise public policy concerns that the ultimate settlement figure will bear less of a relationship to the merits of the case than to the amount necessary to "buy off" defendant's counsel. Id.

Inquiry #2:

Counsel for Employer withdraws the request for a term in the settlement agreement that would prohibit Attorney from representing other employees. Instead, he requests that the agreement include the following provision:

Confidentiality: The parties stipulate, acknowledge, and agree that the Agreement and its terms shall remain confidential to the maximum extent allowable under North Carolina law and that such confidentiality is of the essence of the Agreement and its underlying terms. The parties agree not to disclose to anyone the terms of the Agreement, save and except to their tax return preparers, accountants, auditors, lenders, attorneys, courts, or to governmental agencies where such disclosure is required by law or administrative regulation, only as necessary, and to that extent the parties agree to use their best efforts to assure that such disclosure of the terms of the Agreement is not further disclosed.

May Counsel for Employer propose such a settlement provision and, if so, may Attorney participate in a settlement agreement that includes such a provision?

Opinion #2:

Yes. The confidentiality provision above does not specifically prohibit Attorney's use of confidential information learned during the representation or representation of other claimants with similar claims against Employer. Instead, it restricts only the disclosure of certain information gained in the representation. The provision is not proscribed by Rule 5.6(b) which is silent on participation in a settlement agreement that prohibits a lawyer from revealing information about the matter or the terms of the settlement. In fact, such a provision is consistent with the lawyer's continuing duty to not reveal the confidential information of a client or a former client without the informed consent of the client or the former client. Rule 1.6 and Rule 1.9(c).

Accord, ABA Formal Opinion 00-417.

Inquiry #3:

A settlement agreement containing the confidentiality provision set forth in Inquiry #2 is entered into by Plaintiff and Employer, and Plaintiff's representation by Attorney is concluded. May Attorney subsequently agree to represent the other employees on their similar claims against Employer?

Opinion #3:

Yes, provided it can be done without revealing Plaintiff's confidential information, including the terms of the settlement agreement, and without exposing Plaintiff to liability under the agreement.

Attorney may be able to represent other employees without revealing Plaintiff's confidential information to them or to any third party. However, it will be difficult for Attorney to represent other employees without using Plaintiff's confidential information to advance their claims-for example, to obtain certain records from Employer, to subpoena witnesses, or in settlement negotiations.

Rule 1.9(c) prohibits a lawyer who has formerly represented a client in a matter from using information relating to the representation to the disadvantage of the former client except as permitted by the Rules or when the information has become generally known. Thus, Attorney may not use the confidential information of Plaintiff to advance the interests of new clients if doing so will harm the interests of Plaintiff. Attorney's use of Plaintiff's confidential information to represent the other employees, even without overt disclosure of the information, would violate Rule 1.9(c) if it exposed Plaintiff to liability under the confidentiality provision of the settlement agreement. In this event, Attorney would be prohibited from representing other employees because Attorney's failure to use Plaintiff's confidential information would materially limit his representation of the other employees. Rule 1.7(a)(2). But see, ABA Formal Opinion 00-417.

As to whether representation of the other employees may expose Plaintiff to liability under the agreement, it is beyond the purview of the Ethics Committee to interpret contractual language in a settlement agreement.