Can Law Firm Partners Sue for Employment Discrimination?

Traditionally, law firms were organized as “true partnerships” in which each partner had a substantial voice in firm affairs and could be subjected to unlimited liability for the debts of the firm. As high-profile cases have highlighted the risks of such a structure, however, many firms have abandoned the classic form and adopted “hybrid” business models such as professional corporations, limited liability companies and limited liability partnerships.

In these hybrid business models, firms often choose to consolidate management and control of the firms' affairs in small executive or management committees. Firms also, with increased frequency, have created tiered partnerships and “quasi-partner” positions for senior attorneys such as “of counsel,” “special counsel,” “junior partner,” or “non-equity partner.” By creating these less-than-full-partnership-positions, firms can ensure that the management of the firm remains in the hands of a few partners in the “inner circle” while retaining experienced, senior attorneys who can generate substantial revenue for the firm.

Such consolidation of control comes at a cost, however. By configuring themselves as “de facto corporations” ' placing substantial control in the hands of a few and subjecting the remaining partners to the decisions of those in power ' firms may expose themselves to employment discrimination suits brought by their own partners.

The federal employment discrimination laws ' the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) ' protect “employees” of companies, not employers or owners. Law firm associates are undoubtedly “employees” and can therefore invoke the employment discrimination laws. Hishon v. King and Spaulding, 467 U.S. 69 (1984). It is a more complicated question, however, whether those laws protect law firm partners.

Under hornbook partnership law, law firm partners are co-owners of the firm, not employees, and therefore would seem to be unprotected from employment discrimination. In Hishon, Justice Powell explained in his concurring opinion that Title VII does not protect partners in law firms because a partner's relationship to the firm “differs markedly from that between employer and employee.” A law partnership involves “the common conduct of a shared enterprise.” The relationship among law partners contemplates that “decisions will be made by common agreement or consent among the partners.” Hishon at 79-80.

Many of today's law firms, however, bear little resemblance to the firm that Justice Powell describes. As a partner's relationship with the firm strays further from Justice Powell's notion of a “shared enterprise,” and closer to a master/servant relationship, courts are more likely to deem a partner an “employee” for purposes of employment discrimination laws.

Indeed, the case law is clear that partners are not always employers. See, eg, E.E.O.C. v. Sidley Austin Brown & Wood, 315 F.3d 696, 702 (7th Cir. 2002) (hereinafter Sidley). A law firm cannot avoid liability under employment discrimination laws simply by labeling attorneys as partners. Hishon at 80, n.2 (Powell, J. concurring); Sidley at 702. For years, courts have struggled to determine when partners are employees and therefore protected by the employment discrimination statutes. The recent popularity of the various hybrid business models has only added to the confusion.

The Supreme Court provided some much-needed guidance in its recent decision in Clackamas Gastroenterology Assoc, P.C. v. Wells, 123 S.Ct. 1673 (2003). The Court endorsed a six-factor test and held that the “principal guidepost” in the determination must be the amount of control that the firm has over the partner in question and the degree to which the partner can influence the management of the firm. Id. at 1679. Importantly, the Court's approach makes no distinction among the various business models.

Part One of this article first discusses reasons that law firms, especially large firms, are susceptible to discrimination suits by their partners. Next, it explains two threshold requirements for law firm partners to sue their firms for employment discrimination. Both of these requirements turn on whether certain partners are deemed employees. Part Two, coming next month, will discuss the Supreme Court's Clackamas decision and lower court decisions that preceded Clackamas but used similar analyses. Finally, it will note that, under some federal and state laws, law firms are vulnerable even if their partners are not deemed employees.

Law Firms are Particularly Vulnerable to Employment Discrimination Suits

Many law firms are highly segregated by gender and race. Jennifer L. Pierce, Gender Trials 1 (University of California Press 1995). For example, in the New York City offices of the 20 most prestigious New York law firms (according to “The Vault Guide to the Top 100 Law Firms,” 6th Edition, 2003), only 14% of all partners are women, while women constitute 41.59% of all associates. The numbers for minorities are even worse: 4.59% of partners and 20.8% of associates in these offices are minorities. Only 0.95% of partners and 4.86% of associates are African-Americans. (These statistics were aggregated by the authors of this article using data from the National Association for Law Placement Law Firm Questionnaires, 2003-2004 academic year.) It is likely that the disparities at many smaller, regional firms are even more pronounced. See “Women and Attorneys of Color 2002 Summary Chart,” National Association for Law Placement, 2002, available at www.nalp.org/nalpresearch/mw02sum.htm; and U.S. Equal Employment Opportunity Commission Press Release, Oct. 22, 2003, available at www.eeoc.gov/press/10-22-03.html.

