Just four years ago, Hildebrandt International — which bills itself as "a global leader in professional services consulting" — was advising its law firm clients to make sure their partnership agreements "clearly cover mandatory retirement age for general partners as well as managing partners and executive committee members."
Such planning, said Hildebrandt, was "the key to a successful transition and client retention after a partner’s retirement."
What a difference four years makes in the world of law.
Now, some law firms and their consultants are anxiously watching the Chicago federal court case of U.S. EEOC v. Sidley Austin Brown & Wood, No. 5 C 0208 (N.D.Ill.), which may find that taking action against "general" partners based on their age violates antidiscrimination laws. That violation could cost the Sidley Austin megafirm millions of dollars.
The case follows hard on the heels of a Supreme Court case from Oregon, Clackamas Gastroenterology Associates, P.C. v. Wells, in which a former employee of an Oregon City professional corporation argued that its physician-shareholders were fellow employees for the purpose of establishing jurisdiction under another antidiscrimination law. 271 F.3rd 903, 905-06 (9th Cir. 2001), cert. granted, 538 US 440, 123 S. Ct. 1673 (2003).
"Clackamas was the first really big case," says Portland labor and employment lawyer Paula Barran, whose firm represents management. "Previously, you’d be able to say, ‘I am a shareholder, not an employee.’ Once all these shareholders become employees, they’re going to be dealing with these employment laws. It’s a huge, live issue."
While the issue has attracted a lot of attention nationally — the ABA Journal devoted six pages to it in June — it hasn’t, so far, had much impact in Oregon.
"I haven’t heard a lot of discussion," says Barran’s partner and former OSB president Ed Harnden. "Usually you’d hear a lot of buzz."
Mandatory Retirement Age
In 2001, the same year the 9th Circuit ruled in Clackamas, approximately 60 percent of law firms nationwide had mandatory retirement ages, with 50 percent of all firms scaling down their partners’ workload and participation in profit-sharing each year between age 65 and complete retirement at age 70.
Another 35 percent had no written agreements covering retirement and departure issues.
What percentage of Oregon firms had — or have — such provisions is unclear: While some sources contacted by the Bulletin believed that most of the larger firms do, or did, others thought that the majority do not.
Firms themselves are not necessarily willing — in this era of stiff inter-law firm competition and Sidley Austin — to publicize their practices.
At least some of the firms that don’t have mandatory retirement (i.e., Miller Nash, LLP) will say so. But other major firms contacted by the Bulletin were more coy.
For example, the spokesperson for one such firm told the Bulletin, last September, that the firm was reviewing its attorney retirement policy and didn’t want to discuss it. Asked for an update in December, the spokesperson said, "I don’t think anything has changed as of yet. There hasn’t been a focus on this for a while. I don’t think we’re inclined to have any more information to give you."
And a marketing spokesperson for another large firm said, "I did some checking around: We aren’t able to provide anyone to talk about that specific topic."
When firms do have mandatory retirement, their cited reasons include the need for an orderly transfer of clients and management responsibilities from one generation to the next and — more problematic in light of Sidley Austin — concerns that older partners monopolize more of a firm’s clients and profits than their present performance warrants.
"It’s generally agreed that when you get to a certain stage, you lose a certain kind of effectiveness," says Portland transportation lawyer Randall Kester, who at 89 is believed to be the oldest practicing attorney in Oregon.
Kester notes that a written partnership or other agreement containing a mandatory retirement clause "would be a way to crystallize things and avoid disagreement."
"If you want to get rid of someone, it’s a way to do it," says Kester, whose own firm’s partners can, at age 70, elect to become a retired partner or seek permission from the equity partners to defer retirement.
But Portland labor and employment lawyer Harnden says that arrangements like Kester’s are so common that "the exceptions have started eating up the rule.
"In my opinion, setting a mandatory retirement age is not a very direct way of managing the affairs of a group," he adds, noting that "It also doesn’t get you by the legal (discrimination) issue."
Harnden’s views about the reality of mandatory retirement in Oregon are shared by Portland lawyer Stanley Samuels.
"I’ve never heard of anyone in Oregon whose firm forced them to retire because of age," says Samuels, who, at 73, is a transactional real estate lawyer for a firm with no mandatory retirement age. "I have heard of a couple of people who switched firms because of mandatory retirement, but very, very few."
In Samuels’ view, "The only reason large law firms have retirement policies is to encourage the younger partners."
Personally, he has no plans to make way for someone younger.
"The practice of law is stimulating, intellectually interesting," says Samuels, who officially works two-thirds of his former hours but has to be available around the clock to handle fast-moving transactions. "I don’t do adversarial work. My practice is making deals. My clients are my friends. I doubt I’ll ever quit, as long as I’m physically and mentally capable. It’s still fun. If it wasn’t fun, I wouldn’t do it anymore."
