Law Firm Layoffs Trigger Need for Preventive Steps

Although they may generate tens or hundreds of millions of dollars in revenue and have thousands of employees, law firms often view themselves more as families than businesses. The human resources function in a law firm may be relatively weak as compared with that of a major corporation. Lawyers may not, therefore, be subject to the oversight of an effective personnel department, except, perhaps, to process benefits.

Thus, issues like discipline, performance appraisals, salary increases or adjustments, and bonus awards are often handled by or on the recommendation of senior lawyers or partners, over whom there may be little oversight or supervision. In addition, there may be no formal system of criteria for promotion or for evaluating job performance based on legitimate business criteria.

Attorney-Client Privilege

Perhaps most troubling, lawyers may presume ' incorrectly ' that the attorney-client privilege protects the confidentiality of their internal deliberations. Lawyers tend to expect that any conversation they have, or e-mail they exchange, within the hallowed walls of their law firm is privileged.

However, an internal communication ' a conversation, e-mail, or memo ' distributed among attorneys at a law firm, discussing the termination of associates, staff, or even partners, will not be privileged unless it fits squarely within the definition of the attorney-client privilege: a client seeking legal advice from an attorney who is acting as an attorney responding to that request, and where the privilege has not been waived.

In this context, the communication is likely, instead, to be considered a non-privileged business discussion, unless the lawyer rendering legal advice is actually functioning as counsel to the firm, and the attorney requesting advice is doing so in that context. Consequently, in the absence of the attorney-client privilege, all conversations regarding an employment decision can be discovered. Thus, an associate who brings a lawsuit challenging her termination in a work-force reduction, or alleging that she was a victim of sexual harassment or sex discrimination can and will request access to all documents ' e-mails, voice messages, memos, performance appraisals, and any other evidence concerning her employment. Even stray remarks and e-mails made between partners regarding their colleagues are potentially discoverable.

Two other issues, perhaps uniquely problematic for law firms: 1) Partners are strong-willed and are used to having their way. A weak human resources function may well have difficulty challenging a partner's employment-related decisions or inappropriate conduct. 2) Associates may have special protection as whistleblowers if they are terminated in retaliation for complaining about ethical breaches, even in “employment at will” states.

Steps to Avoid Claims

The law firm is a business. Law firms must remember that. They should enact procedures to assure that their employment practices are fair and nondiscriminatory ' from the interview and hiring process, to evaluating job performance, to making termination or work-force reduction decisions.

Work-force Reductions

Any firm carrying out a large-scale work-force reduction should consider retaining an employment law specialist. If the firm uses internal specialists, they should be formally designated as counsel to the firm in the matter to help preserve the attorney-client privilege. An even better solution may be to engage outside counsel to work with the firm's managing partner and head of human resources, or an internal committee established to carry out the reduction. Deciding who will be discharged in a work-force reduction deserves special attention. The firm needs to identify the legitimate business criteria it will follow in making these decisions, and these decisions must be carried out in a non-discriminatory manner.

Of course, the firm needs to assure that associates are not terminated for improper reasons, e.g., their gender, status as mothers or caregivers, other criteria protected by the non-discrimination laws, or for complaining about alleged unethical conduct.

An oversight committee, working with counsel, should have authority to review each termination decision to assure that the decision was based only on appropriate business factors. Consideration should be given, under the guidance of counsel (again, to help preserve confidentiality), to engaging an experienced expert statistician to conduct appropriate analyses, to assure that the contemplated terminations do not have an adverse effect on minority employees.

Law firms also need to be mindful of the federal and state WARN Acts. For example, generally under the New York Act, when employers with 50 or more employees lay off at least 25 employees, they are required to provide advance notice to employees and their representatives (if any), as well as the New York State Department of Labor and other government entities. The federal WARN Act requires 60 days' notice of a “mass layoff,” and applies to employers with 100 or more employees that are discharging at least 50 employees if they make up at least 33% of the employer's active work force.

Any employment agreements, as well as offer letters, should be reviewed to assure that the firm is honoring existing contractual obligations. The firm's personnel policy manual should also be reviewed to determine whether it imposes pre-existing obligations, whether relating to payment of severance or other termination-related procedures. These policies can be amended prior to the work-force reduction if they do not adequately take account of current business conditions.

The firm should also give consideration to providing special severance benefits, and drafting an ERISA-compliant severance plan, not only to assure compliance with the law, but also to give the firm the added protections that the Employee Retirement Income Security Act (ERISA) affords employers who administer such programs. No associate or other employee should receive a severance payment unless the individual signs a release of any claims against the firm, and, to be effective, these releases need to be carefully reviewed for compliance with various employment laws, most notably the Older Worker's Benefit Protection Act, which contains numerous specific requirements in drafting a release of federal age discrimination claims in the context of a group termination.

Non-discrimination Policies

Law firms must enact policies prohibiting discrimination and sexual harassment. Lawyers must be put on notice that discrimination and harassment are against firm policy and will not be tolerated.

