When the U.S. Equal Employment Opportunity Commission filed suit against Sidley Austin in 2005 on behalf of 32 former partners, the demoted lawyers made an oddly humble argument. They said they were protected under the federal age-discrimination statute as mere employees because, despite their title, they lacked the “indicia” of partnership.
It wasn’t a bad point. With so many firms being run by centralized management teams, are most partners really employers or business owners?
Sidley sidestepped the definitive answer by settling for $27.5 million with no acknowledgement of wrongdoing in 2007. The firm agreed that the affected partners were employees only for “purposes of resolution of this matter.”
But the status of so-called law firm partners still fell. The chipping away had begun in the 1990s with the rise of the two-tier partnership — equity and non­equity. By 2008, 79 Am Law 100 firms and 86 more Am Law 200 firms employed nonequity partners. The past decade saw the downside of the nonequity strategy hitting home.
The thinking behind nonequity partnership was simple: Younger lawyers would benefit from more time to prove themselves ready to become partial owners of a multimillion-dollar business. But many firms just used the nonequity tier to put off making tough decisions about firing underperformers.
“During the go-go years earlier this decade, that might have worked,” Hilde­brandt consultant Joseph Altonji said. “In this economy, it doesn’t make sense.”
So far, nonequity partners have not faced mass public layoffs. Behind the scenes, however, the pressure to “find new opportunities” has ratcheted up, recruiters say. And unlike real partners, nonequity colleagues are typically at-will employees, easily fired when firms are cutting staff in a downturn.
Moreover, a longer partnership track is a longer partnership track, regardless of the pretty titles awarded along the way. Fewer lawyers are reaching the pot of gold at the end. During the past decade, the real partnership has shrunk. In 2000, the top 10 Am Law 100 firms reported that equity partners made up 27.03% of their overall headcount. In 2009, that had fallen to 19.75% of total headcount.
— Jeff Jeffrey