Moreover, these statistics do not distinguish between tiers or classes of partners (eg, equity/non-equity, voting/non-voting, or senior/junior). The presence of tiers or classes of partners likely perpetuates the disparities and may even amplify them. Anecdotal evidence indicates that women and minorities constitute a miniscule percentage of the highest-tier partners at large firms.

Although statistical disparities like those cited above do not, without more, violate federal anti-discrimination laws, such disparities expose firms to attack. First, statistical disparities can be used to prove discriminatory intent. EEOC v. O&G Spring and Wire Forms Specialty Company, 38 F.3d 872, 877 (7th Cir. 1994). Statistics can also form the foundation for “glass ceiling” suits and suits alleging that a firm has engaged in a “pattern or practice of discrimination.” Int'l Brotherhood of Teamsters v. United States, 431 U.S. 324, 336 (1977); Hazelwood School Dist. v. United States, 433 U.S. 299, 308 (1977); Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 158 (2d Cir. 2001) (“Statistics alone can make out a prima facie case of discrimination ….”). Further, disparate impact suits, alleging that certain employment practices or policies have a significantly greater impact on women or minorities than on others, are most often proved through statistical evidence. Robinson at 160.

Moreover, minority and female employees who are notably under-represented in the upper ranks of a firm are more likely to believe that their gender or race is a factor when the firm takes adverse employment actions against them. Reputable social science research indicates that they may be right; in white-male-dominated, highly segregated environments, gender and race stereotypes can influence subjective employment decisions. See, eg, Butler v. Home Depot, Inc., 1997 WL 605754 at 7-11 (N.D. Cal. Aug. 29, 1997) (denying summary judgment based, in part, on such social-science testimony). It is at least arguable, if not likely, that many large law firms have such environments.

Employment decisions in law firms are particularly susceptible to the influence of stereotypes because they are often, by nature, largely subjective. Hiring decisions, promotion decisions, case-staffing decisions and compensation decisions are all often based, at least in part, on non-quantifiable criteria. See Cynthia Fuchs Epstein, “Women in Law,” pp. 200-03 (University of Illinois Press 1993). These types of decisions are particularly vulnerable to the influence of unlawful gender or race stereotypes. Butler at 7; see also Price Waterhouse v. Hopkins, 490 U.S. 228, 251 (1989) (“We are beyond the day when an employer could evaluate employees by assuming or insisting that they matched the stereotype associated with their group”).

Moreover, stereotypes, often unconscious ones, frequently result in subtle differences between the opportunities afforded to women and minority lawyers and those given to their white, male counterparts. These denied opportunities often help explain why women and minorities are often passed over for promotions and either “die on the vine,” leave firms for in-house counsel positions and other opportunities, or simply leave the legal profession. Many leave even before they are formally passed over because they can see the writing on the wall. See Fuchs Epstein, pp. 214-15, 265-68.

Mentoring is a perfect example of a situation in which stereotypes, often unconscious, affect the opportunities of women and minority lawyers. Because mentorships, especially informal ones, often commence soon after a lawyer joins a firm, they are seldom assigned or formed based on merit. Instead, partners often choose associates to groom who are like them ' “one of the boys,” for example. Based on the statistical evidence that the overwhelming majority of law firm partners are white males, white males are more likely to dominate the ranks of the chosen few. They are then more thoroughly trained and given more desirable assignments than their counterparts, helping them develop both their legal skills and their professional networks. As a result, 8 years later, the non-favored associates have often fallen short of the firm's expectations for partners in billable hours, practical experience and client development, while the chosen few (typically white males), move on to partnership and perpetuate the cycle. See generally, Jennifer L. Pierce, “Gender Trials,” pp. 103-13 (1995).

