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Rethinking Mandatory Retirement

By Megan Kinneyn | Nov. 2, 2007

News

Law Office Management

Nov. 2, 2007

Rethinking Mandatory Retirement

Surveys have found that roughly half of all large law firms have mandatory retirement policies. Now, a consent decree in an age-bias case calls into question the legality of such policies. By Barbara Kate Repa


     
In September 1999, just days before attorney David Alan Richards turned 55, two members of his firm's management committee summoned him to a meeting and delivered an ultimatum: Take a pay cut, or get out.
      "They called in 29 or 30 of us individually and explained that investment bankers and English law partners retire early?and in effect we were asked to do so too," says Richards, who was then a partner in the New York office of Sidley & Austin. "The characterization was that this was the modern trend."
      Richards says the nonnegotiable deal Sidley offered him would have changed his status from an equity partner to a contract partner and reduced his draw by 10 percent, renewable solely at the firm's discretion.
      "I was chair of the real property section of the ABA, and named as top lawyer by a few organizations. The notion that I needed a drool cup didn't seem right," he says. "And it seemed outrageous that the chair of the firm should throw out the others who were older and more experienced. It was ugly."
      Richards left Sidley one year later. He is one of the class members in a lawsuit brought in 2005 by the Equal Employment Opportunity Commission charging the firm with age discrimination. "I was fortunate. I had plenty of business, and I got a partnership with another established law firm," says Richards, who now heads the real estate group at McCarter & English in New York. "All my clients from Sidley came with me?every single one."
      Early last month a consent decree was entered in the case. (EEOC v. Sidley Austin, No. 05 C 0208.) The firm admitted no wrongdoing, and will pay $27.5 million to 32 former partners, including Richards.
      Although the decree likely settles the matter at Sidley, it also promises to sharpen the debate over mandatory retirement at many other law firms.
     
      PROFIT OR PERISH
      There was a time not long ago when lawyers of a certain age could look forward to slowing down and taking on roles as mentors and advisers, or having more time for pro bono work. But the profession's growing emphasis on profits per partner has changed things, with senior partners now expected to continue contributing at least as much as their up-and-coming colleagues. At the same time, many older lawyers?motivated by client demands, financial need, or the sheer love of practicing law?simply don't want to quit.
      In the past, the issues raised by aging colleagues were usually addressed one partner at a time, with individually crafted compensation plans and benefit packages that included a monthly pension, return of capital payout, and continued office space. But many employment contracts now require that partners either lose their equity status at a specific age, or progressively decrease their share of profits for a few years and then retire at a given age.
      Many firms will neither acknowledge nor deny having such policies, but mandatory retirement seems to be primarily a big-firm phenomenon. In a 2005 nationwide survey, Altman Weil found that 57 percent of law firms with 100 or more lawyers had a mandatory retirement policy, with the age limit most commonly set at 70; only 13 percent of firms with 10 or fewer attorneys mandated retirement.
      A recent survey by Hildebrandt International also found that about half of U.S. law firms have mandatory retirement policies-but that many others had abandoned them in the past five years or so. "Firms are moving away from mandatory retirement," says Lisa R. Smith, a Hildebrandt consultant. "Typically, they are looking for more flexibility?ways to accommodate transitioning senior partners and allow them to keep working."
      The American Bar Association now also backs flexible policies. At the ABA's annual meeting this August, the House of Delegates passed a recommendation that firms discontinue mandatory retirement and instead evaluate senior partners based on individual performance. It offered a list of factors that firms should consider: billable hours, business generation, pro bono activities, administrative activities, mentoring, collegiality, recruiting and marketing?as well as the ability to create or maintain client relationships and willingness to involve other lawyers.
      "This was a very important step, because we are entering a period when the baby boom generation is approaching traditional retirement age," says Mark H. Alcott, a partner in the New York office of Paul Weiss Rifkind Wharton & Garrison who spearheaded a report on age discrimination that became the basis for the ABA's recommendation. "Many firms require their partners to leave just because they've reached some arbitrary, fixed age," he says. "That strikes me as an unacceptable practice that is not only inequitable to the people being asked to leave, but also to the firms and, ultimately, to the clients."
      "Why is it that mandatory retirement policies remain at law firms, yet have disappeared in other facets of the business world?" Alcott asks. "I think it's because, until now, there has not been a specific legal barrier to it. But we're looking for that to change with Sidley."
     
