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Labor Logic

Prosser

John D. Finerty, Jr.

Many law firms have more than one category of “partner.” Partners at the top of the law firm hierarchy, that have the right to control the firm, are “employers” within the meaning of federal discrimination law. When 32 partners at Sidley & Austin were demoted, and thus lost the right to control the firm, they claimed age discrimination.

The U.S. Equal Employment Opportunity Commis-sion took over their case. The latest opinion from the U.S. Court of Appeals for the Seventh Circuit is another chapter in the story that has resolved some open age discrimination issues as it wound its way through the court system.

Background

Sidley Austin Brown & Wood LLP is a Chicago, Illinois-based law firm that today has over 1,600 lawyers with six offices in the United States and additional offices in Europe and the Far East. Prior to its merger with Brown & Wood in 2001, Sidley & Austin had approximately 900 attorneys and 500 partners. In 1999, Sidley & Austin demoted 32 of its equity partners to “counsel” or “senior counsel.” The 32 demoted partners claimed age discrimination and the U.S. Equal Employment Opportunity Commission opened an investigation.

As part of the investigation, the EEOC issued a subpoena duces tecum. The firm challenged the subpoena, but in EEOC v. Sidley Austin Brown & Wood, Case No. 02-1605 (7th Cir. Oct. 24, 2002), the Seventh Circuit held the EEOC was entitled to partnership documents requested in the subpoena on a broad array of topics that impacted ADEA coverage. The court then remanded the case to the district court for a determination as to whether the 32 former equity partners were now “employees” or “employers” under the ADEA.

After remand, the U.S. Supreme Court in Clackamas Gastroenterology v. Wells, 538 U.S. 440 (2003), held that the most important factor in deciding whether a worker is an employee or an independent contractor was the employer’s right to control the individual’s work. That case affirmed the Seventh Circuit standard that became known as the “right to control” or the “economic realities” test. See EEOC v. Dowd & Dowd Ltd., 736 F.2d 1177 (7th Cir. 1984)(holding that a professional corporation could be treated as a partnership). The implication of Clackamas was that the 32 demoted partners were no longer “employers” and could bring age discrimination claims.

The Next Step

The EEOC filed suit against Sidley & Austin for age discrimination. Sidley & Austin moved for partial summary judgment, claiming that some of the 32 complainants had not exhausted their administrative remedies before the Commission by filing timely discrimination charges. The district judge recommended an interlocutory appeal, which the Seventh Circuit granted.

The issue to be decided was whether the district judge was correct to rule that the EEOC may obtain monetary relief on behalf of individuals who, having failed to file timely administrative charges under the ADEA, were barred from bringing their own suits. In other words, may the EEOC proceed with a discrimination suit when the individual complainants would be time-barred? The Seventh Circuit answered yes.

The court noted that EEOC v. Waffle House, Inc., 534 U.S. 279 (2002), held that the EEOC’s claim for monetary relief under the Americans With Disabilities Act was not barred because the victim had agreed to arbitrate disputes arising out of his employment. In that case, the court reasoned that the Commission did not derive its power from the complainant’s legal rights; rather, the Commission has independent statutory rights. Applied to the Sidley & Austin case, the Commission was not bound by the ex-partners’ failure to exhaust their remedies; the Commission had no duty to exhaust.

Sidley & Austin’s Response

The firm took the position that language in Waffle House supported the rule that the government could not obtain monetary relief on behalf of individuals in excess of amounts the individuals have already received. That is, courts should preclude double recovery by an individual; Sidley argued this really meant that the government could not recover when an individual would be barred from any monetary relief. The Seventh Circuit rejected that argument.

The court noted that if some ex-partners had settled their claims, and received monetary relief, the EEOC might be precluded from obtaining monetary relief on their behalf. The EEOC was not, however, barred from bringing suit in the first instance because the individuals failed to exhaust administrative remedies. That was a distinction Waffle House rejected.

For more information on in this case, or assistance defending an age discrimination in federal court, contact John D. Finerty, Jr. at Michael Best & Friedrich LLP at (414) 225-8269 or on the Internet at jdfinerty@michaelbest.com.

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