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Does top-down management have a new downside? The battle between Chicago’s Sidley Austin Brown & Wood and the U.S. Equal Employment Opportunity Commission may provide an answer. The EEOC is investigating Sidley for age discrimination in its 1999 demotion of 32 partners, the majority of whom were older than 50 ["Seniority Complex," June 2000]. Sidley denies that age was a factor in the demotions, and it claims the EEOC can’t investigate its partners because they are “employers” — federal antidiscrimination laws protect only “employees,” the notion being that employers call the shots and don’t need protection. So far Sidley is losing the employer/employee name game, which means that EEOC v. Sidley could pave the way for law firms to face more age, race, and sex discrimination claims. On Oct. 24 Judge Richard Posner of the 7th U.S. Circuit Court of Appeals issued a biting opinion in the case that questioned whether Sidley partners have enough authority to be deemed employers. Sidley’s executive committee, not its rank-and-file partners, wrote Posner, holds most of the power at the firm. For procedural reasons, the judge, writing for a 3-0 panel, didn’t ultimately decide whether Sidley partners are employers or employees. Sidley must first produce additional evidence, he wrote, before the partners’ legal status can be resolved. But Posner’s opinion is still problematic, because it rebuts the notion, widely held among law firms, that partners are automatically beyond the EEOC’s reach. Instead, it depends on the facts of each case, says Posner. “The lesson for firms in this case is that you can’t get away with anything you want just by calling someone a partner,” says James Burns Jr., an employment partner at Chicago’s Katten Muchin Zavis Rosenman. “I think it is a very troublesome decision,” adds Allen Fagin, co-chair of labor and employment at New York’s Proskauer Rose. He says that Posner’s case-by-case approach to deciding whether a partner is, in fact, an employer offers law firms little guidance about their potential liability. Fagin is further troubled that Posner saw Sidley’s executive committee as evidence that its partners might be entitled to federal protection. “The trend in large firms is to concentrate day-to-day decision authority in a relatively small executive committee and/or firm chair,” says Fagin. Posner’s opinion presages a lucrative class of new plaintiffs. “In professional service firms, you have a huge bulge of baby boomer partners making hundreds of thousands [of dollars] who may be protected by civil rights laws,” says Michael Maslanka, chair of labor and employment at Dallas’ Godwin Gruber. “Plaintiffs’ lawyers will have a feast on [Posner's opinion]. It’s like ringing the dinner bell.” The investigation of Sidley took a serious turn in 2001, when the EEOC issued a subpoena requesting that Sidley produce all documents pertaining to its decision to demote the 32 partners. Sidley complied only in part, producing information that demonstrated, in the firm’s view, that the demoted partners were true partners and thus beyond the reach of the federal Age Discrimination in Employment Act. Sidley, for example, revealed to the EEOC that the demoted partners all shared in firm profits and firm liabilities and also contributed capital to the firm. “No case in history has ever applied the ADEA to an equity partner in a bona fide law firm,” asserted Sidley in a pleading filed this year in the case. In February, U.S. District Judge Joan Humphrey Lefkow of Chicago ordered Sidley to comply in full with the EEOC’s subpoena. On appeal, Posner also rejected Sidley’s attempt to halt the EEOC in its tracks. He conceded that the demoted Sidley partners were true partners. But that alone, he ruled, didn’t mean that they were employers. Posner focused on Sidley’s management structure, which vests considerable authority in a self-perpetuating executive committee. The committee, wrote Posner, “can fire [Sidley partners], promote them, demote them (as it did to the 32), raise their pay, lower their pay, and so forth. The only firmwide issue on which all partners have voted in the last quarter-century was the [2001] merger with Brown & Wood, and that vote took place after the EEOC began its investigation.” Though Posner seemed to view the demoted Sidley partners as largely powerless, he stopped short of ruling on their legal standing. He ordered Sidley to produce additional documents — including such private information as Sidley’s method of distributing profits on a firmwide basis — to aid the EEOC in deciding whether Sidley partners are covered by the ADEA. If the EEOC decides the partners are covered, Sidley will have a chance to contest that in court. Posner did throw Sidley one bone: He ruled that it doesn’t have to hand over information about its demotions until the employer/employee issue is resolved. Sidley seized on that point to claim victory. “The bottom line is that the bifurcation approach [of first resolving whether partners are employers before addressing whether the firm violated the ADEA] has been accepted, and we are pleased with that,” says Sidley’s lawyer, Paul Grossman, an employment partner in the Los Angeles office of Paul, Hastings, Janofsky & Walker. The EEOC is also pleased. John Hendrickson, the lead EEOC lawyer, says that Posner’s opinion is perfectly in tune with the modern megafirm, where partners don’t necessarily have management authority or control over their employment status. “Posner clearly says … let’s not get hung up on [partner] labels, let’s look at what is really going on here,” says Hendrickson. Of course, Posner’s isn’t the final word. In his concurrence with the 7th Circuit panel opinion, Judge Frank Easterbrook agreed that the EEOC could proceed with limited discovery, but he would equate equity partnership with employer status — regardless of Sidley’s top-down management structure. And Posner is not the first judge to advocate a nuanced, case-by-case approach to deciding whether partners are employers or employees. But, given Posner’s stature, Sidley and the EEOC will have many lawyers looking over their shoulders as they explore the nuances.

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