At the Tipping Point

In Part One, last month, the authors examined the EEOC v. Sidley Austin case (406 F.Supp.2d 991, 995 (N.D. Ill. 2005)) and the issues raised therein. Part Two continues the discussion with the implications of being designated a 'bona fide' partner.

'Bona Fide' Partners

What, if any, remedies, does a 'bona fide' law partner have who is put out to pasture as a result of a mandatory retirement age policy? One possibility is that he or she may still be protected against discrimination if the relevant state and/or city anti-discrimination law has a broader definition of 'employee.' For example, the New York City Human Rights Law extends its coverage to any 'person.' N.Y. Admin. Code '8-107(a); Jowers v. DME Interactive Holdings, Inc., 2003 WL 230739 (S.D.N.Y. Feb. 4, 2003) (NYCHRL applies to 'natural persons' who 'carry out the work in furtherance of the employer's business enterprise').

Breach of Fiduciary Duty and Breach of
Covenant of Good Faith and Fair Dealing

A 'bona fide' partner without any statutory protection against discrimination may also argue that the law firm breached its fiduciary duty and its covenant of good faith and fair dealing when it terminated her based on his age. Ms. Plevin recently observed:

Finally, a word of warning for law firms that observe the Sidley proceedings and conclude that the lack of guidance can be viewed as acquiescence. Partnership creates a fiduciary relationship. Thus if the Sidley case finally concludes that large law firm partners are 'employers' for purposes of anti-discrimination laws, the fiduciary relationship itself could encompass a prohibition against discrimination based on the duty of good faith and fair dealing in the context of partner expulsions.

B. Plevin and J. Wang, 'When is a Partner Not a Partner,' New York Law Journal (May 22, 2006).

There is no case law that squarely holds that terminating a law firm partner on a discriminatory basis is a breach of fiduciary duty. In New York, however, the foundation for that argument has been laid. There is 'an implied term of good faith' in all partnership agreements in New York. Gold Medical Group v. Webber, 41 NY. 2d 680, 684 (1977). In Meinhard v. Salmon, 249 N.Y. 458(1928), Justice Cardozo remarked that the fiduciary duty among partners is a duty of 'finest loyalty' and 'honor most sensitive.' Id. at 463-64. In Beasley v. Cadwalader, Wickersham & Taft, 1996 WL 449247 (Fla. Cir. CT. March 29, 1996), rev'd in part on other grounds, 1998 WL 405919 (Fla Dist. Ct. App. July 22, 1998), the court, while interpreting New York law, held that the law firm violated its fiduciary duty when it expelled the plaintiff and other partners in a downsizing effort to provide financial gain to other partners. Id. at 5-6. (After Cadwalader had a difficult financial year in 2004, several younger, more productive partners at the firm were upset with their compensation. Id. at 2. Cadwalader partner Robert Link told the management committee in a memo that, if changes were not made quickly, he was going to leave the firm and that many of the other 'Young Turks' would soon follow. Id. As a result, the Management Committee adopted 'Project Right Size' that was aimed at identifying less productive partners for elimination from the partnership by increasing the shares of more productive partners and decreasing the shares of less productive partners. Id. In upholding the plaintiff's breach of fiduciary duty claim, the court explained that:

These facts compel the conclusion that the management committee breached its fiduciary duty to Beasley. This was not a situation where the management committee was merely fulfilling its management function. Rather, it was participating in a clandestine plan to wrongfully expel some partners for the financial gain of the other partners. Such activity can not be said to be honorable, much less to comport with the punctilio of an honor.

Id. at 6.

After concluding that a law firm partner was not an 'employee' under ERISA, the court in Ehrlich v. Howe, 848 F. Supp 482 (S.D.N.Y. 1994), concluded that the partner stated a breach of fiduciary duty claim when it excluded him from secret meetings where it voted to expel him from the partnership. Id. at 490-92. The district court in Simpson v. Ernst & Young, 850 F. Supp. 648 (S.D.Ohio 1994), aff'd, 100 F.3d 436(6th Cir 1993), emphasized that the legal obligation of a fiduciary duty obligated partners to treat each other with 'the highest degree of fidelity, loyalty and fairness in their mutual dealings' and to avoid falling back on the 'morals of the marketplace' when dealing with each other. Id. at 656.

