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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 11 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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<img style="max-width: 100%;height: auto;max-width: 100%;height: auto" loading="lazy" class="alignright size-medium wp-image-3650" src="https://www.thelawforlawyerstoday.com/wp-content/uploads/sites/754/2017/11/Merger-puzzle-pieces-240x300.jpg" alt="" width="240" height="300">One of 2017&rsquo;s biggest legal trends is the upswing in law firm merger activity.&nbsp; <a href="http://www.altmanweil.com/index.cfm/fa/r.resource_detail/oid/01B3519F-225F-4A04-A13F-F412699F2952/resource/Geographic_Expansion_Drives_RecordSetting_Law_Firm_Merger_Market_in_Q3.cfm">Altman Weil&rsquo;s MergerLine</a> site reports 76 deals announced through 2017 Q3,&nbsp;the most ever recorded through three quarters, with a prediction that there might be 100 mergers by year-end, surpassing the 2015 high of 91.
Firm mergers <a href="https://www.law360.com/articles/854034/merging-law-firms-beware-conflicts-of-interest">raise lots of conflicts issues</a>, and <a href="https://dealbook.nytimes.com/2013/11/25/big-law-firm-merger-called-off/?_r=0">some mergers are scuttled</a> when they can&rsquo;t be resolved.&nbsp; Another issue that can be troublesome in the courtship stage involves the considerable amount of financial information disclosed, namely:&nbsp; How can&nbsp;firms that are exploring a merger&nbsp;guard against&nbsp;the possibility that revealing financial information to each other might lead to poaching each other&rsquo;s&nbsp;top rainmakers in the event that the merger doesn&rsquo;t go forward?&nbsp; Can firms enter into non-solicitation agreements, to alleviate this reasonable concern?
Issue of lawyer mobility
A <a href="https://www.ncbar.gov/for-lawyers/ethics/adopted-opinions/2017-formal-ethics-opinion-5/">new ethics opinion</a> from the North Carolina state bar addresses agreements, made as part of merger negotiations, not to solicit or hire lawyers from&nbsp;each other for a specified period of time in the event that&nbsp;the firms decide not to merge.
The ethics issue arises under <a href="https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_6_restrictions_on_rights_to_practice.html">Model Rule 5.6(a)</a>, which prohibits a lawyer from&nbsp;offering or making an agreement that restricts the right of a lawyer to practice after terminating an employment relationship (except for retirement benefits agreements).
The rationale is that agreements that impose practice restrictions after a lawyer leaves a firm limit a lawyer&rsquo;s professional autonomy; and&nbsp;more important, they limit the freedom of clients to choose a lawyer.
De minimis restriction
The North Carolina opinion reviewed an agreement between two firms exploring a merger.&nbsp; In addition to customary terms barring disclosure of confidential client and proprietary firm information,&nbsp;if the firms decided not to merge, each firm agreed not to:
<ul>
<li>induce or solicit each other&rsquo;s&nbsp;lawyers or other employees to join either firm;</li>
<li>hire or engage each other&rsquo;s personnel as partners or counsel;</li>
<li>for the term of the merger exploration agreement&nbsp;(one year)&nbsp;and for two years after termination of the agreement.</li>
</ul>
The Committee noted the reality of the merger marketplace, surmising that &ldquo;the non-solicitation provision was included in the agreement to foster the trust necessary for both firms to disclose financial information about&nbsp;[lawyer] productivity&rdquo;&nbsp;&nbsp;without fear that if negotiations&nbsp;fell apart, one or both firms&nbsp;would try &ldquo;to lure highly productive lawyers or&nbsp;&lsquo;rainmaker&rsquo; lawyers away&rdquo;&nbsp;from each other.
The proposed agreement was permitted under the Tar Heel State&rsquo;s adoption of Rule 5.6, the Committee said, viewing it as a matter of first impression.&nbsp; First, the agreement imposed only a de minimis restriction on the mobility of the two firms&rsquo; lawyers.&nbsp; &ldquo;If there is a reasonable business purpose,&rdquo; the Committee said,&nbsp;a &ldquo;restriction that impacts lawyer mobility may be permissible.&rdquo;&nbsp; This one was for a relatively short, defined period of time, and only affected employment with one other law firm.
In addition, the Committee said, the restriction on lawyer mobility did not impair client choice:&nbsp; it would not prevent or inhibit a client from following a lawyer who left one of the firms in order to take a position with a firm that wasn&rsquo;t subject to the agreement.
The Committee cited the ethics rules as &ldquo;rules of reason&rdquo; (as noted in their scope section).&nbsp; Under that rubric, and with its limited impact, the &ldquo;no poach&rdquo; provision passed muster.
Any more out there?
I&rsquo;m not aware of&nbsp;other ethics opinions that deal with this aspect of Rule 5.6(a), or a no-poach clause.&nbsp; If your firm is part of the hot merger marketplace, it would be wise to tread carefully and seek advice before including such a clause in your agreement with a potential merger partner.&nbsp; And of course, as always, check your jurisdiction&rsquo;s version of the rules.

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Ethics

Legal Ethics, Professional Responsibility and the Business of Law

“No poach” clause OK when firms explore merger, says ethics opinion