August 31, 2017 / 7:23 PM / a year ago

Law firm sex-bias cases will turn on key question: Can partners be employees?

(Reuters) - Briefing wrapped up this week on Proskauer’s motion to end a sex bias suit by an anonymous partner in its Washington, D.C., office. According to Proskauer’s motion for summary judgment, the woman simply can’t sue the firm under federal and state anti-discrimination laws because those laws protect employees and she’s not one. She’s an equity partner. She signed a partnership agreement when she joined the firm, she can attend partner meetings and vote on firm business, she controls her own practice and she shares in the firm’s profits every year. In every regard, Proskauer argues, she is a business owner, not an employee, under the U.S. Supreme Court’s multipart test in 2003’s Clackamas v. Wells.

The woman, who is represented by Sanford Heisler Sharp, tells a different story in her brief opposing summary judgment. According to her, Proskauer’s rank-and-file partners have effectively no control over the firm. All important decisions about hiring, firing, governance and compensation are delegated to Proskauer’s seven-member executive committee, which she depicts as the power center of the firm.

Like an employee, she argued, she is subject to the decisions of the committee, with little recourse. She depicted the inquiry not as a point-by-point analysis of the so-called Clackamas factors, but as a holistic examination: “Ultimately, the overarching question is whether Proskauer exercised sufficient dominion over (the) plaintiff’s employment to be in a position to discriminate and retaliate against her.”

The Proskauer case - along with similar gender discrimination litigation against Chadbourne & Parke, in which defense lawyers from Proskauer have asserted the same argument that partners can’t use laws designed to protect employees – raises really tough questions about the nature of law firm partnership in the era of megafirms. Proskauer, for instance, has about 730 lawyers, of whom 280 are equity partners. The place could not run without some sort of centralized management. In modern law firms, most partners have no choice but to delegate a lot of their power. When, if ever, do partners in large firms with concentrated management committees lose the control of an owner and become employees?

There’s not a lot of precedent on that point. (There’s more if you look at other kinds of professional firms, like accounting firms and medical practices.) In 2002, when the Equal Employment Opportunity Commission was investigating allegations of age discrimination at Sidley Austin, the 7th U.S. Circuit Court of Appeals held that demoted equity partners could be considered employees because “all power resides in a small, unelected committee.” (I should point out that unlike the self-perpetuating committee in the Sidley case, Proskauer’s executive committee is elected by the partnership as a whole.) A federal district judge in Detroit ruled in 2005 that the mere fact of equity partnership did not mean a woman suing Honigman Miller Schwartz & Cohn for sex discrimination was precluded as an employer. (The judge didn’t find her to be an employee either, though; the case ended up being sent to arbitration.)

But in decisions in 2009 and 2011, courts rejected partners’ arguments that because their firms are run by management committees, they are effectively employees. The 2009 ruling, from a federal district judge in Pittsburgh, granted summary judgment to the firm Dickie McCamey & Chilcote in a suit by a female equity partner alleging sex discrimination. Her delegation of power to the firm’s executive committee, he held, does not make her and the other partners at her level employees. “At most,” the judge wrote, “this reflects the economic and political realities of the practice of law and divisions of labor at a large law firm.” Similarly, a New York State Supreme Court justice ruled in 2011’s Weir v. Holland & Knight that a partner suing Holland & Knight for age discrimination was not an employee under the Clackamas test.

Most recently, in the Chadbourne sex discrimination case in federal court in Manhattan, U.S. District Judge Paul Oetken denied summary judgment to the firm, not based on the merits of its argument that equity partners are not employees but because he said the facts hadn’t yet been developed.

Will U.S. District Judge Amy Jackson of Washington, D.C., do the same thing in the Proskauer case? As in the Chadbourne litigation, Proskauer moved for summary judgment based on documents, like its partnership agreement, and a declaration by the firm’s chairman. Stanford Heisler, which represents the Chadbourne plaintiffs as well as the plaintiff in the Proskauer case, argued that discovery will show the extent to which the Proskauer executive committee in fact controls the firm. Proskauer insisted in this week’s reply brief that there’s no need for additional discovery because “the undisputed facts show … Jane Doe is an equity partner of Proskauer with all of the rights and privileges of a business owner.

“At its core, (Doe’s) argument is that for a law firm to have owners it must be run by a committee of the whole, its profits must be shared in accordance with a pre-determined formula and its partners must operate as autonomous, independent contractors who simply share space and divide expenses,” the latest Proskauer brief said. “That is not a formulation required by Clackamas; nor is it the partnership plaintiff signed onto when she joined Proskauer.”

As I said earlier, the two sides in this case agree on the importance of the threshold question of whether equity partners can be employees, even if they don’t agree on anything else. My guess is that Judge Jackson, like Judge Oetken in Chadbourne, will be leery of answering the question without a better-developed record.

The views expressed in this article are not those of Reuters News.

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