A law firm violates the fiduciary duty amongst partners when a law firm terminates a partner for a reason that violates the Code of Professional Responsibility. Section 1200.3 of New York State Disciplinary Rules of the Code of Professional Responsibility states that 'a lawyer or law firm shall not ' discriminate in the practice of law, including in hiring, promoting or otherwise determining conditions of employment, on the basis of age, race, creed, color, national origin, sex, disability, marital status or sexual orientation.'

In Weider v. Skala, 80 N.Y. 2d 628 (1992), for example, the New York Court of Appeals relied upon the lawyer's ethical obligations to carve out a rare exception to New York's firmly entrenched employment-at-will doctrine. The plaintiff claimed that he was terminated because he reported another associate's ethical misconduct. The Court of Appeals concluded that there was a 'distinctive relationship' between an attorney and a law firm because the lawyer's duties as an associate of the firm and as an attorney are 'so closely linked as to be incapable of separation.' Id. at 635. Weider endorsed the plaintiff's argument that there was an implied understanding that was:

[S]o fundamental to the relationship and essential to its purpose as to require no expression: that both the associate and the firm in conducting the practice will do so in accordance with the ethical standards of the profession. Erecting or countenancing disincentives to compliance with the applicable rules of professional conduct ' would subvert the central professional purpose of his relationship with the firm ' the lawful and ethical practice of law.

Id. at 63-36.

The Court of Appeals emphasized that the legislature delegated responsibility to the Appellate Division Departments to maintain ethics and competence standards. Id. at 636. The Code of Professional Responsibility codifies those standards of ethics and competence. Id. Just as there is an implied contract that a law firm will not terminate an associate for complying with that Code, there is an implied contract that a law firm will not terminate an attorney ' whether a partner or an associate ' for reasons that would violate the Code of Professional Responsibility. Id.

Conclusion

Although the majority of large law firms may endorse mandatory retirement age policies, the legality of such policies is far from certain. Furthermore, the support mandatory retirement policies enjoy in large firms does not necessarily resonate throughout the profession. The 'baby boom' generation of lawyers has started to question whether law firms should have the right to force their lawyers to either retire or be removed from equity partner status at a certain age. Over the next few years, those lawyers, generally, and employment law practitioners, specifically, will be grappling with the legal issues raised when some of those baby boomers, when told 'it's time,' respond, 'I don't think so.'

In Part One, last month, the authors examined the EEOC v. Sidley Austin case (406 F.Supp.2d 991, 995 (N.D. Ill. 2005)) and the issues raised therein. Part Two continues the discussion with the implications of being designated a 'bona fide' partner.

'Bona Fide' Partners

What, if any, remedies, does a 'bona fide' law partner have who is put out to pasture as a result of a mandatory retirement age policy? One possibility is that he or she may still be protected against discrimination if the relevant state and/or city anti-discrimination law has a broader definition of 'employee.' For example, the New York City Human Rights Law extends its coverage to any 'person.' N.Y. Admin. Code '8-107(a); Jowers v. DME Interactive Holdings, Inc., 2003 WL 230739 (S.D.N.Y. Feb. 4, 2003) (NYCHRL applies to 'natural persons' who 'carry out the work in furtherance of the employer's business enterprise').

Breach of Fiduciary Duty and Breach of
Covenant of Good Faith and Fair Dealing

A 'bona fide' partner without any statutory protection against discrimination may also argue that the law firm breached its fiduciary duty and its covenant of good faith and fair dealing when it terminated her based on his age. Ms. Plevin recently observed:

Finally, a word of warning for law firms that observe the Sidley proceedings and conclude that the lack of guidance can be viewed as acquiescence. Partnership creates a fiduciary relationship. Thus if the Sidley case finally concludes that large law firm partners are 'employers' for purposes of anti-discrimination laws, the fiduciary relationship itself could encompass a prohibition against discrimination based on the duty of good faith and fair dealing in the context of partner expulsions.

