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The U.S. Equal Employment Opportunity Commission has sued Sidley Austin Brown & Wood, charging that the law firm practiced age discrimination in demoting or forcing the retirement of older partners. The suit could result in millions of dollars in back pay to former Sidley Austin partners. And it may force most large law firms to adopt radically different management structures and practices if law firm partners are determined to be “employees” under federal law. Filed in the U.S. District Court for the Northern District of Illinois, the commission’s lawsuit follows months of failed conciliation talks between the agency and the firm, whose largest office is in Chicago. Last July, after almost four years of investigation, the EEOC issued an administrative finding that Sidley Austin had likely violated the Age Discrimination in Employment Act. In its complaint, the agency charges that the law firm violated the ADEA by “maintaining and implementing, since at least 1978, an age-based retirement policy.” The EEOC began investigating Sidley Austin in 2000, shortly after the firm demoted to counsel status more than 32 partners. The agency contends that virtually all of those lawyers, most of whom were in their late 50s and early 60s, were involuntarily downgraded because of their age. The EEOC says it is suing on behalf of other partners forced to retire, or demoted or expelled under similar circumstances. The firm, then known as Sidley & Austin, merged with New York’s Brown & Wood in 2001. It has more than 1,500 lawyers, making it one of the world’s largest firms. Its Washington outpost has 221 lawyers, and is one of the 20 highest-grossing law offices in the District. Carter Phillips, Sidley’s D.C. managing partner, did not return a call requesting comment. The agency’s suit is seeking back pay and other compensation for what it says are the victims of discrimination. Such payments would measure in the millions, given Sidley Austin’s profits per partner, which were $895,000 in 2003 according to a survey by Legal Times‘ sister publication The American Lawyer magazine. The EEOC is also seeking an order requiring Sidley Austin to institute practices and policies that do not discriminate against employees over 40. A spokesman for Sidley Austin said last week: “The firm has always been committed to a policy of equal opportunity and nondiscrimination. We will vigorously defend against the EEOC action, which has no merit.” John C. Hendrickson, the EEOC’s regional attorney in Chicago, said the suit signaled that laws against employment discrimination were not just for blue-collar workplaces. “If there’s a lesson to be learned from this case, it’s that no sector of the economy, whether the factory floor or the offices of the most prestigious law firms, is exempt from the reach of the employment laws,” he said. Whether those laws should reach law firm partners has been a subject of controversy since the EEOC first began its investigation. Sidley Austin challenged the agency’s jurisdiction and power to subpoena records from the firm on the grounds that the affected lawyers were partners, and therefore employers rather than employees within the meaning of federal antidiscrimination laws. In an opinion by Judge Richard Posner in 2002, the U.S. Court of Appeals for the 7th Circuit held that the EEOC had sufficiently shown that the affected lawyers could be considered employees in order to proceed with its investigation and subpoena the firm. Judge Posner pointed to the highly centralized management of the law firm, in which partners never voted on issues, and a self-selecting executive committee that made all major decisions, in suggesting that the partners could, in fact, be employees. The judge said that, while Sidley Austin was clearly a partnership, the “question is whether, when a firm employs the latitude allowed to it by state law to reconfigure a partnership in the direction of making it a de facto corporation, a federal agency enforcing federal anti-discrimination law is compelled to treat all the ‘partners’ as employers.” Though the 7th Circuit stopped short of declaring law firm partners employees, the decision sent a chill through the legal community. Over the past decade, most large law firms have become even larger either through mergers or other forms of expansion. Along the way, most have adopted more corporate management structures, guided by a belief that the constant meeting and voting that characterized traditional partnerships had little place in the emerging megafirms. “It’s not feasible to run a billion-dollar firm by having 400 people vote on each decision,” says Lisa Smith, a legal management consultant at the D.C. office of Hildebrandt International. Smith says that while the EEOC’s action likely won’t curtail the recent spate of megamergers, it will cause firms to re-examine their governance, compensation, and partnership involvement. One possible outcome, she says, is to accelerate the trend towards tightly limiting the number of “true” or “equity” partners even as firms add senior lawyers with other titles. TROUBLING DEVELOPMENT Philip M. Berkowitz, an employment law partner at Nixon Peabody, said the EEOC had made its positions clear and the suit was not surprising. But he said he still found it a troubling development. “The reason why the issue is important for law firms is not that we want to have the freedom to discriminate,” said Berkowitz. “It’s simply recognizing the notion that partners are not employees, as the EEOC seems to believe, but are employers and owners. We share in the profits. We are liable for the firm debts. We make contributions to capital.” He said he expected Sidley Austin to continue arguing that partners cannot be considered employees based on issues like their liability and contributions to capital. Other firms, he said, would no doubt be watching the case closely. “The ramifications of this going forward would be significant for every partnership,” he said. William Kilberg, an employment specialist at the D.C. office of Gibson, Dunn & Crutcher, notes that the EEOC actions are particularly troubling for larger firms because of the growing centralization of management. That’s because as firms grow, more and more decisions are made by committee or centralized in the hands of the managing partner, often leaving individual partners with almost no control over the direction of the firm. Kilberg says that if successful, the law suit will force firms nationwide to examine their management structure. “Everybody’s going to be looking at Sidley’s model,” he says, “and saying, ‘How can we distance ourselves from that?’ “ Legal Times reporter Jason McLure contributed to this article. Anthony Lin is a reporter for the New York Law Journal , where this article first appeared.

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