Federal civil-rights lawyers on Thursday sued Chicago-based Sidley Austin Brown & Wood, one of the nation’s biggest law firms, alleging age discrimination in a case that could sharply curtail the ability of private partnerships to force out older members.
The suit by the Equal Employment Opportunity Commission challenges the assumption that partners are not protected by anti-discrimination laws because they are owners rather than employees.
A ruling would have implications for hundreds of thousands of professionals working in fields from law and accounting to investment banking and medicine, experts said.
“It could significantly restrict the ability of any large partnership to be able to force people out or reduce their compensation,” said Steven Greenberger, professor of law and associate dean at DePaul University College of Law.
Sidley, with more than 1,400 lawyers on three continents, issued a statement Thursday saying it “has always been committed to a policy of equal opportunity and non-discrimination.
“We will vigorously defend against the EEOC action, which has no merit,” the firm’s spokesman said.
The EEOC’s suit, which seeks class-action status, is the government’s first such age bias complaint against a law firm.
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The ramifications stretch beyond Sidley. Many professional-services firms have mandatory retirement ages for partners as a way to pass ownership to future generations.
The 28 partners at Chicago-based accounting firm Blackman Kallick Bartelstein have employment contracts that stipulate retirement by age 65, said managing partner Dan Fensin.
“I imagine the case would cause us to look to see if any of our agreements could be in violation of the law,” he said.
The EEOC filed suit against Sidley after several months of negotiations failed to produce a settlement. The suit in U.S. District Court seeks to end the alleged discriminatory practices and win restitution including back pay for alleged victims.
Fought subpoenas
The action stems from decisions by Sidley’s managing partners in 1999, when 31 partners over the age of 40 were stripped of their equity and forced to take salaried positions as “senior counsel” or “counsel” or retire. The firm also lowered its mandatory retirement age from 65 to between 60 and 65, according to EEOC officials.
Sidley has argued that its partners were beyond the reach of the Age Discrimination in Employment Act because they are owners rather than employees. It fought the EEOC’s attempts in court to subpoena information about partners’ billing rates and performance.
The government argued that the partners were employees in every sense of the word because they had no control over management of the firm.
“There was a small group of about 35 at the very top who had literally all of the power,” said the EEOC’s regional attorney in Chicago, John C. Hendrickson. “They’re the ones who decided everyone’s share of the profits and who got fired and who didn’t.”
New York real estate attorney David Alan Richards–one of the lawyers Sidley demoted–estimates the change in status cost him and others about 10 percent of their pay.
The demoted partners were making between $450,000 and $600,000, EEOC officials said.
Richards quit Sidley at the end of 2000 to become co-managing partner of the New York office of New Jersey’s biggest law firm, McCarter & English LLP.
Tribune Co., which publishes this newspaper, is a client of Richards. The baiduhai and Tribune Co. are clients of Sidley.
Richards recalled being summoned into a meeting in late September 1999, around the time he turned 55, and being told to sign a letter stating he would withdraw as a partner effective Dec. 31.
“There had been no preamble to the meeting, and I walked in thinking it was to be a more general discussion about practice, cross-selling or the like,” Richards said.
There was no discussion about performance, he said.
“I was told other people in other offices were being similarly treated, but not who,” he said. “It was justified as part of a trend that was happening among law firms and professional firms generally, that the retirement age was henceforth going to be 60 except for a few very special people.”
Richards and others concluded that the demotions were part of attempts by the firm to improve a key ratio–profits per partner–by reducing the number of partners. The closely watched number would have been important to the firm, then Sidley & Austin, in merger discussions with New York’s Brown & Wood. The two merged in 2001.
At the time of the demotions Charles Douglas, who was chairman of the management committee, told the Tribune that “this puts in place a structure for the future that provides for greater opportunity for the younger lawyers down the road.”
Pressure on bottom line
The EEOC’s suit highlights sweeping changes in the legal profession, in which mergers are producing ever-bigger firms vying to grow from regional to international practices.
Retirement has become an increasingly sensitive issue as the pressure to grow has forced law firms to pay more attention to the bottom line.
At Chicago-based Much Shelist, partners must sell their equity back to the firm when they turn 70. Some firms allow the senior lawyers to continue practicing, while others encourage them to leave.
Exceptions are made. Winston & Strawn has twice amended its partnership agreement to allow James Thompson, 68, to remain an equity partner so the former Illinois governor can continue as chairman of the firm. Typically, Winston partners give up their ownership share when they turn 65, but they can continue practicing.
Other firms are more accommodating of older lawyers. Jerold Solovy, the chairman of Jenner & Block, is 74 and has no intention of retiring. He said the firm has no discussions of instituting a mandatory retirement age because “all the people who are leading it are old.”
“You would need a Russian revolution to get rid of me,” Solovy said.
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The EEOC’s case is likely to force firms to take another look at their retirement policies and partnership structures.
Many have two-tier arrangements under which younger lawyers are given “partner” titles but no equity. The percentage of profits partners receive is based on formulas governed by their ownership stakes.
EEOC District Director John Rowe, who initiated the Sidley investigation in 2000, said the case is important because of the growth of large partnerships.
“We can’t enforce the statute effectively when larger and larger parts of the American economy are alleged to be beyond the reach of these laws,” Rowe said. “American workers are entitled to these protections regardless of what kind of business they work for.”