On appeal from the Superior Court of New Jersey, Law Division, Somerset County.
Approved for Publication February 27, 1995. As Corrected March 10, 1995.
Before Judges Dreier, Villanueva and Braithwaite.
The opinion of the court was delivered by: Dreier
The opinion of the court was delivered by DREIER, P.J.A.D.
Plaintiff, the law firm of Leonard & Butler, P.C., appeals from a declaratory judgment holding, inter alia, that several paragraphs of plaintiff's employment contract with defendant Evan M. Harris, Esq. are void as unreasonable restrictions upon an attorney's continued employment following separation from a law firm. *fn1 Three paragraphs were the original subject of this appeal, and two are still in dispute.
Defendant was employed by plaintiff as an associate from June 27, 1987 until late 1990 when he was made a seven percent partner or shareholder, and then as a partner through July 19, 1991 when his employment was terminated for economic reasons. In 1988 the firm changed its name from R. Gregory Leonard, Esq., P.A. to Leonard & Butler, P.C. There is a factual dispute whether defendant was informed when hired that he would be required to sign an employment agreement. He contends that he was never so informed; the firm's principals assert to the contrary. According to plaintiff, at the time of defendant's initial employment, one of the partners explained to him that he would be required to sign an employment agreement if he were to work for the firm. Thereafter, defendant interviewed with the principals of the firm who informed defendant that the firm was in the process of having a new form of employment agreement drafted by consultants and that if he accepted employment he would be required to sign an employment agreement.
Even though defendant commenced working for the firm in June 1987, the employment agreement was not drafted until October 1987, and at that time defendant signed the agreement without expressing any reservations. Defendant contends that he signed at the firm's insistence and only did so because he feared losing his job if he did not. There was no new agreement signed in 1990 which reflected defendant's ownership of an interest in the firm because an agreement to that effect had not yet been drawn up. Although defendant's termination on July 19, 1991 was originally intended to take effect after defendant had an opportunity to seek other employment, two weeks later he was asked to leave because of "pernicious" acts that he had allegedly committed against the firm.
As a result of the termination, both parties apparently agreed that they would proceed under the terms of the employment agreement, and defendant was asked to provide a list of clients he wished to take with him. The clients were in turn given the option of remaining with the firm or having defendant represent them. Approximately a dozen clients chose to have defendant represent them.
Defendant expressed to plaintiff that he did not consider various portions of the agreement to be enforceable, resulting in this action to enforce the terms of the agreement and to compel defendant to provide an accounting of all work performed and fees collected on the cases he had taken when he left the firm. Defendant counterclaimed to have the agreement declared void and for an accounting of his interest in the law firm. In a later motion, defendant sought partial summary judgment to have paragraphs 10 through 14 and 16 and 17 of the agreement declared void and unenforceable. Although the motion was initially denied, it was later renewed. In her order of January 24, 1994, Judge Dupuis declared several paragraphs of the agreement unenforceable including paragraphs 11(b), 13 and 14. These paragraphs read as follows:
11. In the event that the client makes a choice to be represented by the Employee who will be leaving the Firm, the Employee agrees that as compensation to the Firm for the loss of the client, the following shall be done:
(b) To the extent that fees or costs already incurred are not paid by the client, the Employee personally guarantees that no monies from the client shall be paid to him or her or their new firm prior to full satisfaction of the amount owed to the Firm.
13. It is further agreed that as to any matter that is being billed on an hourly rate basis, one half of the fee eventually billed and collected by the Employee after termination of that particular matter, shall be the property of the Firm. This shall be in addition to full payment of all fees and costs incurred through the day that the Employee leaves the Firm. The Employee shall cooperate fully in allowing the Firm to audit all bills on that matter subsequent to termination. *fn2
14. It is further agreed that as to matters which are being handled on a contingent fee basis or those estate matters being handled on a percentage basis, the Employee agrees that the entire contingent fee collected or percentage paid on the matter shall be the property of the Firm and that the Employee shall only be entitled to compensation for the reasonable and necessary hours devoted to the matter at an hourly rate which is the same as that which his hourly rate existed while an Employee of the Firm. *fn3
Appended to the Judge's order was a four-page statement of reasons, in which she stated that the subject paragraphs "act as a financial disincentive and are clearly violative of R.P.C. ...