Age policy may force more than retirement

Published on 11/19/07

Early in 2005 the U.S. Equal Employment Opportunity Commission filed a class action lawsuit against the mega-firm then called Sidley, Austin, Brown & Wood — the first litigation of its kind against a law firm. The suit alleged that the firm had maintained an illegal "age-based retirement policy" since at least 1978 and had arbitrarily forced out 32 partners (all older than 40) in 1999.

Historically, law firm partnerships have not been subject to discrimination laws because partners, as the co-owners of an enterprise, were considered employers and, therefore, did not have protected status.

The EEOC alleged that the "retired"/"fired" lawyers were partners in name only because they had no voice in the firm's management — including hiring, firing and salary decisions. The rationale was that at Sidley, as at other large law firms, governance had fallen to a very few in the organization ("the management committee").

The remaining "partners" thus become de facto "employees," not owners. Consequently, as employees, the lawyers were entitled to the protections of the Age Discrimination in Employment Act (ADEA).

In October 2007, the EEOC's litigation was resolved in a way that should worry law firms of any size. The defendant, now simply named Sidley Austin, reached a settlement in which it will pay $27.5 million to the 32 lawyers.

Far more significant are the terms of the settlement agreement. Sidley Austin agreed "that each person for whom the EEOC has sought relief in this matter was an employee within the meaning of the ADEA."

Moreover, the agreement also bars the firm until the end of 2009 from "terminating, expelling, retiring, reducing the compensation of or otherwise adversely changing the partnership status of a partner because of age."

The implications of the EEOC's settlement with Sidley Austin would seem profound for other trends:

• The phenomenon of "de-equitization" — law firms terminating partners or moving them from the equity rolls to a lesser status, in order to improve firm profitability — may be reassessed;

• The practice in larger firms of designating older lawyers as "special counsel" or "emeritus partner," and giving their client-list to another partner, may also be questioned;

• The language of partnership agreements may require substantial revision to make explicit the responsibilities of both the firm and the partner as the individual lawyer ages, which perhaps could include the terms under which the right to sue under the ADEA can be waived; or

• The requirement that a law office, like any other business, must treat all employees in a non-discriminatory manner as defined by law would seem reinforced beyond question.

However, older lawyers should take nothing for granted from the Sidley settlement.

Aging lawyers or lawyers committed to exiting their practices may emotionally leave their clients long before their retirement date, resulting in the kind of less-effective representation that causes malpractice suits and disciplinary action.

And incompetent lawyers do not enjoy protected status at any firm.