At the Tipping Point

When he took over as the new President of the New York State Bar Association (NYSBA) in June, 2006, Mark H. Alcott identified as one of the three themes of his presidency 'an end to age discrimination in our profession, including the archaic practice of mandatory retirement.' See, M.H. Alcott, 'Taking the Initiative,' NYSBA Journal, 5 (July/August 2006). According to Mr. Alcott, who is a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, mandatory retirement policies at law firms deprive society of 'seasoned talent.' Id. at 6. He noted that lawyers from the baby boom generation are living longer, but many of them also waited until later in life to marry and start a family and, as a result, are also delaying retirement. Id. He also observed that retirement may not be a viable option for baby boomers who are now in the 'sandwich generation' of raising their own children while caring for aging parents. Id.

On Sept. 28, 2006, the NYSBA announced that it established a Special Committee on Senior Lawyers, a Special Committee on Age Discrimination in the Profession and a Task Force on the Mandatory Retirement of Judges (see, 'NYSBA Addresses the Special Issues and Challenges Now Facing Senior Lawyers,' www.nysba.org/newscenter) (Sept. 28, 2006). In a press release accompanying that announcement, Mr. Alcott stated that: '[A]s our population ages, many talented vigorous lawyers are now facing new challenges that have not been fully explored or vetted by the legal community. For example, many senior lawyers are facing both social and legal discrimination that is not being addressed, and that is unacceptable. Issues such as mandatory retirement and other practices that adversely affect lawyers because of their age cannot be ignored.'

Alcott has placed the issue of mandatory retirement policies at law firms squarely before the legal community. However, he is not the first to do so. In 2002, the Equal Employment Opportunity Commission (EEOC) filed an age discrimination charge against Chicago-based Sidley Austin Brown & Wood. The EEOC charged that they violated the age discrimination in Employment Act of (ADEA), by demoting 32 older equity partners to non-equity status and by implementing a mandatory retirement age policy. After 3 years of legal skirmishing at the administrative level, the EEOC filed a ADEA lawsuit in the U.S. District Court in 2005. The trial court aptly noted that the case had 'been of great interest not only to Sidley, but also to most of the other large law firms across the country.' EEOC v. Sidley Austin, 406 F.Supp.2d 991, 995 (N.D. Ill. 2005). However, the immediate past President of the New York City Bar Association, Bettina Plevan, recently observed that the parties to the case 'know that they are being watched closely but so far very little guidance has emerged from the case.' See, B.B. Plava and J.B. Wong, 'When Is a Partner Not a Partner?' NYLJ, May 22, 2006. In addition to not yet providing guidance to the profession, the EEOC's lawsuit against Sidley Austin has also not served as a deterrent: 57% of law firms with more than 100 employees, and 13% of law firms with less than 100 employees have mandatory retirement age policies. See, L. Jones 'Pitfalls of Mandatory Law Firm Retirement,' National Law Journal, May 24, 2006.

The debate over the issue of whether or not a law firm can have a mandatory retirement age has focused on the threshold question of whether the 'partner' is an 'employer' or an 'employee' under the ADEA. If the partner is a 'bona fide' partner then he or she is an 'employer' and not protected by the ADEA. However, if the partner is not a 'bona fide' partner under the relevant legal principles (which will be discussed later in this article), he or she may be protected by the ADEA and, therefore, able to challenge the mandatory retirement age policy.

Does the individual challenging the mandatory retirement age policy who is a 'bona fide' partner have any remedies? That issue has not been either discussed or examined in the legal community. In this article, we suggest that a 'bona fide' partner may still be able to challenge the policy under state or local anti-discrimination statutes or under common law claims for breach of fiduciary duty and/or good faith and fair dealing. Before exploring those issues, however, we will first examine the issues raised by the Sidley Austin case.

Sidley Austin

In his concurring opinion in EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696 (7^th Cir. 2002), Judge Easterbrook criticized the majority opinion for avoiding the opportunity to decide the question of whether large firms can adopt mandatory retirement age rules. Id. at 308. As more and more partners reach retirement age, law firms must address the legality of these retirement policies under anti-discrimination laws such as the ADEA.