B. Plevin and J. Wang, 'When is a Partner Not a Partner,' New York Law Journal (May 22, 2006).

There is no case law that squarely holds that terminating a law firm partner on a discriminatory basis is a breach of fiduciary duty. In New York, however, the foundation for that argument has been laid. There is 'an implied term of good faith' in all partnership agreements in New York. Gold Medical Group v. Webber , 41 NY. 2d 680, 684 (1977). In Meinhard v. Salmon , 249 N.Y. 458(1928), Justice Cardozo remarked that the fiduciary duty among partners is a duty of 'finest loyalty' and 'honor most sensitive.' Id. at 463-64. In Beasley v. Cadwalader, Wickersham & Taft, 1996 WL 449247 (Fla. Cir. CT. March 29, 1996), rev'd in part on other grounds, 1998 WL 405919 (Fla Dist. Ct. App. July 22, 1998), the court, while interpreting New York law, held that the law firm violated its fiduciary duty when it expelled the plaintiff and other partners in a downsizing effort to provide financial gain to other partners. Id. at 5-6. (After Cadwalader had a difficult financial year in 2004, several younger, more productive partners at the firm were upset with their compensation. Id. at 2. Cadwalader partner Robert Link told the management committee in a memo that, if changes were not made quickly, he was going to leave the firm and that many of the other 'Young Turks' would soon follow. Id. As a result, the Management Committee adopted 'Project Right Size' that was aimed at identifying less productive partners for elimination from the partnership by increasing the shares of more productive partners and decreasing the shares of less productive partners. Id. In upholding the plaintiff's breach of fiduciary duty claim, the court explained that:

These facts compel the conclusion that the management committee breached its fiduciary duty to Beasley. This was not a situation where the management committee was merely fulfilling its management function. Rather, it was participating in a clandestine plan to wrongfully expel some partners for the financial gain of the other partners. Such activity can not be said to be honorable, much less to comport with the punctilio of an honor.

Id. at 6.

After concluding that a law firm partner was not an 'employee' under ERISA, the court in Ehrlich v. Howe , 848 F. Supp 482 (S.D.N.Y. 1994), concluded that the partner stated a breach of fiduciary duty claim when it excluded him from secret meetings where it voted to expel him from the partnership. Id. at 490-92. The district court in Simpson v. Ernst & Young , 850 F. Supp. 648 (S.D.Ohio 1994), aff'd , 100 F.3d 436(6th Cir 1993), emphasized that the legal obligation of a fiduciary duty obligated partners to treat each other with 'the highest degree of fidelity, loyalty and fairness in their mutual dealings' and to avoid falling back on the 'morals of the marketplace' when dealing with each other. Id. at 656.

A law firm violates the fiduciary duty amongst partners when a law firm terminates a partner for a reason that violates the Code of Professional Responsibility. Section 1200.3 of New York State Disciplinary Rules of the Code of Professional Responsibility states that 'a lawyer or law firm shall not ' discriminate in the practice of law, including in hiring, promoting or otherwise determining conditions of employment, on the basis of age, race, creed, color, national origin, sex, disability, marital status or sexual orientation.'

In Weider v. Skala , 80 N.Y. 2d 628 (1992), for example, the New York Court of Appeals relied upon the lawyer's ethical obligations to carve out a rare exception to New York's firmly entrenched employment-at-will doctrine. The plaintiff claimed that he was terminated because he reported another associate's ethical misconduct. The Court of Appeals concluded that there was a 'distinctive relationship' between an attorney and a law firm because the lawyer's duties as an associate of the firm and as an attorney are 'so closely linked as to be incapable of separation.' Id. at 635. Weider endorsed the plaintiff's argument that there was an implied understanding that was:

[S]o fundamental to the relationship and essential to its purpose as to require no expression: that both the associate and the firm in conducting the practice will do so in accordance with the ethical standards of the profession. Erecting or countenancing disincentives to compliance with the applicable rules of professional conduct ' would subvert the central professional purpose of his relationship with the firm ' the lawful and ethical practice of law.

Id. at 63-36.

The Court of Appeals emphasized that the legislature delegated responsibility to the Appellate Division Departments to maintain ethics and competence standards. Id. at 636. The Code of Professional Responsibility codifies those standards of ethics and competence. Id. Just as there is an implied contract that a law firm will not terminate an associate for complying with that Code, there is an implied contract that a law firm will not terminate an attorney ' whether a partner or an associate ' for reasons that would violate the Code of Professional Responsibility. Id.

Conclusion

Although the majority of large law firms may endorse mandatory retirement age policies, the legality of such policies is far from certain. Furthermore, the support mandatory retirement policies enjoy in large firms does not necessarily resonate throughout the profession. The 'baby boom' generation of lawyers has started to question whether law firms should have the right to force their lawyers to either retire or be removed from equity partner status at a certain age. Over the next few years, those lawyers, generally, and employment law practitioners, specifically, will be grappling with the legal issues raised when some of those baby boomers, when told 'it's time,' respond, 'I don't think so.'