      DESPERATELY SEEKING PRECEDENT
      In early 1999 Sidley & Austin instituted a new retirement plan for partners, lowering the firm's mandatory retirement age from 65 to 60. The firm also demoted 32 partners?several from offices in California?to "counsel" or "senior counsel" status. All but two of the partners were more than 40 years old. Each was given the option of either remaining with lower compensation or leaving to make room for the next generation of partners.
      "None of the lawyers filed a lawsuit, but one complained to the EEOC, which began an investigation," says former Sidley partner Richards. "Sidley argued that it was not subject to the discrimination law, and that's how I understand the case went public."
      The EEOC determined there was reasonable cause to believe Sidley had violated the federal Age Discrimination in Employment Act (ADEA) and other antidiscrimination laws. In January 2005 the commission took the rare step of filing a class action alleging age discrimination against the firm, by then known as Sidley Austin Brown & Wood.
      The consent decree announced in October appeared to signal the law firm's surrender in the matter. Sidley agreed to pay the former partners an average of $859,375. And it also agreed "that each person for whom the EEOC has sought relief in this matter was an employee within the meaning of the ADEA."
      In a loophole only a lawyer could love, the ADEA and other federal laws prohibiting discrimination apply only to employees, not those considered owners or employers.
      Importantly, the decree also includes an injunction that bars Sidley from "terminating, expelling, retiring, reducing the compensation of, or otherwise adversely changing the partnership status of a partner because of age" or "maintaining any formal or informal policy or practice requiring retirement as a partner or requiring permission to continue as a partner once the partner has reached a certain age."
      "Firms must treat this settlement as a wake-up call," says Robert W. Hillman, an expert on partnerships and a professor at UC Davis School of Law who was hired by the EEOC as a consultant. "As a result, we will surely see a great many more claims based on age and sex discrimination by members of firms who are affected negatively by management. And this decree gives them quite a bit of ammunition. If you get any law firm to part with $27.5 million, you would have to say, 'Message delivered.' "
      From the beginning, Sidley did not fare well in the courts. Several legal decisions went against the firm, including one from the U.S. Supreme Court denying Sidley's petition to review the EEOC's ability to pursue money damages and other individual relief. (127 S. Ct. 76 (2006).)
      Sidley's first headache was documentation. The EEOC subpoenaed a variety of documents, including the firm's strategic plan for creating opportunities for younger lawyers, information about the firm's retirement policy, and profiles of all retired and demoted partners. In response, Sidley produced only evidence showing the plaintiffs were "real partners," claiming that the other information the EEOC sought was beyond its jurisdiction.
      In an earlier appeal, Judge Richard A. Posner of the Seventh U.S. Circuit Court of Appeals had written that the key question is whether partners lose their status as employers when their firm operates as a de facto corporation rather than as a partnership. Posner expressed particular vexation with the idea that Sidley's executive committee operated "like a self-perpetuating board of trustees" in making controlling decisions, such as whether to fire or demote partners or to raise or lower their pay. In fact, Posner noted, the partners had been called on to vote on only one issue in the preceding decade: whether to merge with Brown & Wood in May 2001. (315 F. 3d 696 (2002).)
      Richards says the firm?renamed Sidley Austin in January 2006?is run by a seven-person management commission. "It's staffed by apostolic succession," he says. "Those same people there in 1999 are still there." He contends that because the demoted partners continued to work for the same clients at the same rates, Sidley had altered its profits-per-partner metric simply by reducing the number of partners. In retrospect, he notes, the firm's new math probably made it more attractive during merger negotiations with Brown & Wood.
      But Richards says that the recent settlement now allows some needed healing to begin for all involved. "The members of the class have confirmation that their discharge was not for the quality of their work," he says. "The commission has established an important legal principle for all large professional partnerships, and the law firm can move on."
      The underlying issue of whether Sidley's partners are actually employees had many firms on tenterhooks as the case unfolded. The EEOC argued that the ADEA applies to partners who are not members of the executive committee or management committee; they are employees, not owners or employers.
      Sidley maintained that the partners claiming injury were in reality owners, pointing out they shared in profits and losses, were liable for firm debts, contributed capital, and could enter binding contracts on the firm's behalf. In his 2002 opinion Judge Posner concluded: "Sidley has respectable arguments on its side, not the least that the functional test of employer status toward which the EEOC is leaning is too uncertain to enable law firm and other partnerships to determine in advance their exposure to discrimination suits."
      Respectable arguments aside, however, UC Davis's Hillman predicts that the eight-figure payout in the Sidley settlement is likely to shake up law firm management. "We will now go through a period of uncertainty. At this stage, firms will recognize that there is a risk, that they will need to be more careful about how they make their decisions and how they document the reasons for those decisions," he says.
     