The ADEA, as its name implies, prohibits discrimination on the basis of age by employers against employees who are over the age of 40. The ADEA is straightforward in its prohibition of mandatory retirement policies: Involuntary retirement predicated on age is forbidden except in instances where age is a bona fide occupational requirement or the employee is a bona fide executive who retires pursuant to a plan with a minimal annual benefit of at least $44,000. See, 29 U.S.C. ”623(f), 631(c). Put simply, an employer cannot require an employee to retire simply because he or she has reached a certain age. See, EEOC v. Johnson & Higgins, Inc., 91 F.3d 1529, 1540 (2d Cir. 1996); Stipkala v. American Red Cross, 215 F.3d 1327 (6^th Cir. 2000) (unpublished) ('If an employer uses a mandatory retirement policy to force an employee to retire, the policy violates the ADEA unless the employer can establish that age is a bona fide occupational qualification.')

Partnerships are not exempt from the ADEA, nor are partners automatically excluded from the protections of the ADEA. See, Sidley Austin, 315 F.3d at 702. A law firm's characterization of an individual as a partner certainly does not answer the question, because a partner is not always an employer. Id. In fact, a person who is a partner for purposes of state partnership law may very well be an employee for purposes of discrimination law. Id. The crux of the issue, then, is whether a partner is an 'employer' or 'employee' under the ADEA.

In Clackamas Gastroenterology As-sociates, P.C. v. Wells, 538 U.S. 440 (2003) (considering whether director-shareholder physicians were employees for purposes of Title I of the American with Disabilities Act (ADA), 42 U.S.C. '12201 et. seq.) the Supreme Court explained that, when deciding whether a partner might be considered an 'employee' under federal employment discrimination statutes, the fundamental question is 'whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization's control.' Id. at 449. According to the Supreme Court, when making that inquiry 'the common-law element of control is the principal guidepost.' Id. at 448. Clackamas endorsed the EEOC's six-factor test as being relevant to the inquiry:

1. Whether the organization can hire and fire the individual or set the rules and regulations of the individual's work;
2. Whether and, if so, to what extent the organization supervised the individual's work;
3. Whether the individual reports to someone higher up in the organization;
4. Whether and, if so, to what extent the individual is able to influence the organization;
5. Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
6. Whether the individual shares the profits, losses and liabilities of the organization.

Id. at 449-50 (citing EEOC Compliance Manual '605:0009).

The Clackamas factors are non-exhaustive. Clackamas, 538 U.S. 450, n.10. In the law firm context, there are many things that may be indicative of whether a partner is an employee for purposes of discrimination laws. By examining a partner's autonomy, authority and liability, we may determine to what degree the partner is subject to the firm's control and, in turn, whether he or she is an employer or employee.

A Partner's Autonomy

The first, second and third factors of the Clackamas test relate to the autonomy of a partner. Since control is the fundamental hallmark of an employer-employee relationship, autonomy is a strong indication of a bona fide partnership. The less authority and discretion a partner has over the terms of his or her employment, the more likely that he or she is an employee under the ADEA. See, Caruso v. Peat, Marwick, Mitchell & Co., 664 F. Supp. 144 (S.D.N.Y. 1987) (Caruso I) (holding that partner of accounting and consulting firm was an employee under the ADEA and stating 'the title 'partner' is not normally applied to an individual whose employment duties are unilaterally dictated by another member of a business').

In the law firm context, relevant indicia of control may include whether a partner must:

1. Submit a certain number of billable hours per month;
2. Submit daily time entries;
3. Obtain approval to introduce new clients;
4. Obtain approval to introduce new business from existing clients;
5. Obtain approval for 'write-off' authorizations;
6. Obtain approval for marketing expenses;
7. Obtain approval for reimbursement of expense disbursements;
8. Work in an assigned practice area;
9. Meet assigned quarterly fee collection goals; and
10. Obtain approval before undertaking a legal course of action. Cf., Hishon v. King & Spalding, 467 U.S. 69, 80 n.3 (1984) (Powell concurring) (outlining decisions that should be made among the partnership).

