A new case in California explores the ongoing legal debate about whether law firm partners should be considered “employees” versus “employers.”
Why does this matter? In the California case, it is the key distinction that dictates whether the law firm partner must forego a discrimination lawsuit in court and instead arbitrate her legal claims, which means her dispute will be heard by a private, neutral third-party (the arbitrator).
And on a related issue, if a law firm partner is considered an employer, then they will not be covered by Title VII of the 1964 Civil Rights Act‘s (and most other federal and state laws’) anti-discrimination provisions. If, on the other hand, the partner is deemed an employee, then they will enjoy these protections against discrimination.
Background of the case
The case in California state court involves Constance Ramos, who had been an “income partner” (that is, not an equity/capital partner) at the law firm Winston & Strawn, LLP. In August 2017, Ramos filed a lawsuit in San Francisco Superior Court alleging sex discrimination and unequal pay, among other things.
Soon after, Winston & Strawn filed a motion to compel arbitration based on an arbitration clause found in the law firm’s partnership agreement.
The law firm argued that because Ramos is a partner and not an employee of the firm, the arbitration provision applied to her and she cannot file a lawsuit in court; instead, she must submit her complaint to private arbitration.
Ramos responded that, as an income partner, she did not “have any right or ability to assert any sort of control over the operation of the firm,” and thus should be considered an employee. If Ramos is deemed an employee, then the arbitration provision may only be enforced if its terms complied with California’s minimum public policy protections and was not unconscionable.
The Superior Court judge found that Ramos and Winston & Strawn were in a “partnership relationship” and thus required Ramos to arbitrate her claims (although the judge modified certain elements of how the arbitration would proceed).
Ramos then filed a petition for a writ of mandate with the California Court of Appeal. The writ of mandate is a sparingly-used type of appeal that essentially requests immediate review of a trial court’s decision and seeks an order from the appellate court requiring the trial court to set aside its order compelling arbitration.
According to Ramos’ petition for a writ of mandate: “This case presents an issue of first impression for California appellate courts: When should a nominal “partner” in a business be considered to be an “employee” protected by California’s workplace protections against sex discrimination, retaliation, and sex-based differential pay practices?”
Who’s in control?
Ramos’ case involves the same legal analysis as other lawsuits trying to figure out whether an executive or law firm partner is better characterized as an employer or an employee.
In Clackamas Gastroenterology Associates v. Wells, 123 S.Ct. 1673 (2003), the Supreme Court outlined the main test courts use to decide whether a person is an “employee” covered by federal anti-discrimination laws, such as Title VII, the American with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA).
The key factor is how much, or little, control the individual has over their work, compensation, and workplace decisions.
Clackamas involved an ADA case but courts apply the test to Title VII and other federal anti-discrimination statutes. The Supreme Court looked to the Equal Employment Opportunity Commission’s (EEOC) guidelines and settled on a six-factor test to assess if a person holding a high-level position should be considered an “employee” including whether:
- the company can hire or fire the individual or set the rules and regulations of their work;
- the extent to which the company supervises the individual’s work;
- the individual reports to someone higher in the company;
- the extent to which the individual is able to influence the company;
- the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
- the individual shares in profits, losses, and liability of the company
Clackamas, 123 S.Ct. at 1680. None of these factors is decisive; instead, they should be viewed as a whole. Id.at 1681.
What’s in a name?
The Supreme Court and other federal courts do not allow the job title to control whether an executive should be considered an “employee.”
The mere fact that a person has a particular title–such as partner, director, or vice president–should not necessarily be used to determine whether he or she is an employee or [an employer].
Id. at 1680 (alteration added). So even if your title sounds like you are the boss rather than the employee, you will still have an opportunity to prove to the court that, based on the totality of the Clackamas factors listed above, you are actually an employee who should be covered by Title VII’s protections.
The Clackamas control factors applied
An increasing number of law firms find themselves the defendant in employment discrimination lawsuits filed by partners in the firm. One of the relatively few law firm partner cases (post-Clackamas) to address this “employer” versus “employee” issue after discovery at the summary judgment stage is Kirleis v. Dickie, McCamey & Chilcote, P.C., 2009 WL 3602008, (W.D. Pa. Oct. 28, 2009), aff’d Kirleis v. Dickie, McCamey & Chilcote, P.C., 2010 WL 2780927 (3rd Cir. Jul. 15, 2010).