      RETHINKING POLICY
      Even before the consent decree was announced, many firms had begun striving to remain hospitable to older lawyers who have valuable experience and large Rolodexes?if not the loaded BlackBerrys?to show for it.
      Early this year, for instance, Pillsbury Winthrop Shaw Pittman changed its policy from mandatory retirement at age 65 to a program tailored to the work lives and wishes of individual lawyers. "We want to ensure that if people are here for one day or their whole careers, they feel good about the firm," says James M. Rishwain Jr., firm chair based in the Los Angeles office. The change comes as Pillsbury reports the average age of its partners is 51; about 60 percent of all partners are 50 or older.
      Rishwain says the problem of underperforming partners shouldn't be linked to advancing age. "What's really important is making qualitative decisions about what a partner is expecting and deserving," he says. "As partners reach the age of 60 or so, we sit them down and ask them about their objectives: Are they to continue with clients and work at the highest level? Are they to spend more time with family? For those who want to wind down, we build a plan that speaks to that. We will transfer their work to others, and give them confidence they will be rewarded for that."
      In Pillsbury's new vision of retirement, rewards are carefully attended and meted out in a transitional dance. Older partners are given accolades for mentoring as younger associates are provided opportunities to advance. "Senior partners appreciate being part of the planning?it's empowering," he says. "And younger partners don't want to stay in the shadows. It's a balance."
      Still, Rishwain, who is 48, claims he has not given much thought to the conversation that may await him a dozen years from now. "I have not been thinking about it at all for myself," he says. "I enjoy what I'm doing and can't imagine not doing it."
      Andrew Giacomini, managing partner of 130-attorney Hanson, Bridgett, Marcus, Vlahos & Rudy in San Francisco, says his firm doesn't have a mandatory retirement policy but adds that he's no stranger to bringing up the topic of leaving. "Most folks in the legal profession want to keep going and going, like Energizer bunnies," says Giacomini, who is 44. "As a managing partner, I try to initiate conversations with people in a way that helps them figure out what they want to do-what works for partners and what works for the firm. I've had a lot of these conversations in the last six years."
      Giacomini recalls a partner who had been representing a client for 30 years and wanted to be involved in picking his successor. "The key thing for firms to recognize is that you need to be able to pay both transitioning and incoming partners at the same time. Knowledge and client information must be passed along. You can't charge the client for that, but you can't penalize one partner to feed another, either," he says.
      "Mandatory retirement policies just baffle me," Giacomini adds. "The baby boomers are some of the most experienced lawyers around, and most of them are just not ready to stop working." Still, he says, "You can understand a policy that allows you to get the workers out the door."
     
      GLOBAL COMPLICATIONS
      The expansion of many firms overseas has made the issue of aging boomer lawyers even thornier. Edward D. Burmeister, chief operating partner of the Bay Area offices of Baker & McKenzie, says flexibility is the guidepost for the firm's general retirement policy in its 70 offices. "We have a policy that allows partners to work in various categories beyond age 65," Burmeister says. "But at certain ages, you're expected to move away from various things. We have had a senior partner who worked until 75, but it is more typical that partners cut back or change roles after reaching 65."
      Baker previously operated an unfunded program that allowed partners to leave at 55, but Burmeister says that program is being phased out. "Firms can't grow by 30 percent each year any longer," he says. "You can't continue to promise retired partners money out of current income." The firm guards against slippage in work quality by encouraging vigilant oversight of partners by practice group leaders. In addition, Baker conducts quality audits in which a number of partners from various offices descend on a specified office for a week, interviewing partners, associates, and staff and generating detailed reports for practice groups and the firm's executive committee.
      "We ask, 'Is there anything we should be worried about?' says Burmeister. "Other offices will get an email every time such an audit occurs asking if partners around the world have problems with anyone's work. It's a confidential way for a person to get concerns across," he says. "I'm not aware of any other firm that does it so methodically."
      Burmeister, who recently turned 63, says, "I am a good example of someone who has been transitioned to other work. But I don't plan on retiring before 65?and I may look for other opportunities within the firm."
      John J. Lyons, a partner in the Los Angeles office of Latham & Watkins, says his firm created a retirement committee in the past year. "Being a worldwide firm, our policies and practices needed to be consolidated and consistent," Lyons says. "And over the last several years, the number of partners who are approaching retirement age has been increasing dramatically."
      According to Lyons, Latham has maintained the same flexible policy for more than 30 years. "Partners can retire whenever they feel they are ready for it," he says. "We have partners who retire at 55, some at 70."
      But Alan I. Rothenberg, a former Latham partner who is now chair of First Century Bank in Los Angeles, remembers things differently. He says he ran up against a mandatory retirement policy at Latham in 2001, when he turned 60. "It was clear-cut," he says. "Voluntary retirement at 60, with discounted benefits, or mandatory retirement at 65. No exceptions."
      Rothenberg opted to retire and move on to other pursuits. "From the law firm's standpoint the policy was very healthy, because it has a great culture of having seniors pass down the work from day one," he says. "And it turned out to be very healthy for me, too." But he concedes that for many lawyers the transition to retirement is not easy. "I think that if you've only practiced law your whole life, it's hard to give it up. In my case, I had always done other things. But it can be tough on people who know nothing else and want to do nothing else."
      Given the evolving definition of what it means to be a partner, even flexible retirement policies may be difficult to enforce. "For law firms, partner retirement is a horrible problem to manage," says Hillman of UC Davis. "A big partnership used to be 20 or 30 people, and they controlled the firm. Now large firms breed centralized management and delegate it to a small number of people. Many partners don't have any control over the firm's workings.
      "It's easy to tell firms they can't discriminate," Hillman continues. "But that doesn't mean they know what to do with people who can't produce. Is it discrimination to take away a title, or to lower compensation? I don't think Sidley resolved those really tough questions. There will now be articles, talk, and conferences held on them for the next five years-and likely longer."
     
      Barbara Kate Repa (barbara_repa@dailyjournal.com), legal editor at California Lawyer, is a lawyer and author of Your Rights in the Workplace (Nolo) and several other books on employment law.
     
#276999

Megan Kinneyn

Daily Journal Staff Writer

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