Law firm partners accused of ethics violations for 'anti-competitive' employment contracts
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The name partners of the law firm Tully Rinckey have been accused of ethics violations for allegedly adding anti-competitive terms to attorney employment agreements and impeding clients’ ability to follow departing lawyers.
The ethics filing is “cutting-edge,” according to the Legal Profession Blog.
In late 2010 and 2011, the lawyers began requiring new hires and existing lawyers in the Washington, D.C., office to sign employment agreements that included “restrictive, anti-competitive provisions,” according to the specification of charges.
According to the allegations, the employment agreements:
• Banned departing lawyers from taking the identity of firm clients and client contact information. Violators were subject to $10,000 in liquidated damages.
• Provided for a three-to-five-year term of employment, with liquidated damages as high as $50,000 for those who left early.
• Banned departing lawyers from trying to entice away law firm employees for 36 months after leaving the firm.
• Banned departing lawyers from entering into any business arrangement or partnership with other firm alumni for 18 months after leaving the firm.
• Required some lawyers who left before their employment term and took clients with them to pay a referral fee of one-third of the fees billed to those clients. Similar provisions were included in some separation agreements, with referral fees reaching as high as 50%.
• Required lawyers who left before their employment term to pay the firm’s legal fees and litigation costs. Lawyers were told that the provision would apply, even if the firm lost the case.
• Required lawyers to pay liquidated damages of $10,000 for each material breach of the employment agreement.
Tully is accused of suing lawyers who left the firm and took clients with them, no matter what the clients wanted.
Some lawyers who wanted to leave the firm actually paid a portion of liquidated damages. Generally, however, the name partners waived the liquidated damages provision in exchange for a separation agreement “that perpetuated the restrictions on the lawyer’s ability to take clients,” the specification of charges alleges.
The law firm is also accused of adding language to separation agreements that prevents departing lawyers from cooperating voluntarily with any claim or investigation involving the firm “in any way, shape or form.”
The law firm provided a statement to Reuters.
The disciplinary complaint “focused largely on HR practices that the firm has long since changed,” the statement said.
“None of the charges against Messrs. Tully or Rinckey are questioning the quality of work performed by the firm’s lawyers, nor do the charges allege any acts of dishonesty or criminal misconduct,” the statement said. “The firm looks forward to having these charges aired in a fair and public hearing.”
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