Lawyer Retirement and Future Payouts: Ethical Complexities and Gray Areas

June 21, 2021

By: Devika Kewalramani

Published in the New York Law Journal.

For New York lawyers, “retirement” in the traditional sense of exiting the work force may not be the only option. New York has an intricate maze of rules on retirement requiring careful review and understanding.

In New York, lawyer retirement is remarkably complex. Variations of “retire” are used in different contexts with distinct meanings and disparate outcomes. It is critically important to understand the labyrinth of potentially applicable ethics rules that intertwine with certain court rules on retirement: Rule 1.17 of the New York Rules of Professional Conduct (the Rules) on the sale of a geographically-defined law practice and the exemption contained in section (b) of Rule 5.6 for sales of practice under Rule 1.17 from the prohibitions contained in section (a) of Rule 5.6; Rule 1.5(g) on the division of legal fees by lawyers not associated in the same law firm; and Rule 1.5(h)’s exception to Rule 1.5(g) for payment to a lawyer formerly associated in a law firm pursuant to a separation or retirement agreement.

Adding to the complication is §118.1(g) of the Rules of the Chief Administrative Judge, containing requirements for the filing of biennial registration statements, which include a filing status that exempts the “retired” attorney from the biennial fees and requirements relating to continuing legal education. For purposes of §118.1(g), “practice of law” is described as “the giving of legal advice or counsel to, or providing legal representation for, a particular body or individual in a particular situation in either the public or private sector ….”

Furthermore, it provides, “An attorney is ‘retired’ from the practice of law when, other than the performance of legal services without compensation, he or she does not practice law in any respect and does not intend ever to engage in acts that constitute the practice of law.” For purposes of registration, it appears that the defining feature of being “retired” is not the forbearance from performing legal services or engaging in acts that constitute the practice of law, but rather the fact of not being compensated for such activities.

That interpretation is supported by the following material from the Appellate Division, Second Judicial Department: “If a person registers as a retired attorney, he or she may still perform legal services without compensation (22 NYCRR 118.1[g]) and his or her only obligation will be to complete and file the biennial registration form with the Office of Court Administration.” See Attorney Matters, Resignation for Non-Disciplinary Reasons from the Bar of the State of New York. The language of §118.1(g) is difficult to interpret. See also NYSBA Opinion 1201 (2020), discussed below, to the effect that under certain circumstances a referral fee can be paid to a registration retired attorney.

Sale of Law Practice

Under Rule 1.17(a), an attorney “retiring from a private practice of law” may sell her law practice, including goodwill, to one or more attorneys or law firms who may purchase the practice. As pointed out above, the prohibitions of Rule 5.6 do not apply to the sale of a law practice pursuant to Rule 1.17.

Retiring pursuant to Rule 1.17 means something different from ceasing to practice law entirely or changing the attorney registration status to retired. Rather, as Rule 1.17(a) provides, “Retirement shall include the cessation of the private practice of law in the geographic area, that is, the county and city and any county or city contiguous thereto, in which the practice to be sold has been conducted.” Comment [4] to Rule 1.17 clarifies that it “permits a sale of an entire practice attendant upon retirement from the private practice of law within a geographic area.”

The comment further makes it clear that Rule 1.17 retirement need not be a retirement from the profession: “Its provisions therefore accommodate the lawyer who sells the practice on the occasion of moving to another city and county that does not border on the city or county.” Rule 1.17’s focus on geographic area within the State may be perceived as somewhat antiquated given the increasing trend of virtual law practices and the current reality of remote work for many lawyers.

NYSBA Opinion 961 (2013) addresses whether a retiring attorney may sell a law practice and retain the right to receive a portion of fees for legal services that will be provided after the sale date. It concludes that such an arrangement is acceptable where the payment is in proportion to the services performed by the selling lawyer prior to the sale or fairly represents the value of the “goodwill” of the retiring lawyer. The opinion notes that the retiring lawyer may not condition future referrals (i.e., after the sale) on payment of a portion of the fees earned from the referred matters.

Opinion 961 observes that goodwill reflects “the likelihood that satisfied existing clients will use the firm again when new matters arise” and “the likelihood that new clients will come to the lawyer or firm because of the firm’s reputation.” The opinion clarifies that “Rule 1.17 must be viewed as an exception to Rule 1.5(g)—that is, that the payment for ‘goodwill’ that is explicitly permitted by Rule 1.17 permits a payment that is made in the future after the fees that reflect ‘goodwill’ are earned.”

According to the opinion, the question is “the extent to which lawyers can structure the payment for the law practice as a payout over time measured by the actual fees earned by the practice after the sale.” Moreover, the opinion warns that there are “necessarily limits to such arrangements” by which goodwill is sold with a law firm practice—limits should be incorporated as to amount (i.e., the amount paid over time for goodwill) and duration (i.e., how long the fee-sharing payments are made to the selling attorney).

Sharing Fees for Referrals

Rule 1.5(g) prohibits fee-sharing among attorneys who are not associated in the same law firm, unless: (1) the fee division is proportionate to the services performed by each lawyer, or by a writing given to the client, each lawyer assumes joint responsibility for the representation; (2) the client consents in writing to the arrangement after a full disclosure of the fee division, including the share each lawyer will receive; and (3) the total fee is not excessive. Comment [7] to Rule 1.5 states, “[j]oint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.”

NYSBA Opinion 1201 discusses whether a lawyer may pay a referral fee to a lawyer who is in “retired” registration status under §118.1(g) discussed above (a Registration Retiree), despite the provision in §118.1(g) that a Registration Retiree may not receive compensation for services while in that status. The opinion concludes that such a referral fee may be paid if the referring lawyer assumed joint responsibility for the referred matter. It explains that a Registration Retiree is still a fully-licensed lawyer, notwithstanding the change of registration status to retired, and may share a referral fee if he or she undertakes joint responsibility for a referred matter under Rule 1.5(g) by fulfilling the role akin to a supervisory lawyer in a law firm consistent with Rule 5.1(a).

The opinion further clarifies that “a retired lawyer remains a member of the bar. The change in registration [with the Office of Court Administration] does not strip the lawyer of a license to practice law but instead places parameters on the lawyer’s practice.” Interestingly, NYSBA Opinion 1201 modifies NYSBA Opinion 1172 (2019) which previously concluded that joint responsibility could only be undertaken if an attorney continued to maintain OCA registration status as a lawyer not in retirement status.

Retirement or Separation Agreements

Although Rule 1.5(g) prohibits fee-sharing among unaffiliated lawyers, Rule 1.5(h) provides an exception to the rule by permitting payments by firms to formerly-associated lawyers “pursuant to a separation or retirement agreement.”

NYSBA Opinion 1218 (2021) considers whether a law firm may pay to a lawyer previously affiliated with the firm a share of legal fees otherwise due and owing to the lawyer after the previously affiliated lawyer has assumed a public office. The opinion concludes that unless the payment is otherwise unlawful (e.g., under laws governing a public official’s receipt thereof), a law firm may pay a former lawyer in the firm a share of legal fees in matters on which the former lawyer rendered services, in keeping with the parties’ agreement and the firm’s standard compensation practice, in amounts equal to what the former lawyer would have been paid if the former lawyer were still affiliated with the firm, notwithstanding that the former lawyer has since assumed public office. The opinion observes that Rule 1.5(h) does not require the agreement to be in writing or to require client consent.

The rules on lawyer retirement require cautious navigation and analysis. There are numerous potential pitfalls to consider and discuss with counsel.


Reprinted with permission from the “June 21, 2021 edition of the New York Law Journal © 2021.” ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.