Is a non-compete clause in a law partnership agreement that bars a departing partner from practicing in the county ethical?

Plain-English summary

The Committee was asked whether a restrictive covenant in a law partnership agreement is ethical. The agreement provided that a withdrawing partner would not open an office or associate with or be employed by any attorney engaged in the practice of law in the county for five years after withdrawal. The Committee acknowledged it was well settled that, as a matter of general law, a covenant not to engage in a particular business or profession, made for good consideration and reasonably limited, is valid; the only question it considered was whether such an agreement among law partners is ethical.

The Committee observed that restrictive covenants in employment contracts, partnership agreements, and sale-of-business agreements are a form of active competition by the covenantee, whose purpose is to suppress the covenantor's future competition. It pointed to Canon 7 (direct or indirect efforts to encroach on another lawyer's professional employment are unworthy of those who should be brethren at the bar) and Canon 27 (prohibiting all solicitation of professional employment), reasoning that active competition among lawyers is improper and inconsistent with professional status.

While recognizing the existence of a "client market" divided among lawyers in a locality, the Committee held that this division can be ethically achieved only through individual performance and a well-merited reputation for professional capacity and fidelity, not through active competition and solicitation. Inserting a restrictive covenant in a law partnership agreement attempts to control and divide the client market by means other than individual performance. The Committee therefore concluded that the restrictive covenant is improper, unworthy of the legal profession, and unethical, noting the draft Disciplinary Rule 2-108(A) to the same effect.

Currency note

This opinion was issued in March 1969, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), so the Committee was applying the Canons of Professional Ethics (Canons 7 and 27) and citing a then-draft Disciplinary Rule. It also predates the 1984 Rules of Professional Conduct and all later revisions. Agreements restricting a lawyer's right to practice are now treated under RPC 5.6, which reaches a similar result. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Can a law partnership agreement bar a departing partner from practicing in the county?

A: Not ethically, under this opinion. The Committee held such a restrictive covenant in a law partnership agreement is improper and unethical.

Q: Why is a non-compete that would be valid in other businesses unethical for lawyers?

A: The Committee reasoned that it suppresses competition and divides the "client market" by means other than individual performance, contrary to Canon 7's bar on encroaching on another lawyer's practice and Canon 27's bar on solicitation.

Background and rules framework

The opinion applied Canons 7 and 27 of the Canons of Professional Ethics, treating a non-compete among law partners as an impermissible attempt to divide the client market by suppressing competition, and cited the draft Disciplinary Rule 2-108(A). In current New Jersey terms, agreements restricting a lawyer's right to practice are governed by RPC 5.6.

Citations and references

Cases:

• Hicklin v. O'Brien, 11 Ill. App. 2d 541, 138 N.E.2d 47 (App. Ct. 1956)

Other authorities:

• Canons of Professional Ethics, Canons 7 and 27
• ABA Formal Opinion 300 (1961); ABA Informal Opinions 521 (1962) and 910 (1966)
• Illinois State Bar Association Opinion 148 (1958)

See also

No sibling opinions yet indexed.

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp147-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

92 N.J.L.J. 177, March 20, 1969

OPINION 147

Covenant Restricting Law Practice

Inquiry is made to whether a restrictive covenant in a law partnership agreement is ethical. The agreement provides that a withdrawing partner shall not open an office or associate with or be employed by any attorney engaged in the practice of law in the county for a period of five years from the date of withdrawal.

That an agreement not to engage in or pursue a particular business or profession, when made for a good consideration, is valid, if restrained within reasonable limits, is too well settled to be an open question. The only question considered here is whether such an agreement entered into by law partners is ethical.

The question has never been considered or decided by this Committee. There are several opinions by the A.B.A. Committee on Professional Ethics which bear upon the subject, as well as one by the Illinois State Bar Association Committee on Professional Ethics, but none are squarely in point. A.B.A. Formal Opinion 300 (1961); A.B.A. Informal Opinion 521 (1962): A.B.A. Informal Opinion 910 (1966); Illinois Bar Association Opinion 148 (1958). See also Hicklin v. O'Brien, 11 Ill. App. 2d 541, 138 N.E.2d 47 App. Ct. 1956).

It is well established that the insertion of restrictive covenants in employment contracts, partnership agreements, and agreements ancillary to the sale of a trade or business is a form of active competition by the covenantee, for his sole purpose in requiring such a covenant is to suppress the future competition of the covenantor.

Canon 7 of the American Bar Association's Canons of Professional Ethics states that "Efforts, direct or indirect, in any way to encroach upon the professional employment of another lawyer, are unworthy of those who should be brethren at the Bar;" and Canon 27 prohibits all solicitation of professional employment. It is evident from these two canons that active competition among lawyers is considered improper and inconsistent with our professional status.

We recognize in the legal profession the existence of a "client market" which is divided among lawyers within a particular locality. But the division of that "market" can be ethically achieved only through individual performance and the "establishment of a well-merited reputation for professional capacity and fidelity to trust." (Original Canon 27, August 27, 1908 (33 A.B.A. Reports 85)). It cannot be achieved by active competition and solicitation of professional employment. The insertion of a restrictive covenant in a law partnership agreement is an attempt to control and divide the "client market" by means other than individual performance. Therefore, it is the opinion of this Committee that the instant restrictive covenant is improper, unworthy of the legal profession, and unethical. See Disciplinary Rule 2-108 (A) of the Preliminary Draft of the Code of Professional Responsibility of the American Bar Association Committee on Evaluation of Ethical Standards dated January 15, 1969.