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In a case of first impression in Washington, Division I of the Court of Appeals recently found that a separation clause in a law firm employment agreement—allocating fees in cases handled at the firm but collected after a lawyer-employee left—did not constitute an impermissible non-compete under RPC 5.6(a).
In Seattle Truck Law, PLLC v. Banks, 2023 WL 7130561 (Wn. App. Oct. 30, 2023) (unpublished), the defendant had worked as a lawyer at the plaintiff law firm. The law firm focused on contingent fee work and included a separation clause in the lawyer’s employment agreement allocating fees for cases handled while the lawyer was at the firm but collected after the lawyer left. The lawyer later left the firm with several cases he had worked on at the law firm. When he declined to pay the law firm under the separation clause for settlements in the cases involved after he left, the law firm sued to enforce the contract. The lawyer argued that the separation clause constituted an impermissible non-compete under RPC 5.6(a)—which generally prohibits any employment “agreement that restricts the rights of a lawyer … to practice after termination of the relationship[.]”
Under Comment 8 to the “fee rule”—RPC 1.5—post-employment fee allocation is not considered a fee “division” or “split” under RPC 1.5(e) but instead is generally controlled by the contract between the firm and the departing lawyer. The trial court in Seattle Truck, therefore, focused on whether the separation clause was enforceable. It concluded on summary judgment that the clause did not restrict the lawyer’s ability to practice and instead simply governed fee revenue on cases handled while the lawyer was at the firm. Accordingly, the trial court entered summary judgment for the law firm.
The Court of Appeals affirmed. In doing so, the Court of Appeals first noted that there was no dispositive appellate decision on this point in Washington. It then surveyed WSBA advisory opinions addressing RPC 5.6, but concluded that those instead focused on direct restrictions on post-employment practice such as geographic limits. Surveying decisional law nationally, the Court of Appeals concluded that allocating fees under the separation clause before it did not constitute a restriction of the kind RPC 5.6(a) was intended to prohibit and, therefore, enforced the contract.
At least at this point, Seattle Truck is an “unpublished” decision and is limited to its facts. For lawyers and law firms drafting law firm employment or partnership agreements involving this issue, however, Seattle Truck contains a very useful review of authorities in this somewhat obscure but financially significant area.
