Prohibiting agreements not to compete was a hot topic in 2023. In January, the Federal Trade Commission issued a proposed rule to ban “noncompetes” as an unfair restriction on trade. The state of Minnesota joined several other states in banning such agreements, and New York’s legislature also passed a similar bill.
Lawyers are also prohibited from using noncompetes in employment agreements. Maryland Rule 19-305.6 expressly bans agreements that prohibit a lawyer’s right to practice law, either in an employment agreement or in a settlement agreement. The policy behind the rule is to benefit the clients, giving them full access to a lawyer. See Bennett v. Ashcraft & Gerel, LLP, 2023 Md. App. LEXIS 719 (October 27, 2023).
While many lawyers are fully aware of the prohibition against traditional noncompete agreements, which restrict the lawyer’s right to practice, many lawyers are unaware of how Rule 19-305.6 has been construed in other contexts, such as in partnership agreements or settlement agreements.
Bennett, issued just six weeks ago, provides an excellent discussion of how a partnership agreement can be drafted to comply with 5.6. Bennett was a dispute between attorney Bennett and her former firm, Aschcraft & Gerel, regarding the allocation of fees for client cases handled by Bennett after she left the firm. She contended that her agreement with the firm was not enforceable under Rule 5.6.
The Maryland Appellate Court examined ethics opinions and cases from across the country, including a prior MSBA opinion. The court concluded that the agreement complied with 19-305.6 because it used a sliding scale based on the facts of a particular to determine the amount of fees owed back to the firm.
The agreement in Bennett also passed muster because the allocation formula was not an unfair penalty for taking clients away from the firm. When the agreement penalizes the lawyer unfairly for taking client, the agreement violates Rule 5.6. See Jacobson Holman, PLLC v. Gentner, 244 A.2d 690 (2021). Financial penalties render agreements unenforceable because they prevent a lawyer from taking a client’s case if he or she leaves a firm, and this, in turn, precludes client choice.
But the MSBA focused the opinion “solely on what an attorney may agree to or request in a settlement agreement.” It also concluded that a client can require her attorney to maintain certain information in confidence and that Rule 5.6 does not limit a client’s ability to do so or an attorney’s obligation to abide by such a request.
The MSBA returned to the 5.6 question in Ethics Opinion 2021-03. In this opinion, the committee decided that nondisparagement clauses should be treated like confidentiality provisions. Importantly, the committee reiterated that properly tailored confidentiality and nondisparagement provisions do not violate the ethics rules.
For example, the committee stated that provisions that prevent a lawyer from making malicious public statements concerning the settling party outside the context of representing a client, likely do not restrict the lawyer’s ability to prosecute future claims on behalf of other clients, and thus likely would not violate Rule 19-305.6.
Without question, there is a tension between legitimate business needs and confidentiality/non-disparagement agreements. The wise practitioner will balance these needs and narrowly tailor these agreements so that they withstand scrutiny.
Craig Brodsky is a partner with Goodell, DeVries, Leech & Dann LLP in Baltimore. For over 25 years, he has represented attorneys in disciplinary cases and legal malpractice cases, and he has served as ethics counsel to numerous clients. His column in The Daily Record appears on the first Thursday of every month. He can be reached at csb@gdldlaw.com.
This article originally appeared in The Daily Record on December 6, 2023.
Goodell DeVries defends various professionals in Maryland, the District of Columbia, and Virginia, including lawyers and law firms. Many of these cases are ethics matters involving Bar Counsel. If you have questions about the above or are a Maryland lawyer facing discipline, please contact us at EthicsHelp@gdldlaw.com.