Although the mentoring problem most often applies to associates, subjective decision-making influenced by gender and race stereotypes often affects partners as well, especially in tiered partnerships. Even female or minority lawyers who overcome any initial handicaps and make partner may hit a glass ceiling at the next threshold ' between junior and senior partner or between non-equity and equity partner. Partners also may be denied bonuses or other discretionary compensation, removed from desirable cases, denied committee memberships, denied mentors, excluded from networking and client development opportunities, demoted, or terminated. See, Id. at 105-06.

Another problem that female and minority lower-tier partners may face is case assignment based on real or perceived client preference. A senior partner may tend to assign certain matters to junior partners with whom the senior partner believes a client will feel comfortable. This belief is sometimes based on the client's stated preference and sometimes on the senior partner's assumptions or beliefs. See, Id. at 109-11. The practice is innocuous enough unless, either subconsciously or not, the senior partner takes the lawyer's gender or race into account in making the assignment.

If a client does indicate that he would prefer not to be represented by a woman or a minority, the firm would probably violate the law if it bases any employment decision on such a request. Title VII allows firms to take into account employees' religion, gender, or national origin only if such a classification “is a bona fide occupational qualification (BFOQ) reasonably necessary to the normal operation” of a particular business. 42 U.S.C. '2000e-2 (e). Race, however, can never be a BFOQ. Knight v. Nassau County Civil Serv. Comm'n, 649 F.2d 157, 162 (2d Cir. 1981).

Customer or client preference is almost never a sufficient basis for a BFOQ, even if the employer will likely lose the client because of its refusal to cater to the preference. “Customer preference may be taken into account only when it is based on the company's inability to perform the primary function or service it offers.” Diaz v. Pan Am. World Airways, Inc., 442 F.2d 385, 389 (5th Cir. 1971) (rejecting defense that gender is a BFOQ because airlines' customers prefer female flight attendants); compare Fernandez v. Wynn Oil Co., 653 F.2d 1273 (9th Cir. 1981) (stereotypical impressions of male and female roles do not qualify gender as a BFOQ) with Kern v. Dynalectron Corp., 746 F.2d 810 (5th Cir. 1964) (approving of the Muslim religion as a BFOQ for pilots who fly into Mecca because of the local practice of beheading non-Muslim pilots).

Any adverse employment action, including the creation of a hostile working environment, can be the basis for a partner's employment discrimination claim against a law firm. The question is: Does the aggrieved partner have a cause of action?

Do the Employment Discrimination Statutes Apply?

The determination of whether the plaintiff is an “employee” is a threshold issue in any employment discrimination case. When the plaintiff is a law firm partner, the court must make two preliminary determinations:

• Whether the partner may invoke the employment discrimination laws at all. The partner must be deemed an “employee” to be protected. The statutes do not protect partner-employers. Sidley at 698; Simpson v. Ernst & Young, 100 F.3d 436, 443 (6th Cir. 1996). For the purposes of the employment discrimination laws, an individual cannot simultaneously be an employee and an employer. Serpion v. Martinez, 119 F.3d 982, 985 (1st Cir. 1997).
• The federal employment discrimination statutes do not apply to small employers. The firm must have enough employees to be covered at all. Title VII and the ADA exempt employers with fewer than 15 employees. 42 U.S.C. '2000e(b) (Title VII); 42 U.S.C. '12111(5) (ADA). The threshold under the ADEA is 20 employees. 29 U.S.C. '630(b). Especially in small firms with few associates and a small support staff, the firm might be too small to be covered if some “partners” are not deemed “employees.”

Additionally, the number of firm employees determines the firm's potential liability for compensatory and punitive damages. The thresholds for compensatory and punitive damages are tiered. For example, under Title VII, a firm with between 15 and 100 employees can be liable for only $50,000 in punitive and compensatory damages, while such liability for a firm with more than 500 employees is capped at $300,000. 42 U.S.C. '1981a (b) (3). In some cases, partners who are deemed “employees” will push the firm past the next threshold, causing the firm to bear the risk of a larger judgment.

Part Two of this article discusses the Sidley, Clackamas and other cases in detail, and how whether or not a partner is deemed an “employee” and firm size and type of ownership affects a firm's vulnerability to discrimination claims.