The ability to terminate an individual's employment is a strong indication of control. See, Zheng v. Liberty Apparel Co. Inc., 355 F.3d 61 (2d Cir. 2003) (considering whether defendant was joint employer under the FLSA). Therefore, to the extent that a partner summarily can be fired, he or she may not a bona fide partner at all. Under traditional partnership law, a partner may not be expelled from the partnership absent an expulsion provision in the partnership agreement. See, Ehrlich v. Howe, 848 F. Supp. 482, 490 (S.D.N.Y. 1994); Beasley v. Cadwalader, Wickersham & Taft, 1996 WL 449247, at 1 (Fla. Cir. Ct. Mar. 29, 1996) (interpreting New York law); see also, Dawson v. White & Case, 672 N.E.2d 589, 591-92 (N.Y. 1996) (without termination provision in partnership agreement, dissolution is the only method of removing a partner). Even where an expulsion provision exists, expulsion pursuant to such a provision must be undertaken in good faith. See, Winston & Strawn v. Nosal, 664 N.E.2d 239, 240 (Ill. App. Ct. 1996) (citing Bohatch v. Butler & Binion, 905 S.W.2d 597, 602 (Tex. App. 1995)); Holman v. Coie, 522 P.2d 515, 523-24 (Wash. Ct. App. 1974) (expulsion provision contained no language requiring that expulsions be for cause, and court refused to imply a cause requirement). The more authority a firm has to fire an individual, the more indicative it is that the individual is not acting as an autonomous partner, but as an employee under the control of the firm. See, Caruso I, 664 F. Supp. at 149 ('The typical firm may not fire a partner or otherwise terminate his employment merely because of disappointment with the quantity or quality of his work, but may only remove the partner in extraordinary circumstances.')

A Partner's Authority

The fourth and fifth prongs of the Clackamas test relate to the authority of a partner. Is the partner actively involved in the management of the firm? Is the partner allowed to participate in admitting or expelling partners, hiring attorneys or support staff, or determining salaries or bonuses? Does the partner have access to financial information? Can the partner participate in employee or attorney performance reviews? Does the partner participate in decisions relating to how much to pay associates or staff?

Many law firms have a highly centralized management structure where the majority of partners have little, if any, say in the day-to-day operations of the firm. See, Clackamas, 538 U.S. at 446 ('Today there are partnerships that include hundreds of members, some of whom may well qualify as 'employees' because control is concentrated in a small number of managing partners.') Like the accounting firm partners at Ernst & Young, many partners are 'relegated to the position of an employee subject to the virtually absolute, unilateral control of the Management Committee.' Simpson v. Ernst & Young, 100 F.3d 436, 442 (6^th Cir. 1997). A true partnership, however, contemplates that 'decisions important to the partnership normally will be made by common agreement or consent among the partners.' Hishon, 467 U.S. at 80 (1984) (Powell concurring).

The less authority a partner exercises, the less likely it is that the partner is exempt from the protections of the ADEA. See, Smith v. Castaways Family Diner, 453 F.3d 971 (7^th Cir. 2006).

In Simpson v. Ernst & Young, 100 F.3d 436 (6^th Cir. 1997), the Sixth Circuit concluded that a partner was covered under the ADEA, reasoning, in part, that the plaintiff, a partner of a large accounting firm, had no authority to direct or participate in the admission or discharge of partners or other firm personnel, did not participate in determining partners' or other personnel's compensation, and could not participate in annual performance reviews. Id. at 441-42.

