“Where Mandatory Retirement of Law Firm Partners Is Today” – Bloomberg Law

The key issue regarding mandatory retirement of law firm partners is whether these partners are “employees” protected by the Age Discrimination in Employment Act or real “partners” outside the protection of the ADEA as “employers.”

In Clackamas Gastroenterology Assocs. v. Wells (2003), the US Supreme Court considered the test for determining whether an individual qualifies as an employee and found it to be the common law element of control. The court ruled that “control” is to be analyzed under the following six factors:

“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; and
Whether the individual shares in the profits, losses, and liabilities of the organization.”

While Clackamas was decided under the American With Disabilities Act of 1990, subsequent court decisions have made clear that the Clackamas test also applies under the other ant-discrimination laws.

In terms of law firms, an income partner is less likely than an equity partner to meet the Clackamas factors, especially the influence factor. Thus, an income partner is more likely to be found to be an “employee” and protected by the ADEA and unable to be mandatorily retired.

More than a decade ago I wrote about Clackamas and other issues related to mandatory retirement of law firm partners. The question since then has been whether courts have found the so-labeled partners to constitute “employees” protected by the anti-discrimination laws? The answer is, generally, no.

While the cases since 2010 do not necessarily involve mandatory retirement, they do rule on the “control” factors that would apply to mandatory retirement. Whether an individual qualifies as an “employee” under the Clackamas test has been ruled to be a fact-intensive inquiry.

Three Notable Post-2010 Cases

First is Von Kaenel v. Armstrong Teasdale LLP, a mandatory retirement case. In ruling that an equity partner was not an employee, the Eighth Circuit did not even mention that the defendant was a large law firm, of about 700 lawyers and staff professionals.

Second, contrary to the trend, the Southern District of New York in Campbell v. Chadbourne & Parke LLP denied summary judgment, ordering discovery on the Clackamas factors.

Third, in Bluestein v. Cent. Wis. Anesthesiology S.C., the Seventh Circuit affirmed summary judgment, ruling that the plaintiff was not an employee under various anti-discrimination statutes even though the contract that the plaintiff had signed referred to her as an employee and she had received a W-2 form annually as to her wages.

As to the contract and W-2, the court ruled that the application of the Clackamas factors“ considered as a whole” and the “reality of her position” in the company “overcame the simple” employee label.

Clackamas Factors Applied

The Seventh Circuit applied the Clackamas factorsto find that: (1) hiring and firing decisions and the rules and regulations governing work were made collectively by the shareholder-board members (the plaintiff voted on her own termination and participated in board meetings); (2) the plaintiff determined how to complete the specific tasks of her work; (3) each physician-shareholder had an equal vote in matters affecting the organization, including delegation to the board chair; (4) the plaintiff was an equal shareholder entitled to vote on all matters before the board and it did not matter that she frequently was in a minority position; (5) the realities overcome labeling plaintiff as an employee; and (6) the plaintiff did not raise a genuine issue of material fact as to sharing in profits, losses and liabilities.

Notably, the Seventh Circuit also affirmed an award of attorneys’ fees to the defendant.

This is the same circuit that famously ordered Sidley Austin to comply with a subpoena from the Equal Employment Opportunity Commission so that a determination could be made whether 32 law firm partners qualified as employees under the ADEA.

However, in Bluestein, the Seventh Circuit specifically mentioned that the facts were “markedly different” from Sidley Austin.

Rather than continue to apply mandatory retirement policies to attorneys labeled “partners,” law firms would be well advised to do the fact-intensive inquiry discussed above as to their various categories of partners to determine who qualifies as true “partners” versus “employees.”

Since the “control” test with its six factors will determine whether “partners” may be mandatorily retired as non-employees, law firms that want to mandatorily retire should especially make sure that those subject to mandatory retirement are able to participate in and influence partnership issues and matters.

Ned H. Bassen is a shareholder in Becker & Poliakoff’s Business Litigation practice. His expansive labor and employment practice ranges from litigating on behalf of and counseling defense contractors, financial institutions, universities and other nonprofit institutions to individuals accused of wrongdoing in connection with employment.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.