Traditionally, law firms were organized as “true partnerships” in which each partner had a substantial voice in firm affairs and could be subjected to unlimited liability for the debts of the firm. As high-profile cases have highlighted the risks of such a structure, however, many firms have abandoned the classic form and adopted “hybrid” business models such as professional corporations, limited liability companies and limited liability partnerships.

In these hybrid business models, firms often choose to consolidate management and control of the firms' affairs in small executive or management committees. Firms also, with increased frequency, have created tiered partnerships and “quasi-partner” positions for senior attorneys such as “of counsel,” “special counsel,” “junior partner,” or “non-equity partner.” By creating these less-than-full-partnership-positions, firms can ensure that the management of the firm remains in the hands of a few partners in the “inner circle” while retaining experienced, senior attorneys who can generate substantial revenue for the firm.

Such consolidation of control comes at a cost, however. By configuring themselves as “de facto corporations” ' placing substantial control in the hands of a few and subjecting the remaining partners to the decisions of those in power ' firms may expose themselves to employment discrimination suits brought by their own partners.

The federal employment discrimination laws ' the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) ' protect “employees” of companies, not employers or owners. Law firm associates are undoubtedly “employees” and can therefore invoke the employment discrimination laws. Hishon v. King and Spaulding , 467 U.S. 69 (1984). It is a more complicated question, however, whether those laws protect law firm partners.

Under hornbook partnership law, law firm partners are co-owners of the firm, not employees, and therefore would seem to be unprotected from employment discrimination. In Hishon, Justice Powell explained in his concurring opinion that Title VII does not protect partners in law firms because a partner's relationship to the firm “differs markedly from that between employer and employee.” A law partnership involves “the common conduct of a shared enterprise.” The relationship among law partners contemplates that “decisions will be made by common agreement or consent among the partners.” Hishon at 79-80.

Many of today's law firms, however, bear little resemblance to the firm that Justice Powell describes. As a partner's relationship with the firm strays further from Justice Powell's notion of a “shared enterprise,” and closer to a master/servant relationship, courts are more likely to deem a partner an “employee” for purposes of employment discrimination laws.

Indeed, the case law is clear that partners are not always employers. See , eg , E.E.O.C. v. Sidley Austin Brown & Wood , 315 F.3d 696, 702 (7th Cir. 2002) (hereinafter Sidley ). A law firm cannot avoid liability under employment discrimination laws simply by labeling attorneys as partners. Hishon at 80, n.2 (Powell, J. concurring); Sidley at 702. For years, courts have struggled to determine when partners are employees and therefore protected by the employment discrimination statutes. The recent popularity of the various hybrid business models has only added to the confusion.

The Supreme Court provided some much-needed guidance in its recent decision in Clackamas Gastroenterology Assoc, P.C. v. Wells , 123 S.Ct. 1673 (2003). The Court endorsed a six-factor test and held that the “principal guidepost” in the determination must be the amount of control that the firm has over the partner in question and the degree to which the partner can influence the management of the firm. Id. at 1679. Importantly, the Court's approach makes no distinction among the various business models.

Part One of this article first discusses reasons that law firms, especially large firms, are susceptible to discrimination suits by their partners. Next, it explains two threshold requirements for law firm partners to sue their firms for employment discrimination. Both of these requirements turn on whether certain partners are deemed employees. Part Two, coming next month, will discuss the Supreme Court's Clackamas decision and lower court decisions that preceded Clackamas but used similar analyses. Finally, it will note that, under some federal and state laws, law firms are vulnerable even if their partners are not deemed employees.

Law Firms are Particularly Vulnerable to Employment Discrimination Suits

Many law firms are highly segregated by gender and race. Jennifer L. Pierce, Gender Trials 1 (University of California Press 1995). For example, in the New York City offices of the 20 most prestigious New York law firms (according to “The Vault Guide to the Top 100 Law Firms,” 6th Edition, 2003), only 14% of all partners are women, while women constitute 41.59% of all associates. The numbers for minorities are even worse: 4.59% of partners and 20.8% of associates in these offices are minorities. Only 0.95% of partners and 4.86% of associates are African-Americans. (These statistics were aggregated by the authors of this article using data from the National Association for Law Placement Law Firm Questionnaires, 2003-2004 academic year.) It is likely that the disparities at many smaller, regional firms are even more pronounced. See “Women and Attorneys of Color 2002 Summary Chart,” National Association for Law Placement, 2002, available at www.nalp.org/nalpresearch/mw02sum.htm; and U.S. Equal Employment Opportunity Commission Press Release, Oct. 22, 2003, available at www.eeoc.gov/press/10-22-03.html.

