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Nevada Bar Says In-House Lawyer Non-Compete Breaks Ethics Rules

Dec. 19, 2019, 5:55 PM

A non-compete agreement a Nevada attorney signed while working in-house for a corporation violates state ethics rules because it’s unqualified and restricts the attorney’s practice of law, the state bar recently advised.

Similarly, the confidentiality provision of the agreement violates the rules because it exceeds their scope, according to a Dec. 10 opinion from the State Bar of Nevada’s Standing Committee on Ethics and Professional Responsibility.

The attorney signed the agreement in consideration for a stock award while working in-house at “Corporation A,” the committee said. After the attorney was terminated, another company in the same line of business offered the attorney an in-house position.

Corporation A then tried to enforce the restrictive covenants, and the attorney asked the committee to look into the agreement’s enforceability.

Model Rule 5.6 says that attorneys can’t make an agreement “that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement.”

The rule is limited to covenants not to compete that restrict the practice of law, and isn’t implicated if a company prohibits in-house attorneys from accepting a non-legal position with a competitor, the committee said.

The non-compete clause of the attorney’s agreement, however, doesn’t distinguish between legal and non-legal work, the committee said. It prohibits the attorney from engaging in “any activities” relating to the same business as the corporation and its subsidiaries, it said.

This is a violation of the rule, and a “majority of state bar committees have concluded likewise,” the committee pointed out. However, some states have upheld non-competes that attach “reasonable economic consequences” to a departing attorney’s right to compete, like requiring attorneys to pay costs when they depart, it noted.

The committee likewise concluded the confidentiality aspect of the agreement violated professional conduct rules. Lawyers have a broad duty of confidentiality that the committee said outlasts “the term of the attorney-client relationship.”

The agreement here requires the attorney to keep confidential all information “resulting from any task assigned” to the attorney, it revealed. This violates Rule 5.6 because it restricts the attorney from using his legal knowledge and skills to practice, the committee said.

A possible alternative for an employer would to insert a “savings clause” into the confidentiality agreement, the committee said, which is allowed in some states. But it said this clause would have to mention relevant professional conduct rules and provide that restrictive covenants be interpreted consistent with these rules.

The opinion is Nev. State Bar Standing Comm. on Ethics & Prof’l Responsibility, Formal Op. 56, 12/10/19.

To contact the reporter on this story: Melissa Heelan Stanzione in Washington at mstanzione@bloomberglaw.com

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com