Why Lawyers Are Different

Rule 5.6(a) forbids a lawyer to participate in offering or making a partnership, shareholders, operating, employment, or similar agreement that restricts a lawyer's right to practice after the relationship ends, and its only carve-out is for an agreement concerning benefits upon retirement.¹ Nothing in that text excuses a restraint because it is short, local, or well paid for. That silence separates the lawyer rule from ordinary covenant analysis, and this unit explains where it comes from.

A court asked to enforce a physician's or other employee's covenant not to compete asks whether the restraint is reasonable. The lawyer rule never reaches that question, because a lawyer's covenant burdens someone who did not sign it. In an ordinary noncompete, the employer and the employee hold the interests at stake, and each can bargain for what it values. A lawyer's covenant also burdens the client's interest in choosing counsel, and neither the firm nor the lawyer can trade away an interest that belongs to someone else. The first subsection sets out the interests the rule protects. The second sets the lawyer rule beside the way courts judge covenants in other settings.

Client Choice and Autonomy

Comment 1 to Rule 5.6 names two interests: agreements restricting the right of lawyers to practice after leaving a firm limit their professional autonomy, and they limit the freedom of clients to choose a lawyer.² Professors Hazard and Hodes and attorney Jarvis add a third, describing the rule as designed to protect present and potential clients from a diminution of their ability to choose counsel, and to protect lawyers and clients from illegitimate anticompetitive practices that distort the market and ultimately drive up the price of legal services.³ Autonomy, client choice, and a competitive market all support the ban, but they work differently, and one of them does most of the work.

Autonomy is the interest of the lawyer who signs. A covenant triggered by departure puts a price on the lawyer's freedom to decide where to practice and with whom, so that leaving an unsatisfactory firm means giving up the work that would make a new practice viable. The Illinois Supreme Court held attorney restrictive covenants void as against the public policy underlying Rule 5.6(a) in Dowd & Dowd, Ltd. v. Gleason, and it read the rule as designed both to afford clients greater freedom in choosing counsel and to protect lawyers from onerous conditions that would unduly limit their mobility.⁴

The market interest looks past the two parties to the contract. A covenant that keeps departing lawyers from competing takes them out of the market for as long as it lasts, and the firms that remain face less pressure on price. That is the route by which, in the commentators' words, such restraints distort the market and drive up the cost of legal services, and the clients who pay the higher price had no seat at the table when the restraint was agreed.⁵

Client choice carries the most weight, and the fundamental reason for the ethical prohibition is protection of clients' right to engage lawyers of their choice.⁶ In Valley Medical Specialists v. Farber, the Arizona Supreme Court drew on the New Jersey decision in Dwyer v. Jung for the propositions that a client is always entitled to be represented by “counsel of his own choosing” and that the attorney-client relationship is “consensual, highly fiduciary on the part of counsel,” so that the lawyer may do nothing that restricts the client's right to repose confidence in any counsel of the client's choice.⁷ The relationship is consensual because the client selects the lawyer, and fiduciary because the lawyer owes the client the highest loyalty, so it rests on the confidence the client places in one particular person. A firm cannot transfer that confidence by contract. When a covenant makes the departing lawyer unavailable or expensive to hire, the firm's interest in its client base takes the place of the client's own judgment about whom to trust.

The rule protects the client's freedom to choose, not the departing lawyer's claim to the client. In Meehan v. Shaughnessy, the court held that the strong public interest in allowing clients to retain counsel of their choice outweighs any professional benefits derived from a restrictive covenant, so the Parker Coulter partners could not restrict a departing partner's right to remove clients who freely choose to retain him or her.⁸ A client who freely stays with the old firm has chosen too, and the rule has no quarrel with that outcome. The covenant in Marta's case is the problem because it settles the result in advance, not because she ends up with one lawyer rather than the other.

Some students explain the ban as a protection for the judicial process, and that explanation fails. An agreement restricting a lawyer's right to practice may or may not interfere with the judicial process, so interference cannot be the foundation of the rule; the fundamental reason is protection of clients' right to engage lawyers of their choice.⁹ A restraint with no effect on any court or proceeding therefore still falls within the rule if it limits where the lawyer may practice or whom the lawyer may serve.

Howard v. Babcock shows what happens when the client's interest is left off the scale. As a dissent describes the majority, it treated the reasonableness of a noncompetition agreement as depending not on its effect on clients' rights but on whether it protects and preserves the financial stability of existing law firms.¹⁰ Dissenting opinions rejected that measure. One reasoned that law is a business in the sense that a lawyer in a firm earns a living, but it is also and foremost a profession, and the ethical rule exists to enforce the view that service to clients, including protection of their ability to employ the attorneys they have come to trust, outranks the economic interests of established attorneys and firms. That opinion would have enforced the rule according to its ordinary terms to bar all agreements by which established firms seek to protect themselves against competition from departing lawyers.¹¹ Another grounded the ranking in the fiduciary relationship: the attorney's duty includes placing the client's interest above the attorney's own, so the client's right to retain counsel of choice is superior to the interest of the attorney, and a reasonableness test built on the relationship among lawyers gives little regard to the relationship between lawyer and client.¹²