Moreover, these statistics do not distinguish between tiers or classes of partners (eg, equity/non-equity, voting/non-voting, or senior/junior). The presence of tiers or classes of partners likely perpetuates the disparities and may even amplify them. Anecdotal evidence indicates that women and minorities constitute a miniscule percentage of the highest-tier partners at large firms.

Although statistical disparities like those cited above do not, without more, violate federal anti-discrimination laws, such disparities expose firms to attack. First, statistical disparities can be used to prove discriminatory intent. EEOC v. O&G Spring and Wire Forms Specialty Company, 38 F.3d 872, 877 (7th Cir. 1994). Statistics can also form the foundation for “glass ceiling” suits and suits alleging that a firm has engaged in a “pattern or practice of discrimination.” Int'l Brotherhood of Teamsters v. United States , 431 U.S. 324, 336 (1977); Hazelwood School Dist. v. United States , 433 U.S. 299, 308 (1977); Robinson v. Metro-North Commuter R.R. Co. , 267 F.3d 147, 158 (2d Cir. 2001) (“Statistics alone can make out a prima facie case of discrimination ….”). Further, disparate impact suits, alleging that certain employment practices or policies have a significantly greater impact on women or minorities than on others, are most often proved through statistical evidence. Robinson at 160.

Moreover, minority and female employees who are notably under-represented in the upper ranks of a firm are more likely to believe that their gender or race is a factor when the firm takes adverse employment actions against them. Reputable social science research indicates that they may be right; in white-male-dominated, highly segregated environments, gender and race stereotypes can influence subjective employment decisions. See, eg, Butler v. Home Depot, Inc., 1997 WL 605754 at 7-11 (N.D. Cal. Aug. 29, 1997) (denying summary judgment based, in part, on such social-science testimony). It is at least arguable, if not likely, that many large law firms have such environments.

Employment decisions in law firms are particularly susceptible to the influence of stereotypes because they are often, by nature, largely subjective. Hiring decisions, promotion decisions, case-staffing decisions and compensation decisions are all often based, at least in part, on non-quantifiable criteria. See Cynthia Fuchs Epstein, “Women in Law,” pp. 200-03 (University of Illinois Press 1993). These types of decisions are particularly vulnerable to the influence of unlawful gender or race stereotypes. Butler at 7; see also Price Waterhouse v. Hopkins , 490 U.S. 228, 251 (1989) (“We are beyond the day when an employer could evaluate employees by assuming or insisting that they matched the stereotype associated with their group”).

Moreover, stereotypes, often unconscious ones, frequently result in subtle differences between the opportunities afforded to women and minority lawyers and those given to their white, male counterparts. These denied opportunities often help explain why women and minorities are often passed over for promotions and either “die on the vine,” leave firms for in-house counsel positions and other opportunities, or simply leave the legal profession. Many leave even before they are formally passed over because they can see the writing on the wall. See Fuchs Epstein, pp. 214-15, 265-68.

Mentoring is a perfect example of a situation in which stereotypes, often unconscious, affect the opportunities of women and minority lawyers. Because mentorships, especially informal ones, often commence soon after a lawyer joins a firm, they are seldom assigned or formed based on merit. Instead, partners often choose associates to groom who are like them ' “one of the boys,” for example. Based on the statistical evidence that the overwhelming majority of law firm partners are white males, white males are more likely to dominate the ranks of the chosen few. They are then more thoroughly trained and given more desirable assignments than their counterparts, helping them develop both their legal skills and their professional networks. As a result, 8 years later, the non-favored associates have often fallen short of the firm's expectations for partners in billable hours, practical experience and client development, while the chosen few (typically white males), move on to partnership and perpetuate the cycle. See generally, Jennifer L. Pierce, “Gender Trials,” pp. 103-13 (1995).

