Arthur J. Ciampi

"The practice of law, you accumulate knowledge. I still feel I'm learning."

—Milton Mollen (See John Eligon, Senior Counsel, Very Senior Counsel, The New York Times, Feb. 19 2010).

Many law firms continue to include provisions in their partnership agreements that require a partner to retire upon attaining a certain age. These mandatory retirement clauses are somewhat controversial, often disfavored, and frequently the subject of lawsuits by partners forced to retire, who claim that their retirement is a violation of, among other things, the Age Discrimination in Employment Act (the ADEA). The issues typically turn on whether the partner is within the class of those protected by the ADEA that covers employment/employee relationships.

Late last year, the U.S. Court of Appeals for the Eighth Circuit, in a case of first impression in the Eighth Circuit, decided an appeal concerning a claim by a law firm partner that his mandatory retirement at age 70 violated, inter alia, the ADEA. The issue the court addressed was whether an equity partner in a law firm was a covered employee for purposes of the ADEA.

In this month's column, we first generally discuss some views concerning mandatory retirement in law firms and then analyze the Eighth Circuit case of first impression Von Kaenel v. Armstrong Teasdale, 943 F.3d 1139 (8th Cir. 2019).

Mandatory Retirement Provisions Meet Disfavor

Mandatory retirement provisions in law firm partnership agreements have been criticized. For example, in 2007, the New York State Bar Association Special Committee on Age Discrimination in the Profession issued a report titled Report and Recommendation on Mandatory Retirement Practices in The Profession (the NYSBA Report). New York State Bar Association Report and Recommendation on Mandatory Retirement Practices in the Profession (January 2007). The committee was created to examine the issues of age discrimination in the legal profession, in the course of which the NYSBA Report made a compelling argument against mandatory retirement:

[R]equiring a partner to leave the firm upon reaching an arbitrary age – is not an acceptable practice. Modern experience demonstrates that this practice is both unwarranted and unwise. A lawyer's age, standing alone, is not an appropriate criterion for determining professional capacity or employment status. A blanket policy of mandatory retirement of law partners is, at best, shortsighted. It also short changes not only the individual lawyer but the firm and society as a whole.

NYSBA Report at 29.

Lawyers have also had some limited success in challenging mandatory retirement provisions in their partnership agreements.

In 2010, the EEOC sued the law firm of Kelley Drye & Warren, on behalf of its partner Eugen D'Ablemont. EEOC Sues Law Firm Kelley Drye & Warren for Age Discrimination and Retaliation, U.S. EEOC, Jan. 28, 2010. In the lawsuit, Kelley Drye was alleged to have violated the ADEA because, under its policy, attorneys who wanted to practice law after reaching age 70 could only do so by giving up all their ownership interest in the firm, being compensated solely through discretionary bonuses, resulting in substantial under-compensation. Id. The lawsuit settled with Mr. D'Ablemont receiving compensation and back pay. Kelley Drye, EEOC Settle Suit Over Treatment of Partners After They Reach Age 70, Wolters Kluwer, April 12, 2012.

Concerning law firm mandatory retirement, EEOC General Counsel, P. David Lopez, stated:

There is no reason why attorneys who are capable of continuing to practice at 70 either should be forced to retire or otherwise be dissuaded from continuing to work in their chosen profession just because of their age.

Id.

In 2002, the EEOC brought an action against a large law firm concerning 32 equity partners who were demoted. See E.E.O.C. v. Sidley Austin Brown & Wood, 315 F.3d 696, 709 (7th Cir. 2002). In Sidley, the Seventh Circuit did not find that the demoted partners were subject to the ADEA, but, instead, found that "there is enough doubt about whether … 32 demoted partners are covered by the age discrimination law to entitle the EEOC to full compliance with that part, at least, of its subpoena." Id. at 707.

In analyzing whether the 32 demoted partners were indeed partners who could not bring an ADEA action, the Seventh Circuit found that, as Sidley had an extremely centralized management structure, Sidley's argument that the authority delegated to the executive committee by the partners meant the partners did have control of firm management, which could disqualify them from ADEA application, was unpersuasive. Id. at 702-03. The court stated that such an argument "would be like saying that if the people elect a person to be dictator for life, the government is a democracy rather than a dictatorship." Id. at 703.

Anecdotally, but nonetheless persuasively, prominent law firm partners have, throughout the years, confirmed the questionable wisdom of mandatory retirement provisions by working into their 90s. Eligon, supra (discussing Bentley Kassal, 93, practicing at Skadden, Arps; S. Hazard Gillespie, 100, senior counsel at Davis Polk & Wardwell; Herbert Rubin, 92, member of Herzfeld & Rubin; Milton Mollen, 90, of counsel at Herrick, Feinstein). Herb Rubin, who was 100 years old last year, recalled that, when his former law firm partner died, Mr. Rubin was recruited by a large law firm which had mandatory retirement which would have caused him to retire at 65. Instead, Mr. Rubin turned the firm down and continued practicing law for an additional thirty-five years at Herzfeld & Rubin. Susan DeSantis, Law Firms Ease Mandatory Retirement Policies, but Tensions Remain, NYLJ, Feb. 4, 2019. So much for mandatory retirement!

