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Law Firm Case Analysis

By: dmc-admin//February 23, 2005//

Law Firm Case Analysis

By: dmc-admin//February 23, 2005//

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As a case involving whether a partner in a law firm is an employer or employee, the decision has important ramifications beyond employment law.

It is noteworthy that, although the court purports to apply the six-factor test of Clackamas Gastroenterology Assocs. v. Wells, 538 U.S. 440 (2003), the court makes no explicit reference to any of the factors in determining that Solon was an employer, rather than an employee. Instead, the court merely enumerates facts in reaching a common sense conclusion that Solon was an employer.

Subsequent cases are likely to follow the same pattern, for three of the six factors will invariably weigh either one way or the other in the law firm context, whether the firm is organized as a professional corporation or a partnership, and are thus of little relevance.

For example, "whether the individual shares in the profits, losses, and liabilities of the organization" will always weigh in favor of finding the law partner an employer, whether it is a firm with only four general partners, as in the case at bar, or Sidley Austin Brown & Wood, the firm at issue the last time the Seventh Circuit considered the issue. EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696 (7th Cir. 2002).

Sidley Austin had over 500 law partners, but management rested with a 36-member "self-perpetuating executive committee." While all partners had authority over subordinates, the executive committee had all authority over firings, promotions, demotions, and pay of the partners. In Sidley Austin, the court was not called on to determine whether 32 partners demoted to senior counsel status were employers or employees, but only whether the firm was required to comply with an EEOC subpoena.

It would be prudent to consider Sidley Austin as an example of a firm in which partners are employees, rather than employers. If not, then all law firm partners are employers as a matter of law, and there is no need to use the six-factor test at all.

Likewise, "whether the parties intended that the individual be an employee, as expressed in written agreements or contracts," should always weigh in favor of a finding that a law partner is an employer. Presumably, all law firm partnership agreements intend that the partners be employers, rather than employees, regardless of whether the partner has any say in management.

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7th Circuit Court of Appeals

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The first Clackamas factor will always weigh the opposite way — in favor of finding the partner is an employee: "whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work." Every partnership will have procedures for forcing out an unwanted partner.

Nevertheless, the court in the case at bar suggests that this factor weighs in favor of finding Solon an employer, stating, "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." The court also noted that new partners can only be added with unanimous approval of existing partners.

Had the court considered these facts in relation to the first enumerated factor, rather than lumping it into a laundry list of factors that weigh in favor of employer status, it would have had to conclude that this factor weighs in favor of employee status, and that it will always weigh in favor of employee status.

Thus, the six-factor test can effectively be narrowed to three in the law firm context: whether and, if so, to what extent the organization supervises the individual’s work; whether the individual reports to someone higher in the organization; whether and, if so, to what extent the individual is able to influence the organization. As such, it would be wise to draft partnership agreements with special attention to these three factors.

– David Ziemer

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David Ziemer can be reached by email.

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