The March 2021 Issue of the King County Bar Bulletin features an article relating to a small civil arbitration case, briefed, and argued by Gravis Senior Litigator Paul H. Beattie, that explores the ethical limitations on a law firm’s ability to discourage its lawyers from leaving the firm by charging those lawyers liquidated damages when they depart. Gravis believes that this case may be the first case in Washington to invalidate a liquidated damages clause in an attorney contract based on RPC 5.6. See Article: Bar Bulletin | Small Case Sets Interesting Precedent (kcba.org).
The Bulletin article describes the experiences of Gravis Associate Attorney Cortney Corbet, who began her legal career with Clearwater Law Group in Kennewick WA. Before she joined Clearwater, the firm had begun adding a liquidated damages provision to many of its attorney contracts. Although the contracts otherwise purported to be “at will,” if an attorney left the firm early, typically before the end of three (3) years, the Law Firm charged the departing attorney a fee or “damages” – often calculated as the lesser of either $15,000 or $2,500 per month for each month remaining on the duration of the contract regardless of the departing attorney’s experience, book of business, or income. The Law Firm also often kept a departing attorney’s final paycheck, which it applied towards the liquidated damages allegedly owed.
Finding better working conditions and opportunities elsewhere, Cortney left Clearwater early, and was soon faced with a lawsuit. The Law Firm kept a portion of Cortney’s final paycheck and sent her a demand for the remaining balance of the $15,000 of the liquidated damages amount. When she declined to pay it, the Law Firm sued her.
Still at an early stage in her legal career, and still loaded down with law school debt, Cortney could not afford the $15,000 in liquidated damages. Neither could she afford an attorney to defend her. Since Cortney had ended up at Gravis Law, PLLC, Gravis CEO, Brett Spooner, offered to have senior trial attorney Paul H. Beattie defend Cortney. In the case of Clearwater Law Group, PC. v. Cortney Corbet, Case No. 19-2-02877-03 (Benton Cty. 2019), Gravis Law filed an Answer to Clearwater’s Complaint. In that Answer, Cortney raised several defenses and counterclaims, including the defense that Clearwater had not crafted a proper liquidated damages clause under Washington law and a counterclaim that Clearwater had wrongfully misappropriated Cortney’s earned wages. But perhaps the most interesting argument, from a legal point of view, was that the Clearwater liquidated damages provision in its attorney contracts was void and unenforceable because it violated the public policy reflected in RPC 5.6: namely, that law firms should not impose contract provisions that economically restrict their attorneys’ freedom to switch jobs and to serve the clients of their choice.
Gravis argued that a plain reading of RPC 5.6 bars a law firm from imposing an employment contract that economically restricts the ability of a departing lawyer to “practice after termination of the relationship.” Gravis insisted that a $15,000 penalty is a significant restriction on an attorney’s freedom to leave the firm. Clearwater, in turn, argued that restrictions on attorney departures should only be legally-suspect if they involve more absolute prohibitions, such as noncompete agreements.
The arbitrator disagreed with Clearwater’s narrow reading of RPC 5.6. In a detailed decision, the arbitrator reasoned as follows:
“The exceptions to RPC 5.6 are not applicable in this case. From my reading of the cases submitted by both parties, it is clear the purpose of this [rule] is to prohibit employment agreements that unduly restrict the ability of the attorney after termination of the agreement to practice law, primarily for the protection of that attorney’s and/or the firm’s clients. I believe the parties are unified that protection of clients (and the client’s right to choose their attorney) is one of the primary purposes of the rule.”
Arb. Decision at P. 2. The arbitrator further concluded that the Clearwater liquidated damages clause did “impair or limit”, a lawyer’s ability to leave the Clearwater firm in direct contravention of RPC 5.6. (id at P. 3). Based on well-established case law, the arbitrator then concluded that the Clearwater liquidated damages provision was unenforceable and void in light of the public policy reflected in RPC 5.6, namely to avoid undue economic restrictions on the movement of attorneys. For more information see the March issue of the King County Bar Bulletin