Even though partners may be able to vote in firm elections, or even elect the members of the managing committee, this alone is not enough to place partners in an 'employer' role, as opposed to an 'employee' role. For instance, in Caruso v. Peat, Marwick, Mitchell & Co., 717 F. Supp. 218 (S.D.N.Y. 1989) (Caruso II), the court held that a principal in a large accounting firm could still be considered an 'employee' under the ADEA even though he could vote in firm elections. The court reasoned that the issues decided in those elections were 'largely decided by upper level management, which merely presented its decisions for ratification by the employees who voted.' Id. at 222.

A Partner's Liability

The final factor in the Clackamas test addresses the monetary compensation of a partner. 'Partners typically receive their compensation as a percentage of their firm's profits, rather than in the form of a fixed hourly wage or weekly salary.' Caruso I, 664 F. Supp. at 149 ('Profit sharing is the primary attribute of partnership.') (citing A. Bromberg, Crane and Bromberg on Partnership 66 (1968); see also, Tenney v. Insurance Company of North America, 409 F.Supp. 746, 749 (S.D.N.Y.1975) ('the pro rata sharing of profits and losses of the enterprise' is a 'significant indicia of the existence of a partnership'). Non-equity partners, then, likely would fall within the confines of the ADEA.

Many partners do share in their firm's profits, losses and liabilities, and make a capital investment in the firm. These facts alone do not support a conclusion that a partner falls outside the protections of the ADEA, however. For example, in Sidley Austin, the demoted equity partners made capital contributions to the firm, had capital accounts which averaged about $400,000 each, were liable for the firm's debts, and their income included a share of the firm's profits. Sidley Austin, 315 F.3d at 699. Nevertheless, the Seventh Circuit rejected the defendant's argument that the 32 demoted partners were not 'employees' under the ADEA, reasoning, in part, that the firm's executive committee could fire them, demote them, and raise and lower their pay. Id. Similarly, in Simpson, the court found that despite liability for firm losses, the partner was simply 'an employee with the additional detriment of having promised to be liable for the firm's losses.' 100 F.3d at 442.

In Part Two, the authors examine the requirements for being deemed a 'bona fide' partner and the advantages and remedies associated with that designation.

When he took over as the new President of the New York State Bar Association (NYSBA) in June, 2006, Mark H. Alcott identified as one of the three themes of his presidency 'an end to age discrimination in our profession, including the archaic practice of mandatory retirement.' See, M.H. Alcott, 'Taking the Initiative,' NYSBA Journal, 5 (July/August 2006). According to Mr. Alcott, who is a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, mandatory retirement policies at law firms deprive society of 'seasoned talent.' Id. at 6. He noted that lawyers from the baby boom generation are living longer, but many of them also waited until later in life to marry and start a family and, as a result, are also delaying retirement. Id. He also observed that retirement may not be a viable option for baby boomers who are now in the 'sandwich generation' of raising their own children while caring for aging parents. Id.

On Sept. 28, 2006, the NYSBA announced that it established a Special Committee on Senior Lawyers, a Special Committee on Age Discrimination in the Profession and a Task Force on the Mandatory Retirement of Judges (see, 'NYSBA Addresses the Special Issues and Challenges Now Facing Senior Lawyers,' www.nysba.org/newscenter) (Sept. 28, 2006). In a press release accompanying that announcement, Mr. Alcott stated that: '[A]s our population ages, many talented vigorous lawyers are now facing new challenges that have not been fully explored or vetted by the legal community. For example, many senior lawyers are facing both social and legal discrimination that is not being addressed, and that is unacceptable. Issues such as mandatory retirement and other practices that adversely affect lawyers because of their age cannot be ignored.'

