Can a law firm's shareholder agreement pay a departing lawyer less for their stock if they refuse to sign a non-compete?

Plain-English summary

The question concerned a proposed shareholder agreement for a law firm in which the purchase price of a departing shareholder's stock would depend on whether the departing stockholder signed a covenant not to compete.

The committee concluded that the proposed termination agreement constitutes a restriction on the right of a lawyer to practice after terminating his relationship with the corporation, which violates RPC 5.6(a).

Currency note

This opinion was issued in 1985, before the 2006 revisions to the Washington Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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: Can a firm's buy-sell agreement reduce a departing lawyer's stock price for declining a non-compete?

A: The committee said no. It concluded that conditioning the stock buyout on a covenant not to compete restricts the lawyer's right to practice after leaving, in violation of RPC 5.6(a).

Q: Does it matter that the non-compete was described as voluntary?

A: The committee still treated the arrangement as a restriction on the right to practice, because the departing shareholder's compensation was tied to signing the covenant.

Q: What rule does this violate?

A: RPC 5.6(a), which bars an agreement that restricts a lawyer's right to practice after terminating a relationship, except for retirement-benefit provisions.

Background and rules framework

The opinion applies RPC 5.6(a), Washington's rule barring restrictions on a lawyer's right to practice (the analog of Model Rule 5.6), to a law-firm shareholder agreement. The committee read the rule to reach an arrangement that financially penalized a departing shareholder who declined to sign a covenant not to compete, treating the conditioned buyout as a restriction on the right to practice.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.6 (restrictions on a lawyer's right to practice)
• Washington RPC 5.6(a) (agreements restricting the right to practice after termination)

See also

• ABA Formal Op. 06-444: restrictive covenants and retirement benefits
• ABA Formal Op. 489: notice when lawyers change firms

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=38

Original opinion text

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

Advisory Opinion: 927
Year Issued: 1985
RPC(s): RPC 5.6(a)
Subject: Restriction on right to practice; departing shareholder's compensation tied to voluntary non-compete agreement

[The question concerned a proposed shareholder agreement for a law firm in which the purchase price of a departing shareholder's stock would depend on whether the departing stockholder signed a covenant not to compete.] The Committee was of the opinion that your proposed termination agreement in an employment contract does constitute a restriction on the right of a lawyer to practice after terminating his relationship with the corporation, which violates RPC 5.6(a).