Mandatory Retirement of Law Firm Partners

In January 2010, the Equal Employment Opportunity Commission ("EEOC") filed a lawsuit against the law firm Kelley Drye and Warren LLP, claiming that its alleged mandatory retirement of partners at age 70 violates the Age Discrimination in Employment Act ("ADEA").1 This is not the first law firm to face claims of age discrimination regarding partners. In 2007, Winston & Strawn LLP settled a suit challenging various aspects of its alleged "decompression" policy that reduced partners' pay after age 65.2 The same year, Sidley Austin LLP paid $27.5 million to settle a well-publicized EEOC suit brought on behalf of 32 ex-partners who were "deequitized" allegedly on the basis of age.3 In a ruling preceding the settlement, Judge Richard Posner of the Seventh Circuit found that the EEOC had alleged facts sufficient to show that the Sidley partners may qualify as "employees" protected by the ADEA, rather than "partners" who would not fall within the Act's coverage because they are employers rather than "employees."4

There is no question but that "[w]ith so many baby boomers reaching traditional retirement age, retirement policies are probably one of the biggest issues facing law firms today."5 This article will discuss the key employment law issues involved in mandatory retirement of law firm partners.

When Are Partners De Facto Employees?

The ADEA protects "employees" from age discrimination, including mandatory retirement,6 unless they qualify as bona fide executives or high policymakers (discussed below). The ADEA defines "employee" simply as "an individual employed by any employer.'"7 In Clackamas Gastroenterolgy Associates, P.C. v. Wells,8 the Supreme Court ruled that in determining whether an individual will be found to be an "employee," (1) "the common law element of control is the principal guidepost that should be followed"9 and (2) control will be analyzed under six factors set forth in EEOC guidelines.10 These factors are:

"Whether the organization can hire or fire the individual or set the rules of the individual's work "Whether and, if so, to what extent the organization supervises the individual's work "Whether the individual reports to someone higher in the organization "Whether and, if so, to what extent the individual is able to influence the organization "Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts "Whether the individual shares in the profits, losses, and liabilities of the organization."11 Clackamas "made clear that neither an entity's status as a 'partnership' nor an individual's designation as a 'partner' would automatically bar the partner from bringing a discrimination claim against the firm under federal law."12 The Supreme Court found "no 'shorthand formula or magic phrase' that is determinative of the issue whether a person is an employee, which must be determined on a case by case basis with reference to the totality of the facts."13 "The six Clackamas factors are non-exhaustive and 'the answer to whether a [partner] is an employee depends on all the incidents of the relationship with no one factor being decisive.'"14

Small law firms have had some success defending age discrimination cases under the six Clackamas factors. In Solon v. Kaplan, the Seventh Circuit carefully followed the Supreme Court's six-factor analysis and affirmed the district court's finding that a small-firm partner was not an "employee."15 The Seventh Circuit found:

Plaintiff was one of four general partners who, by virtue of his voting rights, substantially controlled the direction of the firm, his employment and compensation, and the hiring, firing, and compensation of others. He played an active role in the operation of the firm as trustee of its 401(k) account, as managing partner, and informally thereafter. Under the facts of this case, he was an employer as a matter of law.16

More recently, in Kirleis v. Dickie, McCamey & Chilcote,17 another small law firm case, a Western District of Pennsylvania court found persuasive on the law firm's motion for summary judgment that the plaintiff-partner owned a significant stake in the partnership (as many shares as the members of the firm's Executive Committee) and shared in the firm's "profits, losses and liabilities, unlike those employees and associate attorneys whose salaries are fixed."18 The court observed, "Moreover, the comprehensive and generous fringe benefit package that plaintiff accepts is obviously an emollient of ownership that . . . other employees of the Firm do not receive. Additionally, plaintiff participates meaningfully in Board of Directors meetings, decisions, policy and business of the Firm, although members of the Executive Committee have greater participation by virtue of the delegation given to them by plaintiff and the 3/4 majority of the Board of Directors." The court, following Solon, concluded that the "factors relevant to ownership and remuneration provide powerful...