Are Partners owners or employees of the firm? Don’t bet your firm on this one! PART I

There is a debate (the most recent being Kelley Drye – story here http://tiny.cc/w6u8l) whether firm partners are considered owners or employees of the firm.  The firm’s position like Sidley Austin back in 2007 is that partners are owners of the firm and not employees.  Therefore, as owners most employment guidelines don’t apply to the treatment of owners so practices like mandatory retirement should be permitted.

The EEOC’s position on this issue (from the Sidley Austin case):  “…the EEOC administrative investigation revealed that, “except for a very few controlling partners at the very top, Sidley’s lawyers appeared to be ordinary employees not unlike their colleagues at parallel levels in the business community and, therefore, covered by the ADEA.”  In other words, except for the top partners at the firm, though called Partners in name, many partners act as employees and should therefore be protected as employees.

Now the insurance tip that EVERY law firm, regardless of your legal opinion on the above matter must do today.

Law firms, like many businesses, purchase Employment Practices Liability Insurance (EPLI).  This insurance policy provides defense costs and indemnity payments for employment related claims.  Most of these insurance policies follow the Kelley and Sidley definition, meaning that partners are owners and therefore the policies DO NOT cover partner’s claims.  If a partner brings a discrimination claim based on age or any other protected class, no coverage – you could lose your firm over this.

This problem is avoidable and fixable.  Have your broker confirm to you today that your EPLI policy has the full coverage, including partner claims.  The technical jargon is that you want a policy that includes coverage for partners as employees.   On this issue law firms should not argue the case, but rather insure both sides.

Update – EEOC wins round II – Kelley Drye & Warren has dropped its mandatory retirement policy

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