Ohio Supreme Court Rejects Anti-Competition Provisions in Employment Agreement of Law Firm Associate

Posted by Neal F. Weinrich on

Cincinnati Bar Association v. Hackett, 129 Ohio St.3d 186, 950 N.E.2d 969, 2011-Ohio-3096 (Ohio June 30, 2011), illustrates how many jurisdictions will refuse to enforce covenants restricting competition against attorneys on public policy grounds.

In Hackett, a bar complaint was filed against an attorney charging that he offered and participated in an employment agreement that restricts the right of another lawyer to practice after termination of the relationship.  The complaint also charged that the agreement provides for an illegal or clearly excessive fee.

The basis of the complaint was an agreement the attorney entered into with his associate.  That agreement stated upon his termination, the associate would no longer continue to represent or attempt to represent clients of the firm whose claims had been assigned to the associate for representation.  The agreement provided that if the client chose to leave the attorney’s firm and thereafter be represented by the associate, the associate would pay the attorney’s firm 95% of any attorney’s fees generated by that case, based upon a 33.3% contingent fee agreement.  The attorney had used the same form employment agreement when he hired another associate.

Before the Cincinnati Bar Association filed a bar complaint, the attorney had filed a lawsuit against the former associate seeking to recover a fee pursuant to the employment agreement.  The fee dispute arose when, prior to the associate’s resignation, he had executed a contingency fee agreement on behalf of the firm to represent a client in a personal injury matter.  After the associate left the firm, the client advised the attorney that he had decided to retain the associate to handle his case.   When the attorney learned that that the client’s case had been settled and that the settlement check had been sent to his former associate, the attorney filed suit to enforce the employment agreement and recover the fee.

The trial court dismissed the lawsuit, holding that the employment agreement violated Ohio’s public policy favoring a client’s freedom to choose a lawyer.  The trial court also observed that the employment agreement may violate provisions of the Ohio Rules of Professional Conduct.

Reviewing the Board of Commissioners’ recommendations with respect to the Cincinnati Bar Association’s bar complaint against the attorney, the Ohio Supreme Court found that the employment agreement and the attorney’s conduct did violate the rule prohibiting a lawyer from offering an employment agreement that restricts the right of a lawyer to practice after termination of the relationship.  The Ohio Supreme Court also found that the employment agreement violated the rule prohibiting a lawyer from making an agreement for, charging, or collecting an illegal or clearly excessive fee.

The Ohio Supreme Court reiterated that a client has the absolute right to discharge an attorney or a law firm at any time, and further noted that this right would be hollow if the discharged attorney could hinder other attorneys from taking the client’s representation if the client so desired.  However, given the attorney’s lack of a disciplinary record, the absence of a dishonest motive, his cooperation in the proceeding, and evidence of his good character, the Ohio Supreme Court concluded that only a public reprimand was the appropriate sanction for the misconduct.

This decision reflects the fact that, in most jurisdictions, restrictive covenants in attorneys’ employment agreements are highly frowned upon for public policy reasons.