Michael S. Hanan and Qing H. Guo Obtain Defense Victory in Post-Employment Restrictive Covenant Matter for In-House Lawyers

July 2021

On July 2, 2021, in a matter of first impression, Gordon Rees Scully Mansukhani team Michael S. Hanan and Qing H. Guo convinced the Hon. Jesse M. Furman of the United States District Court of the Southern District of New York that a post-employment restrictive covenant between a company and its in-house lawyer is per se unenforceable under New York law. 

The firm client, an in-house lawyer, faced allegations of breach of a non-compete agreement when he resigned from his position as in-house counsel with the plaintiff and started working for a competitor as its corporate counsel.  The plaintiff had required that our client sign a non-compete agreement as a condition of his employment, despite the agreement clearly violating Rule 5.6(a) of the New York Rules of Professional Conduct, which provides that “[a] lawyer shall not participate in offering or making … a[n] … employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement.” 

In finding in favor of our client, the Court held that although the highest court in New York has not addressed the precise issue of whether Rule 5.6(a) applies to in-house or corporate counsel, it had twice ruled that an agreement between a lawyer and a law firm that violates Rule 5.6(a) or its precursor is unenforceable as a matter of public policy, citing Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989) and In Denburg v. Parker Chapin Flattau & Klimpl, 624 N.E.2d 995 (N.Y. 1993).  Thus, the Court opined it was compelled by these New York decisions to decide in favor of our client, and find that the post-employment restrictive covenant was per se unenforceable against in-house lawyers.