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Now that the Equal Employment Opportunity Commission has filed an age discrimination complaint against Sidley Austin Brown & Wood, what should other big firms do? Maybe nothing, at least not yet. The case was just filed in January in the Northern District of Illinois. At press time Sidley (which is being represented by Paul Grossman of Paul, Hastings, Janofsky & Walker) had not responded to the suit. If Sidley chooses to litigate, the case could be tied up in the courts for years. Still, law firm managers are watching the case closely. If the EEOC prevails, it could embolden lawyers who have been deequitized or asked to leave their firms to file discrimination suits. For managers, that could be a troubling development. Reducing the equity partner ranks may not be as easy as it once was. And that could have consequences for a firm’s bottom line. “If firms lose their ability to manage the performance of partners, I think that would be a problem,” says Hildebrandt International Inc., consultant Lisa Smith. Many firms regularly ask less profitable partners to give up their equity or leave the partnership. In 2003 the average Am Law 100 firm had 65 nonequity partners, an 11 percent increase from 2002. Some of that movement is surely due to deequitization, says Smith. And many firms have mandatory retirement ages. Those practices may have to be reexamined if the EEOC is successful in its pursuit of Sidley. At the heart of the Sidley case is the definition of a partner. Partners have traditionally been considered owners or employers and are not protected under such antidiscrimination laws as the Age Discrimination in Employment Act (ADEA) of 1967, Title VII of the Civil Rights Act of 1964, and Title I of the Americans With Disabilities Act. Employees, however, are protected under those laws. If courts determine that some partners are really employees, firms could be exposed to new liability. Sidley — then known as Sidley & Austin — ran afoul of the EEOC over a 1999 incident in which the firm’s executive and management committees demoted 32 partners, most of whom were in their fifties, to counsel or senior counsel. When the EEOC sought documentation regarding the demotions for possible action under the ADEA, Sidley withheld some documents, arguing that the demotions were based on performance, not age, and that it had provided the EEOC with enough information to prove that the demoted lawyers were real partners, not employees, and thus not subject to the ADEA. The EEOC went to court, seeking to enforce its subpoena. A district court ruled in favor of the EEOC and, on appeal, the Seventh Circuit U.S. Court of Appeals upheld part of the request. The EEOC then initiated conciliation talks with Sidley, but they failed. The EEOC then filed an age discrimination suit on behalf of 31 demoted lawyers and an unspecified number of others who the agency said had been forced to retire from the firm since 1987 due to the firm’s mandatory retirement age. The Sidley dispute is just the latest in a string of cases filed in the last two decades that have challenged the definition of partnership at professional service firms –notably, accounting firms. And now that the management structure of many large law firms have evolved to more closely resemble corporations, it’s not surprising that a major law firm has drawn scrutiny. In 1986 there were four firms in The Am Law 100 that had 500 lawyers or more. By 2003, that number had grown to 62. To manage that growth, large firms have adopted structures that place power in fewer hands. That dilution of partner participation in the management of the firm may have exposed firms to complaints like the EEOC’s. Says Dechert labor lawyer Alan Berkowitz: “As accounting and law firms have gotten larger, there have been more openings for partners to argue that they’re not true partners.” If a firm can increase participation among partners, it may be able to reduce the risk of litigation from partners claiming to be employees. “It may be instructive to look at how [partners] share the decision making for critical issues,” says Epstein Becker & Green labor lawyer Frank Morris Jr. “To the extent that there’s any lack of clarity, it may be prudent to revise some firm documents concerning participation in key decisions.” Sidley may be at the extreme in the area of partnership participation, a key issue that appears to have prompted the EEOC to file suit. Judge Richard Posner of the Seventh Circuit, who wrote the opinion on the subpoena issue in the Sidley case, noted that the firm is “controlled by a self-perpetuating executive committee” that decides how much partners make and which partners will be fired. Posner also pointed out that the only firmwide issue in which all Sidley partners voted in 25 years was the merger with Brown & Wood — which took place after the EEOC began its investigation. (After the EEOC filed its suit, Sidley issued a statement claiming that the case had no merit and that it would vigorously defend itself.) Lawyers who regularly advise firms say such limited voting among partners is not the norm. For example, at Wilmer Cutler Pickering Hale and Dorr, partners vote on admission of new partners, the election of the management and compensation committee members, and whether to accept controversial cases. At another large firm, Bingham McCutchen, partners elect members of the firm committee every year. “The truth of the matter is, there is a voting process” at most large firms, says Proskauer Rose labor lawyer Kathleen McKenna. “And partners have control or exercise control over the management of the enterprise through their votes.” But even if firms have management structures that are tightly controlled, they may reduce the possibility of litigation through a clearly written partnership agreement. Greenberg Traurig’s Leslie Corwin, who specializes in partnership law, says courts typically construe partnership agreements strictly. Firms should be able to confidently trim their equity ranks so long as the power to do so is established in the partnership agreement. What’s clear is this: Firms cannot simply stick the label “partner” on lawyers and expect courts to recognize them as such. And just because partners make capital contributions may not by itself be enough to define them as owners. In 2003 the U.S. Supreme Court was persuaded by a six-part test that the EEOC uses when defining an employer in a case involving a medical professional corporation. In that case, known as Clackamas , the court ruled that no single factor should be considered dispositive in determining one’s status. The factors touched on such things as how the individual is paid, how and to what extent the individual influences the organization, and how the organization recognizes the individual. In the opinion, Justice John Paul Stevens wrote: “The mere fact that a person has a particular title — such as partner, director or vice president — should not necessarily be used to determine whether he or she is an employee or a proprietor.” The EEOC was buoyed by the decision. “If you read that decision, they’re taking a real-world approach,” says John Hendrickson, the regional attorney for the EEOC in Chicago who is leading the case against Sidley. “They’re saying, ‘What’s going on here? Who’s really running it?’ By that measure, these Sidley partners. . . . There’s just no way around it. They had about zero voice.” If the EEOC gets its way, they may be heard loud and clear. This article was originally published in The American Lawyer, a Recorder affiliate based in New York City.Practice Center articlesinform readers on developments in substantive law, practice issues or law firm management. Contact News Editor Candice McFarland with submissions or questions at [email protected]or go to www.therecorder.com/submissions.html.

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