FEES FOR DEPARTING ATTORNEY MUST BE FAIR
As a Buffalo and Western New York attorney that deals with ethical issues, I am often asked how a firm divides fees when an attorney leaves the firm and continues to represent former firm clients. In Russo v. City of New York 48 A.D.3d 520 (2nd Dept. 2008) the Court held that, “Where there is a fee dispute between attorneys, the amount due an outgoing attorney is based on the proportionate share of the work performed.”
Decisions from other jurisdictions have similarly interpreted theIR ethical provisions that are also based on the Model Rules. Florida Ethics Opinion 93-4 (1995) held that a contract cannot require a departing lawyer to pay the firm he is leaving half of any fee received for representing firm clients, or the firm’s quantum meruit fee, whichever is greater, should she represent any firm clients. The Florida Bar held that the provisions violated the Rule which prohibits a lawyer from offering or making a partnership or employment agreement that restricts a lawyer’s right to practice after termination of the relationship. They held that the offending provisions create a substantial “financial disincentive” that would preclude the departing associate from accepting representation of firm clients. The contract terms held that:
Employee acknowledges that the Employer has invested its trust and confidence in the Employee and a considerable amount of time and money in training and developing the skills and expertise of the Employee in the practice of law. As a condition of employment and the benefits thereof, Employee agrees that in the event Employee’s Employment Agreement with the Employer is terminated, Employee will not, for a period two (2) years from date of termination, interfere with the business of the Employer by 1. seeking, directly or indirectly, any of the Employer’s clients…
B. Employee acknowledges that the above prohibitions are reasonable and necessary covenants not to interfere with the business of the Employer. In the event of a breach of any of these covenants by the Employee or in the event Employee accepts representation of a client of the Employer, it is agreed as follows:
1. Employee acknowledges that he (she) would work on any on-going case or on-going file matters for such client on behalf of and in the interest of the Employer and shall compensate to the Employer the greater of fifty percent (50%) of any fee received from said client or the Firm’s quantum meruit.
2. As to subparagraph A.2. the Employer’s damages are not readily calculable and that Employer is entitled to injunctive relief to enforce said covenants, there being no adequate remedy at law.
The Florida Bar held that the contract violated Ruled 4-5.6 (the equivalent of Model Rule 5.6) that provides that “A lawyer shall not participate in an offering or making (a) A partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement.” The Bar held that it is unenforceable as Rule 5.6 seeks to protect the professional autonomy of lawyers as well as the clients’ access to the lawyer of their choosing. The Bar also held that the “special trust and confidence” inherent in the attorney-client relationship dictates that clients be given greater freedom to change legal representatives than might be tolerated in other employment relationships, and that termination agreements among lawyers are scrutinized more closely that restrictive covenants found in traditional commercial settings.
The Bar held that although the contract does not expressly prohibit a lawyer from representing firm clients, it creates a “financial disincentive” that operates to preclude the departing attorney from accepting representation of such clients.
In Nebraska Ethics Advisory Opinion for Lawyers No. 06-09 the authors held that it is not 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. The authors stated that the provision violates Rule 5.6 “Restrictions on Right to Practice”