That ordering explains why Rule 5.6(a) has no exception for a modest restraint. The client's interest belongs to someone who did not sign the covenant, and the lawyer owes that client fiduciary loyalty, so the firm and the lawyer cannot bargain it away. A reasonableness test would weigh the firm's interest against the lawyer's hardship, and the interest the rule exists to protect would never reach the scale. The Arizona court, drawing on the lawyer cases, stated the conclusion directly: commercial standards may not be used to evaluate the reasonableness of lawyer restrictive covenants, because strong public policy considerations preclude their applicability.¹³

Ordinary Covenant Analysis Compared

In every other setting, courts treat reasonableness as the heart of a noncompete inquiry, and they sort covenants by the setting in which they were given. The covenant most readily enforced is the seller's. When a business is sold, the value of its goodwill usually figures significantly into the price, so the buyer deserves some protection from competition by the former owner.¹⁵ A sale also does not ordinarily contemplate competition between the parties, because it signals the seller's exit from competition.¹⁶ Even so, the covenant must fit what was bought. A seller's promise not to compete is illegal and unenforceable to the extent the restraint exceeds the goodwill purchased, so a restraint covering territory where the seller had no goodwill, or lines of trade in which the seller was not engaged, is unreasonable, and on the better view a restraint is invalid if it outlasts the goodwill the buyer can reasonably expect to keep. A former owner who agrees to stay on as an employee is treated as a seller, while key personnel without a significant ownership interest in a corporate merger are treated as employees.¹⁷

Employee covenants get a harder look. Under the Arizona authority discussed in Farber, employer-employee covenants are disfavored and strictly construed against the employer.¹⁸ The harder look has two sources: a restraint on a former employee is inherently anticompetitive because it keeps rival businesses from gaining a personnel resource, and employer and employee typically bargain from unequal positions.¹⁹ A restriction is unreasonable, and will not be enforced, if the restraint is greater than necessary to protect the employer's legitimate interest, or if that interest is outweighed by the hardship to the employee and the likely injury to the public.²⁰

California sits at the far end of the range. Its statute provides that, except as provided in the chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. The chapter excepts noncompetition agreements in the sale or dissolution of corporations, partnerships, and limited liability companies, which are the sale-type settings other states treat most leniently, and in Edwards v. Arthur Andersen LLP the California Supreme Court described the statute as reflecting a settled legislative policy in favor of open competition and employee mobility.²¹ Ordinary law therefore runs from covenants enforced if reasonable, through covenants weighed with suspicion, to covenants void by default, and a court finds the covenant's place on that range by asking who the promisor is.

The lawyer rule removes the weighing altogether. Suppose an exam stem stresses that a lawyer's covenant is short, local, and paid for. Those facts feed the reasonableness balance, and the lawyer rule has no balance for them to feed. The only question is whether the agreement restricts the right to practice after the relationship ends, and a covenant that does is barred however narrow it is, since the text's only carve-out concerns benefits upon retirement.²²

Firms most often defend such a covenant by pointing to what they have invested in the lawyer, and the argument fails at the threshold. Commercial standards may not be used to evaluate the reasonableness of lawyer restrictive covenants, and covenants not to compete by lawyers are unethical and therefore probably unenforceable.²³ A balance that sets the firm's investment against the lawyer's hardship leaves out the client who would have chosen that lawyer, and the firm and the lawyer cannot bargain away a choice that belongs to the client.

Physician covenants show how courts borrow the lawyer rule's reasoning without borrowing the rule. In Farber, the Arizona court drew on the lawyer cases and then held that, in light of the great public policy interest in covenants not to compete between physicians, each agreement will be strictly construed for reasonableness.²⁴ The court noted that the American Medical Association discourages physician covenants as contrary to the public interest, although it stops short of banning them.²⁵ Applying the stricter test, the court held the covenant unenforceable because public policy concerns outweighed the medical group's protectable interests.²⁶ A narrow physician covenant tied to a legitimate interest can in principle survive that scrutiny, whereas a lawyer's covenant of identical scope cannot, because the lawyer rule applies no reasonableness test.

Illinois adds a structural reason the lawyer ban does not carry over to other professions on its own force. In Mohanty v. St. John Heart Clinic, a physician-covenant case, the Illinois Supreme Court's discussion of Dowd emphasized that the court has the sole and inherent power to define and regulate the practice of law, that the power to prescribe rules governing attorney conduct rests solely in the court, and that it adopted the Rules of Professional Conduct in exercising that exclusive power.²⁷ The lawyer ban is thus the court's own rule about the lawyers it governs. A physician's covenant reaches a court as a contract dispute, where the working tool is the reasonableness test sharpened by public policy.

An exam problem about a covenant not to compete is best taken in order, beginning with who is bound:

If the promisor is a lawyer, ask only whether the agreement is one the rule covers and whether it restricts practice after the relationship ends. Do not weigh reasonableness.
If the promisor is a physician or another employee, ask whether the employer has a legitimate interest, whether the restraint exceeds what that interest requires, and whether hardship to the employee and injury to the public outweigh the interest, with physician covenants strictly construed.
If the promisor sold a business, the covenant gets the most generous treatment but may not exceed the goodwill sold, and a former owner who stays on as an employee is treated as a seller.
In California, a covenant not to compete is void unless a statutory exception applies.