Caselaw May Spell Trouble
Firms that do try to push older partners out the door may find, as Harnden noted, that federal antidiscrimination laws stand in their way.
In 1986, the Age Discrimination in Employment Act of 1967 (ADEA) was amended to generally prohibit mandatory retirement for persons age 40 and over whose employers have at least 20 employees.2
While partners are not covered by the act, shareholder employees of professional corporations are.
In 1999, a Chicago law firm, then known as Sidley & Austin, demoted 32 of its 500-plus equity partners. The action, which also included lowering the firm’s mandatory retirement age from 65 to between 60 and 65, stripped the affected partners — all over age 40 —of their equity and forced them to take salaried positions as "senior counsel" or retire.
Subsequently the Equal Employment Commission began an investigation to determine if the demotions violated the ADEA. The firm contended that the demoted attorneys had been "real" partners and therefore were not covered by the ADEA.
Although the 7th Circuit’s 28-page opinion3 in the case is skimpy on the more-gossipy details of the firm’s action, various media and consulting firm have reported that:
Sidley Austin is one of the world’s largest law firms, with more than 1,500 lawyers on three continents.
The real purpose of its action was to allow younger attorneys to advance.
The demoted partners had been making between $450,000 and $600,000 annually.
The administrative partners didn’t bother with niceties; when partner David Richards — who had co-founded the firm’s New York City office — was called in, he was handed a letter telling me that he was no longer a partner. It was his 54th birthday.
In 2002, the case ended up before the 7th Circuit over the issue of Sidley Austin’s alleged failure to fully comply with an EEOC investigatory subpoena for records.
Although the 7th Circuit’s ruling was limited to that issue, the court’s opinion goes on to muse about the underlying issue of whether the partners were employees.
"A remarkable feature of the way the case has been argued is that neither party has addressed the question why some or all members of partnerships should for purposes of the federal antidiscrimination laws be deemed employers and so placed outside the protection of these laws," the court wrote. "Employers are not protected by discrimination laws such at Title VII and the ADEA, but are partners employers? Always? Always for purposes of Title VII or the ADEA, or the other federal laws that prohibit employment discrimination?"
The court then vacated the lower court’s ruling and remanded the case with directions to Sidley Austin to comply with a portion of the EEOC’s subpoena. It did not rule on the question of whether the 32 demoted attorneys were employees within the meaning of the ADEA. ("Such a ruling would be premature," it said coyly.)
At about the same time the EEOC and Sidley Austin were going to court over the ADEA in Chicago, a former employee of Oregon City-based Clackamas Gastroenterology Associates, P.C. was doing battle with the clinic for its alleged failure to make "reasonable accommodations" for her physical illness under the Americans With Disabilities Act of 1990 (ADA).
Like the ADEA, the ADA applies only to employers who have enough non-partner employees to meet the act’s threshold for coverage.4
In Wells’ case, the clinic claimed that its four physicians were not employees, which left it with less than the 15-employee minimum necessary to trigger the ADA. Wells contended that the physicians were employees.
The issue was further complicated by the fact that the clinic, which was organized as a professional corporation with physician-employees for tax purposes, actually functioned as a partnership, according to Portland attorney Steven Seymour, who represented it.
After a seesaw progress through the U.S. District Court in Portland and the United States Court of Appeals for the 9th Circuit, the U.S. Supreme Court agreed to hear the case. That announcement was made on Oct. 1, 2002, just three weeks before the 7th Circuit’s decision in Sidley Austin.
In April 2003, the Supreme Court reversed the 9th Circuit. It remanded the case for further proceedings to decide the issue of shareholder/director vs. employee in light of what it called the six relevant factors, as derived from common law:
Whether the organization can hire or fire the individual or set the rules and regulations of his work;
Whether, and to what extent, the organization supervises the individual’s work;
Whether the individual reports to someone higher in the organization;
Whether and, if so, to what extent the individual is able to influence the organization;
Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
Whether the individual shares in the profits, losses and liabilities of the organization."
According to Seymour, Clackamas "is being identified — correctly — by courts around the country as the place to start when trying to identify employee and employer. It’s much more important than I anticipated when I started it."
What’s Going on Now
While Clackamas ultimately was dismissed by the U.S. District Court in Portland,5 the Sidley Austin case continues to grind along.
On Jan. 13, 2005, with the subpoena issue finally resolved, the EEOC sued the law firm in federal court in Chicago.
Its suit, which is believed to be the country’s first age-bias case against a law firm, seeks an end to Sidley Austin’s allegedly discriminatory practices and restitution for the affected attorneys.