Alcott has placed the issue of mandatory retirement policies at law firms squarely before the legal community. However, he is not the first to do so. In 2002, the Equal Employment Opportunity Commission (EEOC) filed an age discrimination charge against Chicago-based Sidley Austin Brown & Wood. The EEOC charged that they violated the age discrimination in Employment Act of (ADEA), by demoting 32 older equity partners to non-equity status and by implementing a mandatory retirement age policy. After 3 years of legal skirmishing at the administrative level, the EEOC filed a ADEA lawsuit in the U.S. District Court in 2005. The trial court aptly noted that the case had 'been of great interest not only to Sidley, but also to most of the other large law firms across the country.' EEOC v. Sidley Austin , 406 F.Supp.2d 991, 995 (N.D. Ill. 2005). However, the immediate past President of the New York City Bar Association, Bettina Plevan, recently observed that the parties to the case 'know that they are being watched closely but so far very little guidance has emerged from the case.' See, B.B. Plava and J.B. Wong, 'When Is a Partner Not a Partner?' NYLJ, May 22, 2006. In addition to not yet providing guidance to the profession, the EEOC's lawsuit against Sidley Austin has also not served as a deterrent: 57% of law firms with more than 100 employees, and 13% of law firms with less than 100 employees have mandatory retirement age policies. See, L. Jones 'Pitfalls of Mandatory Law Firm Retirement,' National Law Journal, May 24, 2006.

The debate over the issue of whether or not a law firm can have a mandatory retirement age has focused on the threshold question of whether the 'partner' is an 'employer' or an 'employee' under the ADEA. If the partner is a 'bona fide' partner then he or she is an 'employer' and not protected by the ADEA. However, if the partner is not a 'bona fide' partner under the relevant legal principles (which will be discussed later in this article), he or she may be protected by the ADEA and, therefore, able to challenge the mandatory retirement age policy.

Does the individual challenging the mandatory retirement age policy who is a 'bona fide' partner have any remedies? That issue has not been either discussed or examined in the legal community. In this article, we suggest that a 'bona fide' partner may still be able to challenge the policy under state or local anti-discrimination statutes or under common law claims for breach of fiduciary duty and/or good faith and fair dealing. Before exploring those issues, however, we will first examine the issues raised by the Sidley Austin case.

Sidley Austin

In his concurring opinion in EEOC v. Sidley Austin Brown & Wood , 315 F.3d 696 (7 th Cir. 2002), Judge Easterbrook criticized the majority opinion for avoiding the opportunity to decide the question of whether large firms can adopt mandatory retirement age rules. Id. at 308. As more and more partners reach retirement age, law firms must address the legality of these retirement policies under anti-discrimination laws such as the ADEA.

The ADEA, as its name implies, prohibits discrimination on the basis of age by employers against employees who are over the age of 40. The ADEA is straightforward in its prohibition of mandatory retirement policies: Involuntary retirement predicated on age is forbidden except in instances where age is a bona fide occupational requirement or the employee is a bona fide executive who retires pursuant to a plan with a minimal annual benefit of at least $44,000. See, 29 U.S.C. ”623(f), 631(c). Put simply, an employer cannot require an employee to retire simply because he or she has reached a certain age. See , EEOC v. Johnson & Higgins, Inc. , 91 F.3d 1529, 1540 (2d Cir. 1996); Stipkala v. American Red Cross, 215 F.3d 1327 (6 th Cir. 2000) (unpublished) ('If an employer uses a mandatory retirement policy to force an employee to retire, the policy violates the ADEA unless the employer can establish that age is a bona fide occupational qualification.')

Partnerships are not exempt from the ADEA, nor are partners automatically excluded from the protections of the ADEA. See, Sidley Austin, 315 F.3d at 702. A law firm's characterization of an individual as a partner certainly does not answer the question, because a partner is not always an employer. Id. In fact, a person who is a partner for purposes of state partnership law may very well be an employee for purposes of discrimination law. Id. The crux of the issue, then, is whether a partner is an 'employer' or 'employee' under the ADEA.

