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Does your firm require partners to retire when they reach a certain age, subject only to rare exceptions? Has the firm enforced the policy against one or more unwilling partners within the past two years? Does the firm plan to enforce the plan against other aging partners within the next few months? If you answered “yes” to any of these questions, you may be surprised to learn that the firm may be sued for age discrimination by either the Equal Employment Opportunity Commission or the partners themselves — if partners do not have a meaningful say in significant firm governance issues. Federal, state, and local fair employment laws prohibit covered employers from discriminating against their employees based on protected status, including age, disability, race, color, religion, sex, and national origin. Most federal antidiscrimination statutes define the term “employee” in a circular fashion: an individual employed by an employer, except to the extent specifically excluded by class. By definition, “employers” are not protected. Until recently, many in the legal community assumed that law firm partners are business owners, and therefore not entitled to protection from employment discrimination. The Supreme Court began to chip away at that notion in its 1984 Hishon v. King & Spalding decision, where the Court recognized a right of action to challenge denial of promotion from law firm associate to partner based on unlawful considerations such as gender. In a concurring opinion, Justice Lewis Powell was eager to limit the scope of the decision to partnership-selection decisions only and not to decisions affecting relations among existing partners. Powell viewed the relationship among law partners to be markedly different from that between employer and employee. He observed: “The essence of the law partnership is the common conduct of a shared enterprise. The relationship among law partners contemplates that decisions important to the partnership normally will be made by common agreement or consent among the partners.” Since 1984, however, the manner in which law firms make important partnership decisions has undergone a sea change. Simply stated, it is nearly impossible to manage a half-billion-dollar business having 200 or more equity partners by giving each of them a meaningful say before responding to 24-hour opportunities and challenges.Yet, despite exponential growth, the creation of different classes of partners within large firms, the decreasing number of decisions made by democratic vote, and the concentration of decision-making authority within a small group of individuals, most firms continue to cling to the belief that they could do anything they wanted to existing partners within the framework of the partnership agreement — exempt from the oversight of courts and juries under the nation’s discrimination laws. STRAW THAT BROKE THE CAMEL’S BACK And then came the Sidley Austin case. In October 1999, without consulting with the partners or otherwise giving them the opportunity to deliberate and vote, the chairman and managing partner of Sidley Austin announced the firm’s intention to downgrade 32 equity partners to the rank of “counsel” or “senior counsel,” and to lower the mandatory retirement age for partners from age 65 to a flexible 60-65, based on management’s discretion. They glibly informed clients that “the theme of all these changes was the creation of opportunity for our younger lawyers” — oblivious to the possibility that the firm’s actions violated the federal Age Discrimination in Employment Act. They apparently perceived no risk to the firm or to themselves in openly admitting to ageist motives. One of the expelled partners anonymously contacted the Equal Employment Opportunity Commission complaining of age discrimination, which led the EEOC to open a “directed” investigation — one that did not require any partner to risk professional suicide by filing a charge of discrimination against the firm. Perhaps driven by the concern over adverse publicity and the uncertain outcome of litigation, Sidley Austin recently agreed to settle the EEOC lawsuit challenging the 1999 partner demotion and mandatory retirement decisions. On Oct. 4, the EEOC announced court approval of a consent decree under which Sidley Austin agreed to pay $27.5 million to the 32 partners demoted in 1999, in amounts to be determined by the EEOC, in exchange for limited releases of the age claims by the recipients. During the term of the decree (Oct. 4, 2007, through Dec. 31, 2009) Sidley also agreed that it would not terminate, expel, retire, reduce the compensation of, or otherwise adversely change the partnership status of a partner because of age; maintain any policy or practice requiring retirement as a partner, or require permission to continue as a partner, once the partner has reached a certain age or age range; request or suggest the retirement or change in partnership status of a partner in such fashion that a reasonable person in the partner’s position would believe that a refusal is likely to bring adverse consequences; require partners to cease their service on any firm committee (except the executive or management committees), or as a practice group head, because of age; and take any action, or maintain any policy or practice that would retaliate against any person because the person has engaged in activity protected by the federal age discrimination act. Sidley further agreed to maintain all of the following categories of firm records for five years to the extent they relate to acts occurring