Law firm partner not an employee

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The Seventh Circuit held on Feb. 15 that a partner in a law firm with only three other general partners is an employer, not an employee, under the civil rights laws.

In 1989, James D. Solon joined the law firm of Adler, Kaplan & Begy in Illinois, as a partner. The partnership agreement named Solon as one of eight general partners, and provided that each general partner would fund an equal share of the firm’s capital interest, be liable for an equal proportion of the firm’s debts, and have an equal voice in the management of the firm and the conduct of its business.

The allocation of income among the general partners, the need for additional capital contributions, and financial commitments in excess of $5,000 would be decided by a majority vote of the general partners, with each entitled to cast one vote. A two-thirds vote would be required for amendments to the partnership agreement, dissolution of the firm, or the involuntary termination of any general partner.

New general or special partners could be brought into the firm only by unanimous vote. Special partners would have no equity interest or voting rights, and could be terminated by a simple majority vote of the general partners.

In 1994, three general partners voluntarily left the firm, and Solon drafted a separation agreement specifying that he and four others would continue as general partners under the same terms. In 1996, another general partner departed, leaving Solon, Larry Kaplan, Fred Begy, and Robert von Ohlen as the remaining general partners.

A total of 21 lawyers, including the four general partners, special partners, and associates, worked at the firm.

Solon was the managing partner until January 1998, when he stepped down from that position, but he continued to direct some administrative matters, signing a revolving letter of credit with the bank, and looking for new office space when the firm’s lease expired.

In August 1998, Kaplan and von Ohlen approached Begy about their desire to terminate Solon’s interest as a general partner. Over lunch one afternoon, the three agreed to remove Solon as a general partner. In October, Begy advised Solon of the partners’ decision effective Dec. 31, 1998. Begy presented Solon the option of working as an administrator or an independent contractor, but Solon rejected these alternatives and left the firm in January 1999.

Solon then brought suit in federal court, contending that he was ousted because he had spoken out against von Ohlen’s alleged sexual harassment of two of the firm’s secretaries, and the ouster therefore constituted retaliation under Title VII of the Civil Rights Act of 1964. Solon also claimed age discrimination.

The district court granted summary judgment in favor of the firm, concluding that Solon was not an employee. Solon appealed, but the Seventh Circuit affirmed, in a decision by Judge Joel L. Flaum.

The U.S. Supreme Court recently addressed whether shareholder-directors of a professional corporation counted as "employees" under the Americans with Disabilities Act of 1990, in Clackamas Gastroenterology Assocs. v. Wells, 538 U.S. 440 (2003).

Because the definition of "employee" is circular — "an individual employed by an employer" — the court adopted a test that looks to six non-exhaustive factors to determine whether an individual is an employee: (1) whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work; (2) whether and, if so, to what extent the organization supervises the individual’s work; (3) whether the individual reports to someone higher 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 in the profits, losses, and liabilities of the organization. Clackamas, at 449-50.

Because the ADA and Title VII define "employee" in nearly identical language, and the Supreme Court in Clackamas stated its analysis was not confined to the ADA, the court applied the six-part test to the Title VII claim.

Applying those factors, the court concluded, "no reasonable juror could find that Solon was an employee of the firm. By 1998, Solon was one of only four general partners. The partnership agreement allowed for his involuntary termination only by a two-thirds vote of the general partners, meaning that the other three had to agree unanimously to remove him. Holding one quarter of the voting power, Solon also exercised substantial control over how to allocate the firm’s profits, and whether to require additional capital contributions, make financial commitments, amend the partnership agreement, and dissolve the firm. Because special or general partners could be added to the firm only by a unanimous vote of the existing general partners, Solon possessed a unilateral veto power over new admissions. In addition to his voting rights, Solon held an equity interest in the firm, shared in its profits, attended partnership meetings, and had access to private financial information. Each of these benefits distinguished him from the firm’s special partners and associates. Solon’s broad authority as trustee of the firm’s 401(k) account and as its managing partner also supports the conclusion that he was an employer. And though he stepped down as managing partner a few months before being voted out of the firm, he continued to handle the firm’s banking needs and landlord/ tenant issues."

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Solon argued that he had no control over the firm because he was supervised closely by the other partners, who made all of the key decisions about how to staff cases, bring in new business, and steer the firm without consulting him.

Rejecting the argument, the court found, "The record does not support this contention. Solon had substantial control over the firm; control that he exercised in fact as managing partner, and control that he had the right to exert by virtue of the partnership agreement. Plaintiff’s assertion that he consulted with his fellow partners before making major decisions may demonstrate that he was passive, but it does not show that he was powerless. Nor does his contention that he was outvoted undermine the conclusion that he was an employer."

Accordingly, the court affirmed.

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David Ziemer can be reached by email.