Although the mentoring problem most often applies to associates, subjective decision-making influenced by gender and race stereotypes often affects partners as well, especially in tiered partnerships. Even female or minority lawyers who overcome any initial handicaps and make partner may hit a glass ceiling at the next threshold ' between junior and senior partner or between non-equity and equity partner. Partners also may be denied bonuses or other discretionary compensation, removed from desirable cases, denied committee memberships, denied mentors, excluded from networking and client development opportunities, demoted, or terminated. See, Id. at 105-06.

Another problem that female and minority lower-tier partners may face is case assignment based on real or perceived client preference. A senior partner may tend to assign certain matters to junior partners with whom the senior partner believes a client will feel comfortable. This belief is sometimes based on the client's stated preference and sometimes on the senior partner's assumptions or beliefs. See, Id. at 109-11. The practice is innocuous enough unless, either subconsciously or not, the senior partner takes the lawyer's gender or race into account in making the assignment.

If a client does indicate that he would prefer not to be represented by a woman or a minority, the firm would probably violate the law if it bases any employment decision on such a request. Title VII allows firms to take into account employees' religion, gender, or national origin only if such a classification “is a bona fide occupational qualification (BFOQ) reasonably necessary to the normal operation” of a particular business. 42 U.S.C. '2000e-2 (e). Race, however, can never be a BFOQ. Knight v. Nassau County Civil Serv. Comm'n , 649 F.2d 157, 162 (2d Cir. 1981).

Customer or client preference is almost never a sufficient basis for a BFOQ, even if the employer will likely lose the client because of its refusal to cater to the preference. “Customer preference may be taken into account only when it is based on the company's inability to perform the primary function or service it offers.” Diaz v. Pan Am. World Airways, Inc. , 442 F.2d 385, 389 (5th Cir. 1971) (rejecting defense that gender is a BFOQ because airlines' customers prefer female flight attendants); compare Fernandez v. Wynn Oil Co. , 653 F.2d 1273 (9th Cir. 1981) (stereotypical impressions of male and female roles do not qualify gender as a BFOQ) with Kern v. Dynalectron Corp. , 746 F.2d 810 (5th Cir. 1964) (approving of the Muslim religion as a BFOQ for pilots who fly into Mecca because of the local practice of beheading non-Muslim pilots).

Any adverse employment action, including the creation of a hostile working environment, can be the basis for a partner's employment discrimination claim against a law firm. The question is: Does the aggrieved partner have a cause of action?

Do the Employment Discrimination Statutes Apply?

The determination of whether the plaintiff is an “employee” is a threshold issue in any employment discrimination case. When the plaintiff is a law firm partner, the court must make two preliminary determinations:

• Whether the partner may invoke the employment discrimination laws at all. The partner must be deemed an “employee” to be protected. The statutes do not protect partner-employers. Sidley at 698; Simpson v. Ernst & Young , 100 F.3d 436, 443 (6th Cir. 1996). For the purposes of the employment discrimination laws, an individual cannot simultaneously be an employee and an employer. Serpion v. Martinez , 119 F.3d 982, 985 (1st Cir. 1997).
• The federal employment discrimination statutes do not apply to small employers. The firm must have enough employees to be covered at all. Title VII and the ADA exempt employers with fewer than 15 employees. 42 U.S.C. '2000e(b) (Title VII); 42 U.S.C. '12111(5) (ADA). The threshold under the ADEA is 20 employees. 29 U.S.C. '630(b). Especially in small firms with few associates and a small support staff, the firm might be too small to be covered if some “partners” are not deemed “employees.”

Additionally, the number of firm employees determines the firm's potential liability for compensatory and punitive damages. The thresholds for compensatory and punitive damages are tiered. For example, under Title VII, a firm with between 15 and 100 employees can be liable for only $50,000 in punitive and compensatory damages, while such liability for a firm with more than 500 employees is capped at $300,000. 42 U.S.C. '1981a (b) (3). In some cases, partners who are deemed “employees” will push the firm past the next threshold, causing the firm to bear the risk of a larger judgment.

Part Two of this article discusses the Sidley, Clackamas and other cases in detail, and how whether or not a partner is deemed an “employee” and firm size and type of ownership affects a firm's vulnerability to discrimination claims.