Non-Solicitation Agreement May Be Enforced Against Attorney in Colorado
Colorado Rule of Professional Conduct 5.6(a) prohibits agreements that “restrict the right of a lawyer . . . to practice after termination of the relationship.” Ivy Ngo was was the head of the class-action department at the Franklin D. Azar and Associates, P.C. (the Firm) When she was hired, she signed a Confidentiality, Non-Solicitation, and Non-Disclosure Agreement (the Agreement). Under the non-solicitation portion of the Agreement, Ngo was prohibited from soliciting or inducing employees to leave the Firm and also from soliciting clients to do so.
After two years at the Firm, Ngo made plans to leave, and she tried to get other law firms to take on her class-action department as a Denver office. The Firm discovered her activities and fired her. Four months later, she found work at another firm. The Firm sued Ngo for breach of contract and breach of fiduciary duty, but when the Firm discovered the identify of the firms with which she had communicated, the Firm notified those other firms of their view that Ngo had shared confidential information with them. Ngo then counterclaimed, alleging defamation and seeking a declaration that the Agreement violated Rule 5.6(a).
There were cross motions for summary judgment and then, after trial, for a directed verdict. The trial court determined that the client non-solicitation agreement violated Rule 5.6(a) and thus was unenforceable. Other claims went to the jury, which found that Ms. Ngo had violated her employment contract and the Agreement but awarded the Firm only $4000.
As the prevailing party, the Firm sought $2 million in attorneys’ fees and $138,000 in costs. The court reduced attorneys’ fees to $1 million and costs to $106,000. Ms. Ngo appealed, alleging three errors, including the Rule 5.6(a) argument.
In Franklin D. Azar & Associates, P.C. v. Ngo, decided in 2024, the Court of Appeals found no error. The Supreme Court of Colorado denied certiorari in March, so the opinion stands as the first instance of a Colorado court upholding a law firm’s non-solicitation agreement. The Appellate Court noted that the only question before it was whether Ngo violated the Agreement by soliciting her co-workers to leave the Firm while she was employed at the firm. It said that it assumed without deciding that the Agreement would run afoul of Rule 5.6(a) if it applied to her post-employment conduct.
The Appellate Court notes that the common law considers solicitation of co-workers to leave employment a breach of the duty of loyalty. It asks why a contract at a law firm could not have a term that replicates the common law duty of loyalty. The answer seems blazingly obvious: Rule 5.6(a). The Appellate Court is not persuaded, because the Agreement, the Court opines, “did not significantly impact Ngo’s ability to practice after her employment with the firm ended.” Her co-workers might have independently decided to join her after she left the firm, or she could have recruited them after she left. I note that the latter reasoning suggests that the Appellate Court did not merely assume but did decide that a non-solicitation agreement that extended beyond the term of employment would violate Rule 5.6(a). Nor did the Court find that the Agreement, as construed by the Court to apply only to the employee’s conduct while at the Firm, “significantly implicate client choice.”
This strikes me as a strangely blinkered decision, and I am surprised that the Supreme Court of Colorado denied cert. While I was in practice, I routinely heard of groups leaving practices en masse. I don’t know how else it would have been practical. A class-action lawyer cannot work on their own; they need a team. They cannot move seamlessly to a new firm and continue their employment. It took Ms. Ngo four months to land a new job after the Firm terminated her. For most Americans, going four months without work is a significant impact on one’s ability to practice.
Nor does this decision serve clients well. Ms. Ngo wanted to take her team and move to a new firm. If she had done so, clients would have had the choice of following her or staying with the Firm and the members of the class-action team who had chosen to stay. The Firm’s actions left clients without a choice. The jury’s conclusion that the Firm was harmed to the tune of only $4000 suggests that, at least in this case, the Firm had no real interests that it needed its anti-competitive, anti freedom-of-contract provision to protect.
The contrast between the Lilliputian damages award and the Brobingnagian award of fees illustrates a danger of contractual fee-shifting provisions. The Firm was out to punish a disloyal employee with damages well in excess to any harm that the Firm suffered attributable to her disloyalty. They achieved their punitive goal through a breach of contract claim. That is a galling result, made worse by the fact that it encourages firms to place their own interests above those of their clients and curtails autonomy rights at the core of freedom of contract.
Remaining parts of the opinion relate to torts claims.