18.13. Ethics of Settlement Agreements

Agreement to Refrain from Practice

Rule 5.6 makes it unethical for a lawyer to restrict their practice in the future in two contexts.  The first context is as part of a “partnership, shareholders, operating, employment, or other similar type of agreement” if it restricts the right of a lawyer to practice law after termination of the relationship.[1]

The second context is as part of settling a matter.  A lawyer may wish to restrict future representation to obtain a better outcome for the client.  However, Rule 5.6(b) states that a lawyer may not ethically agree to limit his right to practice.  The rationale for such a restriction is that it limits the lawyer’s professional autonomy and the freedom of clients to choose a lawyer in the future.[2]  An ABA Opinion set out the reasoning:

First, permitting such agreements restricts the access of the public to lawyers, who by virtue of their background and experience, might be the very best available talent to represent these individuals.  Second, the use of such agreements may provide clients with rewards that bear less relationship to the merits of their claims than they do to the desire of the defendant to “buy off” plaintiff’s counsel.  Third, the offering of such restrictive agreements places the plaintiff’s lawyer in a situation where there is conflict between the interests of the present clients and those of potential future clients.

Aggregate Settlements [Rule 1.8(g)]

If a lawyer wishes to enter into a settlement agreement involving multiple clients (or a guilty or nolo contender plea in a criminal case) the lawyer must obtain the informed consent of all clients before agreeing to the settlement.  The lawyer must inform the client of:  (1) the existence and nature of all the claims/pleas; and (2) the participation of each person in the settlement – that is, what each client will pay or receive as part of the settlement.[3]

[1] ABA Rule 5.6(a).

[2] ABA Rule 5.6, Comment [1].

[3] ABA Rule 1.8(g).