Investigative Procedures

All employees must be informed, via an effective internal complaint procedure, that they have an obligation to report offending, discriminatory or harassing behavior. In the event of a complaint, the law firm must investigate, keep careful, written records, and follow up on the investigation. Doing so may help avoid liability, even where harassment has occurred.

Arbitration or Mediation of Disputes

Firms should consider implementing alternative dispute resolution policies which, first, require their attorneys to seek to resolve, through mediation or another non-contentious device, claims of discrimination or sexual harassment before they turn into a lawsuit. Some firms may prefer mandatory arbitration of disputes, which may be less likely to result in adverse publicity. These agreements, if drafted with care, are generally permissible under the law. As a general rule, arbitrators may be less likely than jurors to award substantial damages.

Formal Evaluation Processes

Evaluations should be detailed and based on objective as well as subjective factors. Partners should not write anything about an associate that they would not be willing to share with the associate or, for that matter, a jury.

Training

Attorneys who interview candidates should be trained on appropriate comments to make during the interview process. They must learn that it is inappropriate, even in jest, to make comments reflecting discriminatory bias. Firms should also conduct training on discrimination and harassment laws generally in order to sensitize attorneys and avoid these claims.

Partnership Decisions

Firms should use a standardized review process in reaching partnership decisions. Decisions must be transparent: formal documentation setting forth all standards considered (objective and subjective) should support each decision.

Conclusion

Law firms are composed of strong-willed, aggressive individuals who are used to giving advice rather than taking it. Associate attorneys are not shy about asserting their rights. After all, we hire them in part based on their tenacity as well as intelligence. We should not be surprised if they are formidable opponents in court.

Particularly in these difficult economic times, as law firms are faced with the same economic problems that confront their clients, their personnel practices must be fair, and they must respect the rights of their associates and staff, while also protecting the firm.

Philip M. Berkowitz, a member of this newsletter's Board of Editors, is a partner at Nixon Peabody, where he chairs the international employment law practice team. This article first appeared in the New York Law Journal, an Incisive Media sister publication of this newsletter.

Over the past several months, law firms have discharged both lawyers and staff in unprecedented numbers. Although it may be too early to assess whether these layoffs will result in significant legal fallout, law firms may make particularly attractive targets for lawsuits. (See the article on page 5, infra, on Heller employees.) This is not only for the obvious reasons; law firms are also targets because partners may forget the obvious, namely, that firms are big businesses, subject to the same anti-discrimination and other employment laws as other large, multimillion dollar companies. They can be sued, and their internal processes and deliberations are subject to discovery, like any other employer.

Moreover, unlike corporations, law firms sometimes choose not to retain employment law specialists to assist them in carrying out a work-force reduction, believing that they can advise themselves effectively.

Law Firms As Businesses

Although they may generate tens or hundreds of millions of dollars in revenue and have thousands of employees, law firms often view themselves more as families than businesses. The human resources function in a law firm may be relatively weak as compared with that of a major corporation. Lawyers may not, therefore, be subject to the oversight of an effective personnel department, except, perhaps, to process benefits.

Thus, issues like discipline, performance appraisals, salary increases or adjustments, and bonus awards are often handled by or on the recommendation of senior lawyers or partners, over whom there may be little oversight or supervision. In addition, there may be no formal system of criteria for promotion or for evaluating job performance based on legitimate business criteria.

Attorney-Client Privilege

Perhaps most troubling, lawyers may presume ' incorrectly ' that the attorney-client privilege protects the confidentiality of their internal deliberations. Lawyers tend to expect that any conversation they have, or e-mail they exchange, within the hallowed walls of their law firm is privileged.

However, an internal communication ' a conversation, e-mail, or memo ' distributed among attorneys at a law firm, discussing the termination of associates, staff, or even partners, will not be privileged unless it fits squarely within the definition of the attorney-client privilege: a client seeking legal advice from an attorney who is acting as an attorney responding to that request, and where the privilege has not been waived.

In this context, the communication is likely, instead, to be considered a non-privileged business discussion, unless the lawyer rendering legal advice is actually functioning as counsel to the firm, and the attorney requesting advice is doing so in that context. Consequently, in the absence of the attorney-client privilege, all conversations regarding an employment decision can be discovered. Thus, an associate who brings a lawsuit challenging her termination in a work-force reduction, or alleging that she was a victim of sexual harassment or sex discrimination can and will request access to all documents ' e-mails, voice messages, memos, performance appraisals, and any other evidence concerning her employment. Even stray remarks and e-mails made between partners regarding their colleagues are potentially discoverable.

Two other issues, perhaps uniquely problematic for law firms: 1) Partners are strong-willed and are used to having their way. A weak human resources function may well have difficulty challenging a partner's employment-related decisions or inappropriate conduct. 2) Associates may have special protection as whistleblowers if they are terminated in retaliation for complaining about ethical breaches, even in “employment at will” states.