'Von Kaenel'

The Eighth Circuit's decision in von Kaenel v. Armstrong Teasdale, 943 F.3d 1139 (8th Cir. 2019) also addresses mandatory retirement, although the court ruled against the former partner.

In von Kaenel, law firm partner, Joseph von Kaenel, brought an action against his former law firm, Armstrong Teasdale (AT), challenging a provision in the law firm's partnership agreement that required mandatory retirement at 70 as a violation of ADEA. On Jan. 1, 1978, von Kaenel became a partner of AT. Id. at 1141. In November 2014, von Kaenel reached 70 years of age. Id. at 1142. He alleged that, but for the firm's mandatory retirement policy, he would have retired at around age 75 and would have ceased practicing law at that time. Id. Instead, von Kaenel was required to leave the firm, and, because he continued practicing law, under the AT partnership agreement, he was ineligible to receive two years of severance benefits he would have been entitled to if he had not engaged in the private practice of law. Id.

Von Kaenel received a "right to sue" letter from the EEOC on June 24, 2016. Id. On September 1, 2016, he filed an action alleging discriminatory termination in violation of the ADEA and pursuant to the Missouri Human Rights Law (MHRA). Id. The district court granted judgment on the pleadings in favor of AT, concluding, in relevant part, that the ADEA only applies to employees whereas von Kaenel was a partner. Id.

Von Kaenel appealed to the Eighth Circuit. As to the ADEA claim, the Eight Circuit stated:

Whether a partner in a firm may be deemed "an employee" of the firm and thus an ADEA beneficiary is a matter of first impression for us. The United States Supreme Court in the context of an Americans with Disabilities Act claim explained that resolution of whether shareholder-director physicians that are part of a professional corporation are employees "depends on 'all of the incidents of the relationship … with no one factor being decisive.'" Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440, 450, 123 S.Ct. 1673, 155 L.Ed.2d 615 (2003) (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 324, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992)).

Id. at 1143-1144.

The Clackamas factors analyzed by the Circuit Court were:

(1) whether the organization can hire or fire the individual or set rules and regulations for the individual's work; (2) whether and to what extent the organization supervises the individual's work; (3) whether the individual reports to someone higher in the organization; (4) whether and to what extent the individual is able to influence the organization; (5) whether the parties intended the individual to be an employee, as expressed in written contracts or agreements; and (6) whether the individual shares in the profits, losses, and liabilities of the organization. Id. (quoting EEOC Compliance Manual § 605:0009).

Id. at 1144.

Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003), is not a law firm case, but is, instead, a decision in which the U.S. Supreme Court examined whether shareholders in a professional corporation were employees for purposes of the Americans with Disabilities Act. The court endorsed and applied certain EEOC guidelines used to determine whether individuals are employees. Id. In addition, the Supreme Court held: "The common-law element of control is the principal guidepost to be followed in deciding whether the four director-shareholder physicians in this case should be counted as 'employees' … [T]he Equal Employment Opportunity Commission (EEOC) argues that a court should examine whether shareholder-directors operate independently and manage the business or instead are subject to the firm's control." Id.

After applying the Clackamas factors, the Eighth Circuit concluded that von Kaenel was a partner and not entitled to protection under the ADEA, stating:

If we peer beneath the title and probe the actual circumstances of von Kaenel's relationship with the firm, von Kaenel's undisputed testimony establishes the following: (1) when von Kaenel became a partner, he was required to make a capital contribution and sign the partnership agreement; (2) von Kaenel had the right to vote on changes proposed to the partnership agreement, which included the mandatory retirement provisions; (3) von Kaenel benefitted in the firm's profits and was disadvantaged by its losses, albeit through "a complicated calculation"; (4) von Kaenel had the right to vote on admission of new partners to the partnership; (5) von Kaenel's health insurance premiums and 401k contributions were deducted from partner distributions; (6) the practice group leader did not review von Kaenel's substantive work; (7) while other members of the firm participated in setting the attorneys' hourly rates for a particular client, the only time von Kaenel requested that he be allowed to reduce his hourly rate to work with a particular client, his request was approved; and (8) once Von Kaenel became an equity partner, he could only be expelled from the firm by vote of the partners or by operation of the mandatory retirement provision.

943 F.3d 1139, 1144.

Conclusion

Like other decisions, von Kaenel demonstrates that, despite the very good reasons against mandatory retirement as set forth in, among other places, the NYSBA Mandatory Retirement Report, statements by the EEOC, and the traditional enduring work of senior lawyers, law firm partners suing under ADEA for age discrimination have a high burden. Indeed, it is often the case that, as in von Kaenel, courts determine that former partners filing suit for age discrimination are not employees who have standing to sue under ADEA. Despite this result, law firms should understand and acknowledge that older lawyers continue to make valuable contributions to their law firms and to clients and reconsider mandatory retirement provisions

Arthur J. Ciampi is the coauthor of the treatise 'Law Firm Partnership Agreements' and is the managing member of Ciampi LLC. Maria Ciampi, of counsel to Ciampi LLC, assisted in the preparation of this article.