within the term of the consent decree: records that relate to partner hours, billings, realizations, and compensation; formal or informal evaluations by any committee, practice group head or executive committee member of the performance or productivity of any partner; documents and records relating to any decision by Sidley to request or require a partner’s departure or otherwise adversely affect a partner’s status as a Sidley partner; and documents discussing the reasons for a partner’s departure or potential departure. Sidley agreed to make such documents available for inspection by the EEOC, upon request. As a condition of settlement, Sidley also agreed to the appointment of former Democratic congressman, chief judge on the U.S. Court of Appeals for the D.C. Circuit, and Clinton White House counsel, Abner J. Mikva, 81, whom Sidley agreed to compensate at his regular hourly rate, to receive and investigate complaints filed by any Sidley partner before Dec. 31, 2009, alleging that Sidley had engaged in conduct that, if proved, would violate the terms of the decree. If Mikva were to conclude that there were reasonable grounds to believe that the decree had been violated, he would then attempt to achieve a voluntary resolution and if no such resolution were reached, to submit a confidential report to Sidley and the EEOC summarizing the results of his investigation and his proposed resolution. If Sidley were to decline to accept the recommendation, then the EEOC could apply to the court for relief. The EEOC remains free to investigate possible violations of the decree and Sidley would be obligated to cooperate fully, subject to intervention by Mikva at his discretion, and if the dispute remained unresolved within 30 business days, to apply to the court for relief. Non-compliance as of the date of expiration of the decree would result in extension of the term until the disputed issue was resolved. It is important to note that Sidley did not admit wrongdoing and retained the right to request or require partners to depart, change status, reduce compensation, or to discuss retirement with partners because of lessened performance, productivity, or contribution to the firm, the need or desirability of a reduction in force, or any other legitimate business reasons, so long as the action is not taken with the intent to discriminate on the basis of age. Further, Sidley retained the right to set expectations for partner performance and contributions that increase with the partner’s length of service with the firm, so long as no such expectations are set or acted upon with intent to discriminate on the basis of age. In short, Sidley retained autonomy to manage firm partners in accordance with its own business and professional standards, subject only to a prohibition of discrimination on the basis of age. Fresh from victory over Sidley Austin, the EEOC will no doubt be looking to take on other similarly situated firms. THE IMPACT OF SIDLEY For America’s largest law firms, the Sidley settlement should signal the need to undertake an objective analysis of their firm’s governance structures to determine the existence and degree of risk to which they are potentially exposed. Indeed, the Attorneys’ Liability Assurance Society has cautioned law firms to reexamine their exposure to partner discrimination claims, and to seriously consider purchasing employment practices liability insurance to cover the risk. Based on the case law to date, a proper risk analysis should go beyond a perfunctory examination of the firm’s partnership agreements, bylaws, and written policies, and focus instead on the firm’s actual methods of operation. Subject to attorney-client and work product privileges, such an investigation should include interviews of all members of the executive and management committees concerning the kinds of decisions that are vested in those committees, the chairman, and the managing partner without consultation or vote by partners. The lower the degree of democratic participation, the higher the risk of having partners not on the executive and management committees classified as “employees” for purposes of the discrimination laws. Until the results of that analysis are known, it would also be prudent to suspend enforcement of any existing mandatory retirement policy and to refrain from implementing any such plan. At-risk firms have two choices. One is that management and executive committees may agree to give up power and to amend the partnership agreement and bylaws to expand the scope of decisions requiring partnership vote. A second option is to concede that some or all of the partners are employees protected by the discrimination statutes, and commit to the establishment of employment law compliance policies and procedures that would limit the risk of future exposure. If the choice is the second option, the firm should train all partners who sit on partner evaluation, compensation, and management committees (all of whom may be called as witnesses in a partner discrimination case) to ensure that they are thoroughly grounded in all applicable fair employment laws and regulations, adopt and adhere to objective criteria in rating and disciplining partners, and avoid making ageist or gender-biased comments which could be used as evidence of unlawful discriminatory motive if one of their decisions is challenged. At-risk firms should make every attempt to preserve evidence as to the legitimate, nondiscriminatory business reasons for taking an adverse action against any protected partners or employees. The

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