Steps to Avoid Claims

The law firm is a business. Law firms must remember that. They should enact procedures to assure that their employment practices are fair and nondiscriminatory ' from the interview and hiring process, to evaluating job performance, to making termination or work-force reduction decisions.

Work-force Reductions

Any firm carrying out a large-scale work-force reduction should consider retaining an employment law specialist. If the firm uses internal specialists, they should be formally designated as counsel to the firm in the matter to help preserve the attorney-client privilege. An even better solution may be to engage outside counsel to work with the firm's managing partner and head of human resources, or an internal committee established to carry out the reduction. Deciding who will be discharged in a work-force reduction deserves special attention. The firm needs to identify the legitimate business criteria it will follow in making these decisions, and these decisions must be carried out in a non-discriminatory manner.

Of course, the firm needs to assure that associates are not terminated for improper reasons, e.g., their gender, status as mothers or caregivers, other criteria protected by the non-discrimination laws, or for complaining about alleged unethical conduct.

An oversight committee, working with counsel, should have authority to review each termination decision to assure that the decision was based only on appropriate business factors. Consideration should be given, under the guidance of counsel (again, to help preserve confidentiality), to engaging an experienced expert statistician to conduct appropriate analyses, to assure that the contemplated terminations do not have an adverse effect on minority employees.

Law firms also need to be mindful of the federal and state WARN Acts. For example, generally under the New York Act, when employers with 50 or more employees lay off at least 25 employees, they are required to provide advance notice to employees and their representatives (if any), as well as the New York State Department of Labor and other government entities. The federal WARN Act requires 60 days' notice of a “mass layoff,” and applies to employers with 100 or more employees that are discharging at least 50 employees if they make up at least 33% of the employer's active work force.

Any employment agreements, as well as offer letters, should be reviewed to assure that the firm is honoring existing contractual obligations. The firm's personnel policy manual should also be reviewed to determine whether it imposes pre-existing obligations, whether relating to payment of severance or other termination-related procedures. These policies can be amended prior to the work-force reduction if they do not adequately take account of current business conditions.

The firm should also give consideration to providing special severance benefits, and drafting an ERISA-compliant severance plan, not only to assure compliance with the law, but also to give the firm the added protections that the Employee Retirement Income Security Act (ERISA) affords employers who administer such programs. No associate or other employee should receive a severance payment unless the individual signs a release of any claims against the firm, and, to be effective, these releases need to be carefully reviewed for compliance with various employment laws, most notably the Older Worker's Benefit Protection Act, which contains numerous specific requirements in drafting a release of federal age discrimination claims in the context of a group termination.

Non-discrimination Policies

Law firms must enact policies prohibiting discrimination and sexual harassment. Lawyers must be put on notice that discrimination and harassment are against firm policy and will not be tolerated.

Investigative Procedures

All employees must be informed, via an effective internal complaint procedure, that they have an obligation to report offending, discriminatory or harassing behavior. In the event of a complaint, the law firm must investigate, keep careful, written records, and follow up on the investigation. Doing so may help avoid liability, even where harassment has occurred.

Arbitration or Mediation of Disputes

Firms should consider implementing alternative dispute resolution policies which, first, require their attorneys to seek to resolve, through mediation or another non-contentious device, claims of discrimination or sexual harassment before they turn into a lawsuit. Some firms may prefer mandatory arbitration of disputes, which may be less likely to result in adverse publicity. These agreements, if drafted with care, are generally permissible under the law. As a general rule, arbitrators may be less likely than jurors to award substantial damages.

Formal Evaluation Processes

Evaluations should be detailed and based on objective as well as subjective factors. Partners should not write anything about an associate that they would not be willing to share with the associate or, for that matter, a jury.

Training

Attorneys who interview candidates should be trained on appropriate comments to make during the interview process. They must learn that it is inappropriate, even in jest, to make comments reflecting discriminatory bias. Firms should also conduct training on discrimination and harassment laws generally in order to sensitize attorneys and avoid these claims.

Partnership Decisions

Firms should use a standardized review process in reaching partnership decisions. Decisions must be transparent: formal documentation setting forth all standards considered (objective and subjective) should support each decision.

Conclusion

Law firms are composed of strong-willed, aggressive individuals who are used to giving advice rather than taking it. Associate attorneys are not shy about asserting their rights. After all, we hire them in part based on their tenacity as well as intelligence. We should not be surprised if they are formidable opponents in court.

Particularly in these difficult economic times, as law firms are faced with the same economic problems that confront their clients, their personnel practices must be fair, and they must respect the rights of their associates and staff, while also protecting the firm.

Philip M. Berkowitz, a member of this newsletter's Board of Editors, is a partner at Nixon Peabody, where he chairs the international employment law practice team. This article first appeared in the New York Law Journal, an Incisive Media sister publication of this newsletter.