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Friday, December 08, 2006

Law Firms: One Last Bastion of Legal Discrimination?

The New York Times reports on the surprising prevalence of age-based mandatory retirement at big law firms:

In a survey last year of 46 law firms with 100 or more lawyers, about 57 percent of them reported a mandatory retirement age, ranging from 65 to 72

Let me converse with myself about this:

(1)  Scott, haven't the standard "retirement ages" become obsolete?  Excellent point, Scott.  "65 isn’t old anymore,” one lawyer is quoted as saying.  This reminds me of how the social security "retirement age" was set in the 1930s at 65... because 65 was the life expectancy at the time.

(2)  Is this really legal, Scott?  Good question.  Yes and no.  The federal age discrimination law covers only "employees," and the folks in question here are partners, not employees.  But the EEOC's position, and a 7th Circuit ruling against Sidley & Austin in an age discrimination case, is that many so-called "partners" are really "employees" with fancy titles -- e.g., if they lack a meaningful equity stake or role running the firm.  Such partners are, legally speaking, "employees" protected against age discrimination -- which means that mandatorily "retiring" them is illegal.

(3)  Isn't mandatory retirement just younger lawyers grabbing business from older lawyers?  Sure looks that way.

“To be a healthy institution, you have to encourage people to hand off business to the younger generation,” said Richard J. Davis, a partner and Weil Gotshal’s general counsel

This is one of those sentences: if you're not reading it carefully, you'll just nod your head because it has a lot of common catchphrases ("healthy institution"..."younger generation"); but if you think about it for a minute, it makes no sense whatsoever.  Say a partner normally would have a client from age 40 to 75 without mandatory retirement, but mandatory retirement truncates that relationship from 35 years to 30 years: (1) Is that 5-year shortening of a partner's client relationship really that critical to "the younger generation"? (2) Is this guy really asserting that forced turnover of clients to new lawyers is a good thing for business? (3) isn't this policy -- you must give up your business to help others without business -- kind of like a 100% estate tax (which even Nancy Pelosi doesn't advocate)?

Thoughts???

Posted by Scott on December 8, 2006 at 10:40 AM in Workplace Law | Permalink

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Julie Creswell and Karen Donovan profiled A. Paul Victors story on 12/8/06 in the New York Times: when he turned sixty-eight years old, the mandatory retirement age at Weil, Gotshal Manges, Victor left after thirty-eight years there. He t... [Read More]

Tracked on Dec 9, 2006 6:36:43 AM

Comments

"Isn't mandatory retirement just younger lawyers grabbing business from older lawyers? Sure looks that way."

It's a lot more complicated than that. The word "just" is particularly misleading.

Given the hierarchy and pyramid-building nature of leveraged law firms, there can be a danger of senior partners fighting for credit even when the bulk of the work is being done by partners of the junior generation. Those law firms need to reward incredibly hard work, and while there are some 68 years and even some 72 year olds who work as hard as the hard-charging 45 year olds of the law firm world, it's not always that case.

So, without taking sides on the bigger issue, this is not just a matter of stealing the 72 year old partner's clients. Of course, it may be at the end of the day that we decide that mandatory retirement ages are too crude a tool for dealing with that problem.

Posted by: not 72 yet | Dec 8, 2006 11:21:42 AM

Cravath has mandatory retirement at 65, but distributions to partners peak at 62 and are then reduced until retirement. I'm not sure how Cravath deals with the "buy-in" to the partnership--it is possible that the firm redeems the partner's share of the partnership over time.

Posted by: Cravizzle | Dec 8, 2006 12:08:05 PM

I'm not sure the firm really cares about turning over clients to younger lawyers, but turning over shares. Assume that the firm is a partnership and the partners own partnership interests in the firm, and the number of shares you own determines your compensation. At any given time, 100% of the shares are outstanding, and also assume that partners earn their shares over time by billing hours, bringing in clients who produce billable hours for others, etc. Now assume that a partner has semi-retired in his semi-tenured partner position but still sits on a large amount of shares, taking a large piece of pie. We'd like to split up the pie differently now that others are contributing more to the enterprise. It is much easier for a law firm to set a retirement age than to draft a partnership agreement that is going to make it easy to reduce partner's shares and reallocate efficiently. This is an age-old partnership problem -- partnership interests are based on assumptions of future contributions and recognition of current and past contributions, and those assumptions may not hold.

Posted by: Christine Hurt | Dec 8, 2006 12:24:47 PM

Christine is correct that it's substaantially about the rewards earned. But that's not always driven directly by shares. Some firms do award shares or ownership interests as the way to regulate income/draw. Others, for example, one share to each equity participant and then let the comp committee fix incomes. Or award ownership shares at certain levels and let the comp comittee vary income as appropriate. Some use a hybrid. So it's not the case that shares always fix the income.

But, at the same time, firms really do care about turning over clients to younger lawyers. It's a large motivating factor.

Posted by: not 72 yet | Dec 8, 2006 1:21:00 PM

If the clients really belonged to the 65+ lawyers, they ought to just leave and start their own firm. Truth is, most so-called firm clients really belong to a handful of rainmakers and are serviced by lawyers, young and old. Sad to say, many of these older partners at large firms are nothing more than at will employees. If that's all that they want as their legacy in the law, I can't say that I feel much sympathy when they're shown the door.

Posted by: Carolyn Elefant | Dec 10, 2006 10:03:27 PM

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