Legal Village

Bar Talk: Sidley's seven-year itch

Posted 2/11/2007 by Bar Talk

On April 5, 2000, Sidley Austin executive committee chair Thomas Cole sent a letter to partners and clients unveiling a new business plan designed to "improve the firm's competitive position." The firm had already enacted part of the plan, he wrote, including lowering the firm's retirement age and demoting nearly three dozen partners to counsel status.

"The underlying theme of all these changes was the creation of opportunities for our younger lawyers," Cole wrote.

To John Hendrickson, Chicago regional attorney for the Equal Employment Opportunity Commission (EEOC), the letter - which he found on Sidley's website after an expelled partner filed an anonymous complaint - was a big, fat advertisement of age discrimination.

"That letter in itself," he says, "was evidence that something was awry."

The letter triggered an EEOC investigation and ultimately litigation. On October 4, Sidley agreed to cough up $27.5m in "back pay" to 32 expelled partners, the highest average recovery per class member - $859,000 - in EEOC history. Sidley acknowledged no wrongdoing but agreed that the 32 were "employees" under age discrimination laws.

Cole's announcement couldn't have come at a better time for the EEOC. The commission had become convinced that the "culture of exclusion" it found in Fortune 500 companies was rampant in LLPs as well. But partners have long been considered employers, not employees, under employment law.

"There was a feeling that nothing could be done," Hendrickson says.

But some at the EEOC thought the law hadn't kept up with the times. In many partnerships, decisions were increasingly centralised. Sidley looked like one of them. If the EEOC had evidence that Sidley partners were de facto employees, employment protection laws should cover them as well. A month later, Hendrickson informed the firm that it was being investigated for age discrimination. He also requested hiring, billing and compensation records, as well as materials related to its management structure.

The firm provided some information that it contended showed that its partners were "real" partners - and none relating to discrimination. The commission applied to the Chicago district court to enforce the subpoena.

Around this time, former Sidley real estate partner David Alan Richards contacted the commission and in May 2002 agreed to testify under oath. Sidley, he told the EEOC, was a partnership on paper, but no partners outside the unelected management committee had a say in firm decisions. Five months later, the Seventh Circuit ordered Sidley to comply with the EEOC's subpoenas. In January 2005 the EEOC sued the firm.

In the only interview with an expelled partner since the settlement, Richards, 62, a cofounder of Sidley's New York office and a former chair of the American Bar Association's real estate section, told The American Lawyer that he was not the whistle-blower. Eight years after he was suddenly called in by New York managing partner James Archer and given a choice between a senior counsel position or three months to pack his bags, he visibly seethes at the memory. He only felt free to contact the EEOC, however, once he moved over to head McCarter & English's New York office.

Sidley argued that the 32 partners were demoted because of poor performance. Hendrickson, in his first extensive comments on the settlement, noted that Sidley's case was weak, saying Richards's successes both before and after Sidley were typical.

"These were lawyers who had had extraordinarily successful careers, so to say at the end of it, 'Oh, these are not good lawyers' was just not going to fly with jurors," he says.

The firm declined to respond, but in a prepared statement it said the settlement was prompted by a desire to put the distraction and cost of litigation behind it. Calls to former partners were not returned.

More important than the settlement may be the six successive decisions by the district court and the Seventh Circuit, which granted the EEOC the authority to move forward. They lay the groundwork for future actions against similarly situated firms, Hendrickson says.

"This is the first case in 20 years addressing these issues extensively," he says. "This is a very big deal for us."

A version of this article appeared in the American Lawyer.

jtriedman@alm.com