In Clackamas Gastroenterology As-sociates, P.C. v. Wells , 538 U.S. 440 (2003) (considering whether director-shareholder physicians were employees for purposes of Title I of the American with Disabilities Act (ADA), 42 U.S.C. '12201 et. seq .) the Supreme Court explained that, when deciding whether a partner might be considered an 'employee' under federal employment discrimination statutes, the fundamental question is 'whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization's control.' Id. at 449. According to the Supreme Court, when making that inquiry 'the common-law element of control is the principal guidepost.' Id. at 448. Clackamas endorsed the EEOC's six-factor test as being relevant to the inquiry:

1. Whether the organization can hire and fire the individual or set the rules and regulations of the individual's work;
2. Whether and, if so, to what extent the organization supervised the individual's work;
3. Whether the individual reports to someone higher up in the organization;
4. Whether and, if so, to what extent the individual is able to influence the organization;
5. Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
6. Whether the individual shares the profits, losses and liabilities of the organization.

Id. at 449-50 (citing EEOC Compliance Manual '605:0009).

The Clackamas factors are non-exhaustive. Clackamas, 538 U.S. 450, n.10. In the law firm context, there are many things that may be indicative of whether a partner is an employee for purposes of discrimination laws. By examining a partner's autonomy, authority and liability, we may determine to what degree the partner is subject to the firm's control and, in turn, whether he or she is an employer or employee.

A Partner's Autonomy

The first, second and third factors of the Clackamas test relate to the autonomy of a partner. Since control is the fundamental hallmark of an employer-employee relationship, autonomy is a strong indication of a bona fide partnership. The less authority and discretion a partner has over the terms of his or her employment, the more likely that he or she is an employee under the ADEA. See , Caruso v. Peat, Marwick, Mitchell & Co. , 664 F. Supp. 144 (S.D.N.Y. 1987) ( Caruso I ) (holding that partner of accounting and consulting firm was an employee under the ADEA and stating 'the title 'partner' is not normally applied to an individual whose employment duties are unilaterally dictated by another member of a business').

In the law firm context, relevant indicia of control may include whether a partner must:

1. Submit a certain number of billable hours per month;
2. Submit daily time entries;
3. Obtain approval to introduce new clients;
4. Obtain approval to introduce new business from existing clients;
5. Obtain approval for 'write-off' authorizations;
6. Obtain approval for marketing expenses;
7. Obtain approval for reimbursement of expense disbursements;
8. Work in an assigned practice area;
9. Meet assigned quarterly fee collection goals; and
10. Obtain approval before undertaking a legal course of action. Cf., Hishon v. King & Spalding , 467 U.S. 69, 80 n.3 (1984) (Powell concurring) (outlining decisions that should be made among the partnership).

The ability to terminate an individual's employment is a strong indication of control. See , Zheng v. Liberty Apparel Co. Inc. , 355 F.3d 61 (2d Cir. 2003) (considering whether defendant was joint employer under the FLSA). Therefore, to the extent that a partner summarily can be fired, he or she may not a bona fide partner at all. Under traditional partnership law, a partner may not be expelled from the partnership absent an expulsion provision in the partnership agreement. See , Ehrlich v. Howe , 848 F. Supp. 482, 490 (S.D.N.Y. 1994); Beasley v. Cadwalader, Wickersham & Taft, 1996 WL 449247, at 1 (Fla. Cir. Ct. Mar. 29, 1996) (interpreting New York law); see also , Dawson v. White & Case , 672 N.E.2d 589, 591-92 (N.Y. 1996) (without termination provision in partnership agreement, dissolution is the only method of removing a partner). Even where an expulsion provision exists, expulsion pursuant to such a provision must be undertaken in good faith. See , Winston & Strawn v. Nosal , 664 N.E.2d 239, 240 (Ill. App. Ct. 1996) (citing Bohatch v. Butler & Binion , 905 S.W.2d 597, 602 (Tex. App. 1995)); Holman v. Coie , 522 P.2d 515, 523-24 (Wash. Ct. App. 1974) (expulsion provision contained no language requiring that expulsions be for cause, and court refused to imply a cause requirement). The more authority a firm has to fire an individual, the more indicative it is that the individual is not acting as an autonomous partner, but as an employee under the control of the firm. See, Caruso I, 664 F. Supp. at 149 ('The typical firm may not fire a partner or otherwise terminate his employment merely because of disappointment with the quantity or quality of his work, but may only remove the partner in extraordinary circumstances.')