In Kirleis, the plaintiff was an equity shareholder/director at her law firm and the court found that Kirleis was an “employer” instead of an “employee.” Kirleis thus was not entitled to the anti-discrimination protections of Title VII and related laws.
Applying the Clackamas control test, the court found the following factors to be significant:
- as an equity Class A shareholder/director, plaintiff had equal authority to hire new shareholders and terminate other shareholders;
- the court noted that this factor “weighs heavily in defendant’s favor . . . that plaintiff is, in fact, an ’employer’” Kirleis, 2009 WL 3602008, at *18 (emphasis in original);
- plaintiff had access to “a great deal of financial information about the firm” that employees of most corporations, or non-equity partners at law firms “would rarely be permitted to see”;
- plaintiff “maintained almost complete autonomy” in cases she originated, was free to turn down work, and generally set her own hours and work schedule;
- just because “one or a few attorneys have much greater power and influence within a law firm” does not transform the other attorneys in the firm (whether non-equity or equity partners) into “employees”;
- plaintiff’s compensation reflects the firm’s profits, which is “a prime indicator of ownership under Clackamas“; and
- liability of the firm will be borne by plaintiff and the other equity Class A shareholders/directors of the firm
For matters related to compensation and decision-making, plaintiff and other Class A shareholders/directors had far more control and influence than other employees, associates, and even Class B shareholders.
The court further noted that:
the indicia of control and ownership in traditional large firm partnerships tilts toward recognizing equity partners as employers and not employees, although all [Clackamas] factors must be considered.
Kirleis, 2009 WL 3602008, at *27. Accordingly, because Kirleis was an “employer” she could not take shelter under Title VII’s protections and the court granted summary judgment in favor of the law firm.
In another law firm case, the EEOC settled a high-profile age discrimination lawsuit against Sidley Austin on behalf of 32 former partners. The 2007 settlement included $27.5 million in damages and as part of the consent decree the law firm agreed that the partners were “employees within the meaning of the ADEA.”
More recently, a federal court in New York ruled in Campbell, et al. v. Chadbourne & Parke, LLP that the parties must conduct discovery before it can decide whether the plaintiff, who was an equity partner in her law firm, should be considered an “employee” under Title VII.
Takeaways
Analyzing whether an executive or law firm partner should be deemed an “employer” or “employee” under Title VII is fact-specific and will vary from case to case. Some of the non-exhaustive factors to consider in assessing whether an executive or law firm partner will be protected by Title VII and similar anti-discrimination laws are:
- are you part of a very large firm/company, or a smaller one in which you may have relatively more control over your work and compensation;
- are you an equity partner and/or on the Board of Directors (Kirleis and Bluestein v. Central Wisconsin Anesthesiology, 679 F.3d 944, 953 (7th Cir. 2016));
- do you have equal authority to hire and fire other executives/shareholders;
- do you share in the profits of the firm/company and are you personally liable for its debts (Kirleis);
- do you have a supervisor or someone in a higher position who controls your workflow and oversees your work; and
- did you sign a partnership agreement and do you receive a K1 tax form rather than a W2 form (Bowers v. Ophthalmology Group, LLP, 648 Fed.Appx. 573, 579-80 (6th Cir. 2016))
Hiring an experienced employment discrimination lawyer
Hiring a proven and effective advocate is critical to obtaining the maximum recovery in an employment discrimination case. Eric Bachman, Chair of the Firm’s Discrimination Practice, has substantial experience litigating precedent-setting individual and class action discrimination cases. His wins include a $100 million settlement in a disparate impact Title VII class action and a $16 million class action settlement against a major grocery chain. Having served as Special Litigation Counsel in the Civil Rights Division of the Department of Justice and as lead or co-counsel in numerous jury trials, Bachman is trial-tested and ready to fight for you to obtain the relief that you deserve.
Bachman writes frequently on topics related to promotion discrimination, harassment, and other employment discrimination issues at the Glass Ceiling Discrimination Blog, which the ABA Journal recently named a top legal blog.
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