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April 11, 2012 7:47 PM

Kelley Drye Settlement with EEOC Provides a Cautionary Tale for Firms

Posted by Sara Randazzo

The settlement this week of litigation between the Equal Employment Opportunity Commission and Kelley Drye & Warren over a policy forcing partners to wind down their practice and give up equity status at age 70 has resulted in a sizable payday for the main partner involved, but it doesn't resolve a question that continues to plague the legal industry: Is a law firm partner considered an employee, and thusly protected by discrimination laws, or is he or she considered an owner?

The case that reignited the debate is a compensation dispute between New York-based Kelly Drye and one of its partners. Eugene D'Ablemont, a labor and employment partner, had been fighting with the firm for the better part of a decade over how much compensation he was due for work completed after he was forced to become a "life partner" at age 70 and move from an equity stake to a fixed salary.

He brought his complaints to the EEOC, which initiated a suit against Kelley Drye in January 2010.

Even though Kelley Drye changed its retirement policy within two months of the suit being filed, moving toward a system where partners over 70 could continue to have equity in the firm and get merit-based compensation, the litigation continued to move forward. It concluded Tuesday with a nine-page consent decree (PDF) filed in Manhattan federal court, requiring the firm to pay D'Ablemont $574,000 for work he completed from 2001 to 2011.

Under the agreement, D'Ablemont, who decided not to regain equity status when given the choice, will also receive 12 percent of the fees he collects from here on out. In a written statement, Kelley Drye managing partner James Kirk said that, given the firm changed its policy years ago, they were surprised the EEOC kept up the litigation for so long. He added that: "The Firm has not discriminated or done anything wrong, and the amounts of the monetary settlement payments that cover more than a decade from 2001 through 2011 are consistent with our belief."

The lack of a concrete court decision doesn't resolve the larger issue about whether or not a partner is an employee or an owner. What it does, however, is to put law firms on alert about their retirement policies.

"The law firm world should not look at this as a Kelley Drye case," says Robert Hillman, a professor at University of California Davis School of Law who studies partnership law. "It's a law firm case."

Jeffrey Burstein, a senior trial lawyer with the EEOC's New York office who handled the case, backed up that sentiment. "We certainly hope this sends a message that EEOC is looking at this issue and is concerned about mandatory retirement policies," he says. Without divulging any details, Burstein said the agency would certainly consider bringing cases against other law firms, with or without a complaint from a partner being filed first.

"I can't talk about any particular plans EEOC has, but we brought this case for a reason," Burstein says. "We're interested and concerned about the issue."

While there's currently no way of knowing exactly how many firms have mandatory retirement policies, consultants say that the majority of Am Law 200 firms have some kind of policy in place to encourage aging partners to pass off clients and accept lower compensation. For septuagenarian and octogenarian partners who continue to be active or hold key client relationships, consultants say firm management often waives such rules to prevent those partners from leaving for competitors that have laxer policies.

Even so, the involvement of the EEOC in this case, as well as a 2007 case the EEOC brought against Sidley Austin on behalf of 32 deequitized partners (which resulted in a $27.5 million settlement), has caused some firms to look closely at their partnership agreements.

"The settlement is indeterminate by its terms, so no one can point to it and say: 'Change the rules,' but it does show the EEOC is persistent in claiming [discrimination] laws apply to law firms," says Jonathan Hughes, an attorney liability partner with Arnold & Porter in San Francisco. "It continues to be an area where there's uncertainty."

The uncertainty exists because discrimination laws such as those falling under Title VII of the Civil Rights Act only apply to employees and not to employers. Traditionally, law firm partners were considered employers because of their role as owners of the business. But as law firms have expanded to include hundreds of partners, many lower-ranked partners have little-to-no say in management decisions or even about their own fate within the firm.

"People are becoming increasingly aware that the label 'partner' does not end the inquiry in terms of whether antidiscrimination laws protect you," says Hillman, adding that the issue also isn't limited to retirement policies. The ability to sue a firm over alleged gender discrimination or sexual harassment, for instance, also hinges on what makes someone a partner versus an employee.

For D'Ablemont's part, he says he's "perfectly satisfied" with the settlement and glad the firm has changed its policy.

"I wasn't looking to blaze a trail for anyone else," says D'Ablemont, now 81, who continues to work at the firm five days a week and also runs five to six miles each night. "But I just thought the system we had here was wrong and was bad business."

D'Ablemont continues: "Everybody was hoping this case . . . would be some bright light, so to speak," on when partners can be considered employees. "That was not resolved, but I think the settlement is husky enough to at least create doubts in executive management of other firms to say, 'We don't want to have to litigate this, let's come to an accommodation that reflects what is right and just and fair.' "

For the time being, the best legal standard comes from a six-part test established in a 2003 U.S. Supreme Court case, Clackamas Gastroenterology Associates v. Wells, that was first used to determine whether a shareholder in a professional corporation can be considered an employee under the Americans with Disabilities Act. The decision has since been applied by courts outside of the context of the ADA.

Clackamas came into play in a New York state court case brought against Holland & Knight by a partner claiming the firm let him go because of his age and because it didn't want to pay the retirement benefits he says he was entitled to under its ERISA plan. In dismissing the complaint in December, a judge ruled that the partner did not pass the Clackamas test and did not count as an employee.

 

Time will tell which—and how many—law firms' policies will be challenged by the EEOC. But for now, "I'm glad it's over," D'Ablemont says. "I'm sure everybody is glad it's over."

Related Stories:

Kelley Drye Settles EEOC Age Discrimination Suit Involving Firm Partner, 4/10/12

Trove of Unsealed Court Documents Capture Kelley Drye Partner’s Push to Get Paid After Age 70, 4/3/12

Settlement Talks Officially on Between EEOC and Kelley Drye & Warren in Age Bias Case, 3/7/12

Is Resolution at Hand in EEOC Bias Suit Against Kelley Drye? 2/1/12

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