A Partner's Authority

The fourth and fifth prongs of the Clackamas test relate to the authority of a partner. Is the partner actively involved in the management of the firm? Is the partner allowed to participate in admitting or expelling partners, hiring attorneys or support staff, or determining salaries or bonuses? Does the partner have access to financial information? Can the partner participate in employee or attorney performance reviews? Does the partner participate in decisions relating to how much to pay associates or staff?

Many law firms have a highly centralized management structure where the majority of partners have little, if any, say in the day-to-day operations of the firm. See, Clackamas, 538 U.S. at 446 ('Today there are partnerships that include hundreds of members, some of whom may well qualify as 'employees' because control is concentrated in a small number of managing partners.') Like the accounting firm partners at Ernst & Young, many partners are 'relegated to the position of an employee subject to the virtually absolute, unilateral control of the Management Committee.' Simpson v. Ernst & Young , 100 F.3d 436, 442 (6 th Cir. 1997). A true partnership, however, contemplates that 'decisions important to the partnership normally will be made by common agreement or consent among the partners.' Hishon, 467 U.S. at 80 (1984) (Powell concurring).

The less authority a partner exercises, the less likely it is that the partner is exempt from the protections of the ADEA. See , Smith v. Castaways Family Diner, 453 F.3d 971 (7 th Cir. 2006).

In Simpson v. Ernst & Young , 100 F.3d 436 (6 th Cir. 1997), the Sixth Circuit concluded that a partner was covered under the ADEA, reasoning, in part, that the plaintiff, a partner of a large accounting firm, had no authority to direct or participate in the admission or discharge of partners or other firm personnel, did not participate in determining partners' or other personnel's compensation, and could not participate in annual performance reviews. Id. at 441-42.

Even though partners may be able to vote in firm elections, or even elect the members of the managing committee, this alone is not enough to place partners in an 'employer' role, as opposed to an 'employee' role. For instance, in Caruso v. Peat, Marwick, Mitchell & Co. , 717 F. Supp. 218 (S.D.N.Y. 1989) ( Caruso II ), the court held that a principal in a large accounting firm could still be considered an 'employee' under the ADEA even though he could vote in firm elections. The court reasoned that the issues decided in those elections were 'largely decided by upper level management, which merely presented its decisions for ratification by the employees who voted.' Id. at 222.

A Partner's Liability

The final factor in the Clackamas test addresses the monetary compensation of a partner. 'Partners typically receive their compensation as a percentage of their firm's profits, rather than in the form of a fixed hourly wage or weekly salary.' Caruso I, 664 F. Supp. at 149 ('Profit sharing is the primary attribute of partnership.') (citing A. Bromberg, Crane and Bromberg on Partnership 66 (1968); see also , Tenney v. Insurance Company of North America, 409 F.Supp. 746, 749 (S.D.N.Y.1975) ('the pro rata sharing of profits and losses of the enterprise' is a 'significant indicia of the existence of a partnership'). Non-equity partners, then, likely would fall within the confines of the ADEA.

Many partners do share in their firm's profits, losses and liabilities, and make a capital investment in the firm. These facts alone do not support a conclusion that a partner falls outside the protections of the ADEA, however. For example, in Sidley Austin, the demoted equity partners made capital contributions to the firm, had capital accounts which averaged about $400,000 each, were liable for the firm's debts, and their income included a share of the firm's profits. Sidley Austin, 315 F.3d at 699. Nevertheless, the Seventh Circuit rejected the defendant's argument that the 32 demoted partners were not 'employees' under the ADEA, reasoning, in part, that the firm's executive committee could fire them, demote them, and raise and lower their pay. Id. Similarly, in Simpson, the court found that despite liability for firm losses, the partner was simply 'an employee with the additional detriment of having promised to be liable for the firm's losses.' 100 F.3d at 442.

In Part Two, the authors examine the requirements for being deemed a 'bona fide' partner and the advantages and remedies associated with that designation.