The summer marks the end of the year for bar association ethics committees. This year, the New York State Bar Association Committee on Professional Ethics addressed the question of whether—and, if so, under what circumstances—lawyers or law firms may enter into agreements that are intended to or have the effect of limiting lawyers' rights to move between law firms. NYSBA 1151 (May 1, 2018) is entitled “Restrictive Covenants on Lawyers.” The ethics committee of the North Carolina State Bar recently explored a similar topic, in Formal Ethics Opinion 2017-5, entitled “Agreement Not to Solicit or Hire Lawyers from Another Firm As Part of Merger Negotiations” (the “North Carolina Opinion”). This article will compare the conclusions and, perhaps more significantly, the approach and underlying reasoning of the two opinions. Finally, this article will briefly consider another recent opinion of the New York State Bar Association Committee on Professional Ethics, notable because of its idiosyncratic subject matter regarding permissible law firm names.

The ethics opinions addressing restrictions on lawyer mobility contend with similar provisions in these states' rules of professional conduct (RPC) that prohibit a lawyer from participating in offering or making a partnership, shareholder, operating, employment, or other type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement. In North Carolina the rule is RPC 5.6 (a), and the comparable rule in New York is RPC 5.6(a)(1).

In New York the rule has been the foundation of a long line of cases, beginning with the decision of the New York Court of Appeals in Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989), all of which in one way or another enforce this prohibition, and prohibit firms from penalizing lawyers who depart to join other firms and compete with their prior firm. Although recognizing that the rule protects the freedom of clients to choose a lawyer, North Carolina has moved in a different direction, and in earlier ethics opinions (2007 FEO 6 and 2008 FEO 8) has recognized that a financial disincentive upon the departure of a lawyer may be permissible, “if the provision is fair, takes into account the loss in firm value generated by the lawyer's departure, and is not based solely upon loss in value due to the loss of client billings.”

The North Carolina Opinion deals with the implications of the rule in the context of a law firm merger. The Opinion concludes that an agreement between law firms engaged in merger negotiations not to solicit or hire lawyers from the other firm for, in the Committee's view, a relatively short period of time after expiration of the term of the agreement is permissible because it is a de minimis restriction on lawyer mobility that does not impair client choice and is reasonable under the circumstances. The two firms had agreed to limit their agreement not to solicit the other firm's lawyers for two years after the termination of the preliminary agreement to explore the merger, and under some circumstances for a third year. The agreement excluded from this limitation either firm's “recruiting efforts resulting from the placement of general media advertisements or the retention of “headhunters” (provided that the headhunters are not specifically directed to solicit associates or other employees from the other party), or … the hiring by a party of the other party's associates or other employees who make unsolicited contacts seeking employment.

In this regard, despite paying lip service to the principles underlying RPC 5.6(a), the North Carolina Opinion concludes that the restrictions contained in the clause in question do not violate either the principle underling the RPC, or the rule itself. Its reasoning is premised on an analysis of whether the restriction has a “reasonable business purpose.” In addition, the North Carolina Opinion notes that North Carolina's rule governing the sale of a law practice (RPC 1.17) expressly permits conditioning a sale on when “the seller ceases to engage in the private practice of law, or in the area of practice that has been sold, from an office that is within a one-hundred (100) mile radius of the purchased practice…” if the provision is fair, takes into account the loss in firm value generated by the lawyer's departure, and is not based solely upon loss in value due to the loss of client billings.

The Opinion makes two additional and important points. First, the restriction in question is limited to movement between the two firms and for a relatively short and defined period of time, and does not impair client choice. Second, the Opinion notes that RPC 5.6(a) should be read as a “rule of reason” and proceeds on the assumption that:

the non-solicitation provision was included in the agreement to foster the trust necessary for both firms to disclose financial information about the productivity of the lawyers in the firms without fear that, should the merger negotiations be abandoned, the other firm would attempt to lure highly productive lawyers or “rainmaker” lawyers away from the other firm.

Finally, the North Carolina Opinion explicitly disavows a determination regarding “the legal enforceability of the provision in this inquiry or other similar provisions.” For our purposes this is critical, since in New York Nixon Peabody v. De Senilhes, Valsamdidis, 873 N.Y.S.2d 235 (Supreme Court, Monroe County, Sept. 16, 2008), explicitly held that such non-solicitation agreements between firms seeking to merge are not enforceable. Nevertheless, the North Carolina Opinion is an important indicator that, perhaps in the changing economic universe in which lawyers and firms now exist, involving a seeming frenzy of mergers, New York should reconsider its position on such agreements.

NYSBA 1151 addresses a narrower question:

May a lawyer enter into an agreement with an employer stipulating that, during the course of employment and for a stated period thereafter, the lawyer may not provide any services relating to the business of the employer when the employer is not engaged in, and the lawyer's employment does not involve, the rendition of legal services?

Applying the Cohen v. Lord, Day & Lord decision, and earlier opinions rendered under the Code of Professional Responsibility, the Opinion explicitly concludes that “[a] lawyer may not enter into an agreement with an employer restricting the lawyer's right to practice law following termination of employment, even when the employment does not involve the practice of law.” Nevertheless, “a lawyer may agree to a post-employment restriction expressly made subject to applicable ethical rules.” That added language, although it probably solved the inquirer's short-term issue, adds confusion and leaves employer and employee uncertain as to the provision's enforceability.

In this summer's more peculiar opinion, New York State Bar Association Committee on Professional Ethics Opinion 1152 (May 17, 2018) (“NYSBA 1152”), the issue presented is described thus:

The inquirer is a New York lawyer who practices in both New York and other jurisdictions. The inquirer's surname, we are told, is shared by a number of other firms in New York and other places where the inquirer practices. To distinguish the inquirer's firm from these other firms, the inquirer proposes to use only the inquirer's first name—say, John or Jane—as the sole name of the firm, as in John's Law Offices LLC or The Jane Law Firm LLC. The inquirer asserts that this nomenclature would not only serve to differentiate the firm from others bearing the inquirer's surname but also effect efficiencies—such as how the staff answers telephone calls—with existing or prospective clients. The inquirer assures us that the inquirer's first name is the first name by which the inquirer is admitted to practice in New York.

The Committee references RPC 7.5(b), which provides that a “lawyer in private practice shall not practice under a trade name, a name that is misleading as to the identity of the lawyer or lawyers practicing under such name, or a firm name containing names other than those of one or more of the lawyers in the firm,” then cites numerous earlier NYSBA ethics opinions explaining New York's prohibition on the use of trade names (e.g., NY State 869, 2011; N.Y. State 920 ¶3 (2012); N.Y. State 732 (2000); N.Y. State 740 (2001); and N.Y. State 869). And based on these premises, the Opinion concludes “[t]he answer is no —that lawyer may not use solely the lawyer's first name as the name of a law firm under the New York Rules of Professional Conduct (the “Rules”).”

The problem with this and many if not all of the earlier opinions is that it is very hard to discern how the proposed name is in any way “misleading.” Although surely the principle that underlies the Opinions, and is expressed in RPC 7.1 itself, is that the conduct (names) to be restricted is conduct that is, or might be viewed as misleading, the Opinion assumes, but does not address or explain why the use of a lawyer's first name as the name of her or his firm is inherently misleading. Given that there are also cases and opinions, some of which are also referenced in this Opinion, permitting the use of logos, permitting use of the firm's initials in sponsoring a local sports team, and an opinion allowing use of the firm's initials in answering telephone calls (NYSBA 1017), it seems even harder to justify this outcome.

Anthony E. Davis is a partner of Hinshaw & Culbertson LLP and a past president of the Association of Professional Responsibility Lawyers.