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                                             92 N.J.L.J. 177
                                            March 20, 1969


Appointed by the New Jersey Supreme Court


Covenant Restricting Law Practice

Inquiry is made to whether a restrictive covenant in a law partnership agreement is ethical. The agreement provides that a withdrawing partner shall not open an office or associate with or be employed by any attorney engaged in the practice of law in the county for a period of five years from the date of withdrawal.
    That an agreement not to engage in or pursue a particular business or profession, when made for a good consideration, is valid, if restrained within reasonable limits, is too well settled to be an open question. The only question considered here is whether such an agreement entered into by law partners is ethical.
    The question has never been considered or decided by this Committee. There are several opinions by the A.B.A. Committee on Professional Ethics which bear upon the subject, as well as one by the Illinois State Bar Association Committee on Professional Ethics, but none are squarely in point. A.B.A. Formal Opinion 300 (1961); A.B.A. Informal Opinion 521 (1962): A.B.A. Informal Opinion 910 (1966); Illinois Bar Association Opinion 148 (1958). See also Hicklin v. O'Brien, 11 Ill. App. 2d 541, 138 N.E. 2d 47 App. Ct. 1956).
    It is well established that the insertion of restrictive covenants in employment contracts, partnership agreements, and agreements ancillary to the sale of a trade or business is a form of active competition by the covenantee, for his sole purpose in requiring such a covenant is to suppress the future competition of the covenantor.
    Canon 7 of the American Bar Association's Canons of Professional Ethics states that "Efforts, direct or indirect, in any way to encroach upon the professional employment of another lawyer, are unworthy of those who should be brethren at the Bar;" and Canon 27 prohibits all solicitation of professional employment. It is evident from these two canons that active competition among lawyers is considered improper and inconsistent with our professional status.
    We recognize in the legal profession the existence of a "client market" which is divided among lawyers within a particular locality. But the division of that "market" can be ethically achieved only through individual performance and the "establishment of a well-merited reputation for professional capacity and fidelity to trust." (Original Canon 27, August 27, 1908 (33 A.B.A. Reports 85)). It cannot be achieved by active competition and solicitation of professional employment. The insertion of a restrictive covenant in a law partnership agreement is an attempt to control and divide the "client market" by means other than individual performance. Therefore, it is the opinion of this Committee that the instant restrictive covenant is improper, unworthy of the legal profession, and unethical. See Disciplinary Rule 2-108 (A) of the Preliminary Draft of the Code of Professional Responsibility of the American Bar Association Committee on Evaluation of Ethical Standards dated January 15, 1969.



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