Meanwhile, Portland employment lawyer Barran notes that a number of large Oregon firms still have mandatory retirement provisions.
"People are sitting back and waiting to see what happens with Sidley," says Barran, who says that her own firm’s partnership agreement calls for retirement at age 67, with the possibility of an executive committee override.
"My guess is that Sidley will go up into the appellate courts because it’s such an important legal issue," says Barran, noting that "The Supreme Court (in Clackamas) has already decided what you look for."
Endnotes
1. From "Planning for Partner Retirement" by Donna Downey, a consultant at Hildebrandt International, in the same May 2001 article in which she advised law firms to include mandatory retirement ages in their partnership agreements.
2. The ADEA applies to government entities of any size.
3. 271 F.3rd 903, 905-06 (9th Cir. 2001), cert. granted, 538 US 440, 123 S. Ct. 1673 (2003).
4. The ADA applies to government entities of any size.
5. A state pendant claims case is still pending, according to Seymour.
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A Mentor, and a Model
Randall Kester had thought of becoming a forest ranger. Then a high school teacher pointed out that he had a "logical mind."
That was more than 70 years ago. Today, Kester — who channeled his logical mind into a career in law — is believed to be, at 89, the oldest practicing attorney in Oregon.
"That’s what I’ve heard," says Kester with a chuckle. "I don’t know if it’s true."
What is unquestionably true, says Kester mentoree Katherine O’Neil — herself a most-distinguished Oregon attorney — is that Kester’s reputation is based on more than his 65-year history before the bar.
"He’s one of the giants of the Oregon State Bar," O’Neil says of Kester, who is a partner in the Portland firm Cosgrave Vergeer Kester. "I don’t think anybody who’s been around more than five years will tell you otherwise."
Although Kester may have initially seen himself as a forest ranger, the idea of practicing law shouldn’t have come at him out of left field: Both of his parents were Oregon lawyers.
In 1937, Kester — a native of Eastern Oregon — received a scholarship from Columbia University Law School. Three years later, he returned to Oregon, passed the Oregon bar and later began work as an attorney for the Union Pacific Railroad Company.
"I suppose you could say that transportation has been my principal work," says Kester.
In 1957, Kester was appointed to the Oregon Supreme Court, to fill out Walter Tooze’s term after Tooze’s death. "People said I was the youngest person to have served on the court up to that time," says Kester. "I don’t know whether or not that’s correct. And now I’m the oldest practicing attorney in the state, so they say."
Kester served on the court only one year before taking another position with Union Pacific and resuming partnership in his old law firm.
"They (the court) didn’t pay very much in those years," says Kester, "and we had kids in college."
He and his wife, Rachael, recently celebrated their 65th wedding anniversary.
While Kester has stayed with the same firm throughout his career, it has gone through multiple permutations, most-recently when it merged with the Vergeer firm in 1990.
Says O’Neil, "There were no problems when the firms merged. That’s pretty unique. They stayed together, served their clients and prospered."
But for Kester, the experience was not unique: In the 1940s, when World War II depleted his then-firm of attorneys, he and the remaining lawyers agreed to assume the missing attorneys’ workload.
"It was based on the promise of profits instead of salary," says Kester. "But no one was sure there would be any (profits).The agreement was so informal we didn’t have anything in writing."
Decades later, Kester says that he’s "not as effective in court as I used to be. My voice has deteriorated, and I don’t have the physical stamina."
But it is precisely the word "effectiveness" that O’Neil uses to describe the man she says mentored her in the admiralty bar.
"He’s a very effective attorney," says O’Neil. "As good as it gets: Bright, articulate, knowledgeable."
O’Neil says that Kester’s mentoring of her included more than his showing her the admiralty ropes.
"He saw that I was invited to join the board of the U.S. District Court Historical Society," says O’Neil of the organization that Kester had helped to found in the early 1980s. "In those days, I was the only woman, and the only person under 50. He did the mentoring for me in that setting and in some of my cases that I couldn’t get anywhere else, because men were not mentoring the women (at that time). He was a very important figure in my professional development."
At 89, Kester says he still comes to the office every day, although it’s usually from 9 to 4, with weekends off. And he doesn’t have much client contact anymore, although he says he "likes to help people with problems."
Regardless of whether he’s literally the oldest practicing attorney in Oregon, Kester says he knows "there aren’t very many that I would call contemporaries, of my generation."
"My retirement will probably come involuntarily," he muses. "I’ll probably keel over. I don’t want to quit until I have to."
—Janine Robben
ABOUT THE AUTHOR
Janine Robben is a frequent contributor to the Bulletin. She has been a member of the Oregon State Bar since 1980. Cliff Collins, another frequent contributor to the Bulletin, also contributed to this article.
© 2006 Janine Robben