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NJ Upholds Non-Competition Agreement

By Sheldon I. Banoff

As previously reported in LFPBR, several states have upheld the forfeiture of non-qualified retirement benefits otherwise payable to a partner choosing to compete with the firm. See, eg, Sheldon I. Banoff, “Illinois Developments Are Good News for Multi-State Law Firms Across the Country,” LFPBR (Nov. 2002), pg. 5. In Borteck v. Riker, Danzig, Scherer, Hyland, and Perretti, LLP (A-31-03) (April 5, 2004), the New Jersey Supreme Court unanimously concluded that the retirement provisions of a law firm's partnership agreement did not violate N.J. Rules of Professional Conduct (RPC) 5.6, and held the competing partner to lose his retirement benefits. The case provides further guidance for firms in designing, drafting and defending enforceable forfeiture-for-competition agreements.

At age 53, Borteck (an 11-year partner at Riker) withdrew to join another New Jersey law firm. At the time of his departure, he was subject to a partnership agreement (the Riker Agreement) that set forth a withdrawing or retiring partner's entitlement to certain payments, as well as a notice provision governing the departure.

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