ETH 06-09.

CourtNebraska
Nebraska Ethics Opinion 2006. ETH 06-09. 2006Nebraska Ethics Advisory Opinion for LawyersNo. 06-9ETHICAL ISSUESIS IT ETHICAL FOR A LAW FIRM TO INCLUDE A PROVISION IN AN ATTORNEY'S EMPLOYMENT OR OTHER AGREEMENT WHICH PROVIDES FOR LIQUIDATED DAMAGES IF THE ATTORNEY LEAVES THE FIRM AND THEN COMPETES WITH THE LAW FIRM?Statement of Facts A law firm intends to hire an associate. It expects to make a significant financial investment in this associate and would like to have a liquidated damages clause in the associate's employment contract. The clause would require the associate to pay damages to the firm if the associate left the firm and continued to practice in the same county. Nebraska Rules of Professional Conduct RULE 5.6 RESTRICTIONS ON RIGHT TO PRACTICE A lawyer shall not participate in offering or making: (a) a partnership, shareholders, operating, employment or other similar type of 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 in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy. Discussion It is clear from Rule 5.6 that a practice agreement among lawyers cannot restrict a departing lawyer's right to compete except as provided for specifically in that Rule. The issue then is whether a provision which provides for liquidated damages upon termination of employment or association also violates Rule 5.6. According to the ABA Manual on Lawyer's Professional Conduct (p. 51:1205), the answer in most jurisdictions is that a law firm cannot condition the payment of or demand for money on whether a withdrawing lawyer competes with the firm. "Contractual provisions that impose a financial disincentive on withdrawing lawyers if they choose to go into competition with the firm do not, strictly speaking, prohibit the lawyers from such competition. But indirectly they may have much the same...

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