The parties to a lawsuit challenging law firm partner pay at Chadbourne & Parke, LLP recently settled their dispute, according to the New York Times. When I consider compensation for work—wage payment statutes define it as “recompense for labor rendered”—it triggers legal and philosophical concerns. In the 2012 comedy Wanderlust, Alan Alda, the sporadically lucid patriarch of the “intentional community” aptly named Elysium, observes that “money literally buys nothing.” His friends see that he has misused a metaphor which the audience humorously excuses because of his past heavy use of acid in the Sixties. Of course, money buys almost everything, just not what many lawyers believe it does. The uber-competitive among us misperceive compensation as a way to “keep score,” to gauge our value and importance within hierarchies. And law firms have been playing games with partner compensation and what it means even to be a partner, for decades now. Sadly, survival of the very largest firms depends upon it.
In the Chadbourne dispute, the female partners showed their significantly higher revenue generation over their male counterparts to argue that their lower compensation was based on gender. The Times article leaves little doubt that despite Chadbourne’s feeble reliance on “intangibles” and other factors justifying pay differences, gender was a cause. For example, originations—the credit lawyers get for client revenue regardless who performs the work—are the sclerotic proxies firms use for measuring who is doing the best and the most to nurture the client relationships. This often discounts the deep relationships that “service partners” foster with clients while they are in the trenches day to day and collaborating on decisions that have lasting significance.
In the Chadbourne dispute, one of the plaintiffs interviewed observed that “originations are nothing more than inherited business, passed down over the years, from one male partner to another.”
And as I have often said about law firm dynamics, “he who inherits prospers.” I used to know that phrase in Latin—true story.
But what has caught my attention about the spate of lawsuits by “partners” against their firms challenging pay parity, sex harassment, and wrongful termination, is that these are claims that are a matter of federal or state discrimination law, and to complain one must be an employee, not a partner who is supposed to be an owner. Indeed, Chadbourne argued that because they were partners, the plaintiffs could not bring claims under the various federal equal pay acts. Uh-oh!
But the likelihood in the industry—something employment lawyers are finally catching on to—is that most partners in firms of any size are treated as employees and simply misclassified as partners for cynical financial reasons. It’s all part of the decades-old “financializing” of the profession by the industry. For example:
- Few partners have meaningful input into firm management and the strategy of its business. That’s good, too, because too many “cooks in kitchens.”
- All must follow operational protocols and rules.
- There are usually written standards detailing expected hours and productivity.
- And a committee reviews compliance and adjusts compensation depending on “performance.”
These are classic indicia of an employment relationship, not ownership. When you further erode the last basis for the firm’s claim that the lawyer is a partner by tinkering with compensation, the house of cards tumbles. Putative partners are really just employees.
As an employment lawyer, I find these lawsuits fascinating “tests” of worker status claims—and the stakes could not be higher for the legal industry. The potential for class or collective actions resulting in reclassifying lawyers for income tax purposes and for unpaid wages and bonuses, liquidated damages and attorneys’ fees must be enticing to the specialists who challenge unfair pay practices in court. These plaintiffs claim millions in damages.
It’s going to be interesting to watch the legal industry deal with gender pay equity. The Times article notes that women still graduate from law school at just over half the rate of men and are paid in lock step entering firms. But fewer than twenty percent reach partner status, and those who do are often paid one third what their male counterparts are. Ensuring pay equity across a workforce is challenging even without the nuances created when a worker’s status is uncertain. Who knows? Maybe the industry should travel to Elysium (Wanderlust) for answers from an intentional community to find out just what money can buy and what our better halves in the profession are worth.
The Basics: Worker status classifications are more complicated than they might seem. Whether someone is an employee, owner/partner, or an independent contractor is never simply a question what you call them, even in a written agreement, as the legal industry is learning. Rather, the “test” reduces to an economic realities check into what actually happens, including questions about control and autonomy. Adding to the complexity is that there are different tests for different purposes. Consider the myriad laws for which one could be asking the question:
- Federal and State wage and hour laws-unpaid wages, overtime, bonuses.
- Federal and State misclassification of workers for income taxation.
- Employment benefits.
- Federal and State discrimination laws-race, gender, religion, national origin, & disability.
- Family and medical leave laws.
- Enforcement of noncompete and nonsolicitation agreements.
The reality is, the economic downside for guessing wrong on worker status issues is harsh, because these laws have punitive remedial recovery mechanisms that are applied often to deter future misclassifications. The Chadborne dispute has touched off other class actions against law firms. The clear message is: no more games. Play fair!