LAW FIRM EMPLOYMENT AGREEMENTS AND ETHICAL ISSUES
As a New York attorney who has dealt with cases involving employment agreements between law firms and their partners/associates I often find that many times these agreements will contain provisions that do not stand up to the ethical code. Employment agreements which limit a client’s right to choose counsel upon departure of an associate are often times found to be unethical. This blog will examine some of those issues.
In Denburg v. Parker Chapin Flattau & Klimpl, 82 N.Y.2d 375 (1993) the court held that an employment agreement which attempts to limit the client’s choice of counsel through financial disincentives to a departing attorney is against public policy and therefore unethical and unenforceable. See also Becker v. Cellino & Barnes, in which I was personally involved, where the Judge ruled that part of the employment agreement at issue was unenforceable due to financial disincentives.
There is a also distinction as to employment agreements between a law firm and their associates and fee sharing agreements between two firms. A fee sharing agreement is made at the time of transfer of a file or later. Agreements made at the time of transfer occur when one firm refers a case to another firm, is substituted for another firm, or when an attorney leaves a firm. These agreements are subject to a separate set of rules.
With regard to fee sharing agreements between two firms made at the time of transfer of the file, it was held in Benjamin v. Koeppel, 85 N.Y.2d 549 (1995) that “It has long been understood that in disputes among attorneys over the enforcement of fee sharing agreements the courts will not inquire into the precise worth of the services performed by the parties as long as each party actually contributed to the legal work and there is no claim that either refused to contribute more substantially.” This law has nothing to do with the enforceability of unfair employment agreements which contain financial disincentives to a departing attorney to continue to represent his clients after he leaves the firm. There are no appellate cases in which the discussion of the enforceability of an employment agreement uses the language quoted above. Such discussion is quoted in cases involving referrals or substitution of counsel, wherein the agreement is made at the time of the transfer of the file. Employment contracts are a completely different animal. An employment agreement which is found unenforceable due to a financial disincentive cannot then be found to be enforceable because the courts “will not inquire into the precise worth of the services performed.” Ballow Brasted O’Brien & Rusin v. Logan, 435 F3d 235 (2nd Cir. 2006) reflects the law regarding an agreement made between two firms, and not employment agreements.
The next blog will discuss which type of employment agreements can withstand judicial scrutiny.