UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 00-11
A lawyer who is in-house counsel for a corporation has been asked to sign an agreement not to compete which would prohibit him from working for a similar corporation for two years. One of the concerns of the corporation is the preservation of its trade secrets which may be revealed to the attorney.
Question:
May an in-house lawyer enter into a non-compete agreement without violating Rule 5.6 of the South Carolina Rules of Professional Conduct?
Opinion:
Rule 5.6(a) of the South Carolina Rules of Professional Conduct provides that "A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement." The non-compete agreement described would violate the clear provisions of Rule 5.6.
The corporation is not without recourse to protect its trade secrets disclosed to an employee lawyer, however. First of all, Rule 1.6 mandates that "A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation. . . ." "The confidentially rule applies not merely to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source." Comment to Rule 1.6. Fully consistent with Rule 1.6 and Rule 5.6, the corporation could insist that a lawyer employee sign a confidentially agreement promising to preserve the corporation's trade secrets as a condition to employment. But see Carolina Chemical Company, Inc. v. Muckenfuss, 322 S.C. 289, 471 S.E.2d 721 (Ct. App. 1996) (holding that a contractual provision, which prohibited former employee from disclosing trade secrets and defined trade secrets so broadly that virtually all information an employee acquired during employment fell within its definition, was unenforceable as a matter of law).
Other ethical rules are also implicated. Pursuant to Rule 1.7(a), a lawyer may not represent a client if the representation of that client will be directly adverse to another client unless the lawyer reasonably believes the representation will not adversely affect the relationship with the other client and each client consents after consultation. Similarly, Rule 1.7(b) provides that a lawyer may not represent a client if the representation of that client may be materially limited by the lawyer's responsibility to another client or to a third person unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation. In addition, Rule 1.9(c) precludes a lawyer who formerly represented a client from using information relating to the early representation to the disadvantage of the former client except as allowed by Rules 1.6 or 3.3.
Under the law pertaining to trade secrets, a former employee may be enjoined from threatened misappropriation of trade secrets even in the absence of a written confidentiality agreement or agreement not to compete. Pursuant to an emerging doctrine, a former employee may be enjoined from working for a competitor "when the employee's new duties entail the inevitable disclosure, or unauthorized use of, the former employer's trade secrets. In determining whether disclosure of the former employer's trade secrets is 'inevitable,' courts will consider the degree of competition between the former and present employer, the nature of the employee's new duties, and evidence of good or bad faith on the part of the employee and the new employer." 15 Z. Cavitch, Business Organizations, Section 235.04[3] (Matthew Bender 2000). See also PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). Thus, pursuant to the law of trade secrets, and consistent with the provisions of Rules 1.6, 1.7, and 1.9, in some circumstances, accepting employment with one employer may preclude certain other subsequent employment. Rule 5.6 is not so broad as to change that result. Moreover, the lawyer may enter into an appropriate confidentiality agreement even if it has some impact on the lawyer's future employment opportunities.