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The term “partner” carries with it a level of prestige in the legal community that cannot be matched. Associates work very hard to become partners and, in an investigation being conducted by the Equal Employment Opportunity Commission in Chicago, it appears that a group of partners at Sidley Austin Brown & Wood are working hard to retain both the title and the benefits that go with it. The EEOC is investigating whether Sidley & Austin (as it was then called) discriminated against 32 “partners” when it demoted them to “counsel” or “senior counsel” in 1999. According to the Chicago Tribune, an unnamed partner at Sidley complained to the EEOC that the demotions were a product of age discrimination. The commission began its investigation and eventually met resistance from Sidley to voluntary document production bearing on the questions of coverage and discrimination. When Sidley refused to produce the documents, the EEOC issued a subpoena, and then moved to enforce the same. ARE PARTNERS EMPLOYEES? It is the coverage question that has created the biggest stir in the legal community, as the EEOC is seeking to pull back the curtain on Sidley’s firm management in order to determine whether the demoted partners are “employees” or “employers.” The Age Discrimination in Employment Act protects the former, but not the latter. Sidley argued before the district court (which upheld the subpoena for records in its entirety) and before the 7th U.S. Circuit Court of Appeals that its partners were owners of the firm in a traditional sense and were not protected from discrimination by the ADEA. The firm cited the fact that the partners own the firm (including more than $12,000,000.00 in capital contributions from the 32 demoted partners), share in both profits and losses and participate in the administration of the firm. In rejecting this argument, Judge Richard Posner of the 7th Circuit focused on Sidley’s management structure, first noting that “[t]he firm is controlled by a self-perpetuating executive committee.” Posner then lists the committee’s unilateral control over the other partners “with respect to the hiring, firing, promotion, and compensation of their subordinates.” In fact, as noted by Posner, the only firmwide issue on which all partners had voted “in the last quarter century was the merger with Brown & Wood.” EEOC v. Sidley Austin Brown & Wood, 7th Cir., No. 02-1605, 10/24/02. SIDLEY COMPARED TO A CORPORATE STRUCTURE The most striking portion of Posner’s opinion was his comparison of the attributes of “partnership with those commonly seen among executives in the business world.”
It is true that the partners can commit the firm, for example by writing opinion letters; but employees of [a] corporation, when acting within the scope of their employment, regularly commit the corporation to contractual undertakings, not to mention tort liability. Partners who are not members of the executive committee share in the profits of the firm; but many corporations base their employees’ compensation in part anyway, but sometimes in very large part, on the corporation’s profits, without anyone supposing them employers. The participation of the 32 demoted partners in committees that have, so far as it appears, merely administrative functions does not distinguish them from executive employees in corporations. Corporations have committees and the members of the committees are employees; this does not make them employers. Nor are the members of the committees on which the 32 served elected; they are appointed by the executive committee. The 32 owned some of the firm’s capital, but executive-level employees often own stock in their corporations.

Posner concluded that, at a minimum, “the structure of the firm [has been altered] in the direction of the corporate form.” While no one factor will be controlling, he noted that the EEOC “particularly wants to know … how unevenly the profits are spread across the entire firm. [T]his might not be decisive but it would bear on the unavoidably multifactored determination of whether this large law firm … should for purposes of anti-discrimination law be deemed the employer of some at least of the individuals whom it designates as partners.” CENTRALIZED DECISION-MAKING AT LARGE FIRMS It is a likely trend that the larger the law firm, the more it tends to look and act like a corporation, rather than a true partnership. This, obviously, has as many variations as there are firms throughout the land. But any partner can relate stories of when it first became apparent that a law firm is a business and that simply having a large office and your name on the left-hand side of the letterhead does not guarantee a lifetime of riches. Instead, cold business decisions need to be made on everything from real estate to investment of capital to partner distributions. The more centralized this decision-making, the more efficient the firm may be, but the more the “partners” will likely be treated as employees. Many firms have adopted corporate titles for their most senior executives: chairman or chief executive officer. Power to unilaterally make critical business decisions may lie exclusively in the men or women who hold these positions — or perhaps in a small group of partners who may be appointed by the firm, but who may also be appointed by the executive-in-charge. But what are the options? At the time Sidley demoted the 32 partners in question, more than 400 attorneys, in offices spread throughout the globe, held the title of “partner.” Having them all vote on anything would be unwieldy to the point of paralysis. While the EEOC focused much of its argument on the fact that Sidley’s management committee could raise or lower each partner’s pay, there is little alternative but to invest someone or some group with such discretion. The economics of current law firms dictate that all attorneys, including senior partners, must work and be productive, rather than relying upon simply having brought clients into the firm many years before. Any mathematical calculation designed to eliminate discretion from compensation decisions will, almost inevitably, fail to recognize certain contributions while over-emphasizing others. This says nothing about the trend towards different tiers of partnership, where only at a certain level do “partners” even have equity in the firm. In the end, what Judge Posner found was that a case-by-case approach, without regard to labels, is the only way to determine if, and at what level, “partners” are, in reality, employees. At this point, Sidley has been ordered to produce documents sought by the commission in order to determine whether those who were demoted are “partners” or “employees.” Should this matter proceed to litigation, following the commission’s investigation, Sidley will likely have the opportunity to reargue that the evidence regarding these particular “partners” shows that they were partners in more than name. Judge Posner specifically found that a ruling on the partner/employee issue would be “premature.” The outcome of this case, however, will be certain to attract attention throughout the legal world. Sidney R. Steinberg is a shareholder in the business law and litigation department of Post & Schell, (www.postschell.com). He concentrates his national litigation and consulting practice in the field of employment and employee relations law and may be reached at [email protected].

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