News
Employee Benefits
Feb. 21, 2002
EEOC Probes Demotion of 32 Sidley Partners
LOS ANGELES - What makes a partner a partner? Law firm partners at Chicago-based Sidley Austin Brown & Wood may well be wondering that right now, as the U.S. Equal Employment Opportunity Commission pursues its investigation into the firm's demotion of 32 partners - all but two of whom were over the age of 40. The firm also lowered its age of retirement for partners from 65 to between 60 and 65.
Law firm partners at Chicago-based Sidley Austin Brown & Wood may well be wondering that right now, as the U.S. Equal Employment Opportunity Commission pursues its investigation into the firm's demotion of 32 partners - all but two of whom were over the age of 40. The firm also lowered its age of retirement for partners from 65 to between 60 and 65.
The EEOC instituted an investigation of age discrimination at the firm based on allegations by an individual whose identity has not been disclosed. To determine the firm's motives, the EEOC is looking at whether the 32 partners had enough clout within the firm to be considered "true" partners or whether they were really employees in shareholders' clothing.
Partners, as business owners, aren't protected under the American Employment Discrimination Act, while employees are protected. Sidley's attorneys hold one of four positions at the firm: associate, counsel, senior counsel or partner.
At the time the demotions were announced, Sidley's chairman, Charles Douglas, said, "This puts in place a structure for the future that provides for greater opportunity for the younger lawyers down the road. This also allows us to fulfill our goal of expanding this firm into the next generation to becoming known as one of the best global law firms."
The EEOC and Sidley are fighting over discovery. On Oct. 23, the EEOC issued a subpoena to Sidley requesting information about the partnership that Sidley had not provided, including all documents related to the firm's October 1999 decision to demote the 32 partners and information about all the partner retirements at the firm since 1990, including how much retiring partners were paid.
Sidley Austin claims the EEOC is not entitled to that information. In court filings, the firm said that because its partners share in the profits and losses of the firm and have contributed capital to the firm, they're "true" partners - effectively business owners - and are not protected under the American Discrimination Employment Act, which the EEOC enforces.
Sidley Austin, which has about 1,400 lawyers nationally, also said in its filings, "Sidley partners administer the firm - each can and does bind the firm, and virtually every Sidley partner serves on one or more of Sidley's 25 management and administrative committees."
The EEOC sees the firm's partnership structure differently. The commission claims that partners outside Sidley's management structure, which includes a 36-partner executive committee and an eight-partner management committee, have little say in the management of the firm.
"All of Sidley's partners are not equal - in fact, they are far from it. The 'economic realities' at Sidley demonstrate that the management of the firm rests so completely in the hands of two committees that any partners outside the members of these committees are properly regarded as employees," said the EEOC's filing to U.S. District Court Judge Joan Lefkow of the Northern District of Illinois.
"The way I understand what the EEOC is doing is that they're attempting to argue in effect that [Sidley partners are] de facto employees," said Stephen Hirschfeld, partner in the San Francisco office of Curiale Dellaverson Hirschfeld Kraemer & Sloan, a labor and employment law boutique.
John Hendrickson, regional attorney for the EEOC's Chicago office, is leading the investigation of Sidley.
"We have two objectives. The first objective is to determine whether or not the 32 who were demoted and others are more properly classified as partners or as employees. And that relates to the issue of whether they're covered by the American Discrimination Employment Act," Hendrickson said. "And the second issue is whether or not there was age discrimination of the demotion of those partners and the retirement of others.
"But there's not a bright line between those two subjects."
Before the EEOC can move forward on the age discrimination investigation, a resolution is needed on the issue of what is a partner.
On Feb. 11, Lefkow ordered Sidley to comply with the EEOC's subpoena.
"The cases, as a group, favor Sidley in their outcomes, nevertheless, each entails a fact-specific analysis of the partnership presented," Judge Lefkow wrote.
Sidley has appealed the order to the 7th U.S. Circuit Court of Appeals, Paul Hastings Janofsky & Walker partner Paul Grossman, the firm's attorney, said.
The investigation has ramifications for many large law firms, which typically are run by a smaller subset of the partnership on a management or executive committee that directly controls the business.
"As you have more members of a partnership, it effectively dilutes the individual power and authority of any one member. And the more that gets diluted, then to some extent the more indicia of an employee status may arise," said Thomas Petrides, head of the Los Angeles labor and employment practice at Kirkpatrick & Lockhart.
Hirschfeld said that although he thinks large-firm partners are still business owners, law firm evolution has forced firms to run more like corporations and less like "democratic" organizations.
"You can't run a business with 300 or 400 people voting on everything. It's not possible," Hirschfeld said.
Alan Levins, labor and employment partner with Littler Mendelson in San Francisco, said that as long as the partners have a financial stake in the firm and some kind of management control, they're still partners.
"The extent to which the person [acts as a partner] is not the issue. The issue is whether the person does that or not," Levins said. "The EEOC, of course, doesn't agree with that."
But if the EEOC turns out to be right, firms could be liable for discrimination claims from their partners outside management.
"The law firm just runs itself in a way that someone who wouldn't have objected 10 years ago is going to object now," said Catherine Hagen, head of the labor and employment practice in O'Melveny & Myers' Newport Beach office. "I just think we're in different times given the prevalence of employment litigation."
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Katherine Gaidos
Daily Journal Staff Writer
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