August 10, 2010
Fiduciary Duty to Partners v. Anti-Discrimination Laws: Which Protects Better?
Posted by Christine Hurt

So, the media has been abuzz with two different law partner stories in the past few weeks.  First, that a new study has found that female law partners at elite firms are paid, on average, $66,000 less per year than their male law partner counterparts, who make up 80% of all law partners.  Second, that the Third Circuit has held that a female "Class A Shareholder" at law firm Dickie, McCamey & Chilcote, a Pennsylvania professional corporation, could not proceed with her discrimination claims under Title VII or the Fiarl Labor Standards Act because she was an "employer," not an "employee."  (2010 WL 2780927, or story here.)  So, this leaves me wondering, if a female law partner believes that she is being discriminated against by her other partners on the basis of gender, does she have any recourse at all beyond exiting the partnership?

First, there is the question of whether a law partner (or shareholder in a professional corporation) could ever be an employee for purposes of employee discrimination laws.  The courts seem to look at the common-law agency test for whether someone is an employee, which focuses on control.  The Seventh Circuit in EEOC v. Sidley Austin Brown & Wood seemed to leave that door open as to whether a partner could be an employee, particularly for partnerships with hundreds of partners and a self-perpetuating Executive Committee that had plenary power (settled, so no legal conclusion).  But, Alyson Kirleis was found not to be an employee in a firm with 61-69 Class A Shareholders, all of whom were a director on the Board of Directors, in a firm run by an Executive Committee elected by the Board.  So, if you aren't promoted from Associate to Partner on the basis of gender, you may have a claim, but once you're a partner, you may not.

So, the second question would be whether a partner in a general partnership or a shareholder in a professional corporation would have any other remedies against the firm.  Particularly, could partnership fiduciary duties or shareholder oppression doctrines provide some sort of safeguard?  We all know from studying business associations that a minority partner or a minority shareholder, particularly in a closely-held enterprise where one's livelihood is part of the bargain, can be put in a less-than-economically pleasant situation by the majority. 

Fiduciary Duty.  We typically think that partnership duties will step in if the firm is a general partnership, even if safeguards such as voting are not effective.  However, does discriminating against a partner on the basis of gender violate the duty of care?  The duty of loyalty?  Perhaps if compensation determinations were made unfairly, that would be self-dealing?  I'd be interested to know if any BA casebook writers have found any of those cases.  Lack of transparency in allocating partner compensation might be a Duty of Disclosure issue, but that just gets you information.  But hostile environment claims don't seem to fit in anywhere.

Good Faith.  Perhaps if compensation decisions aren't being made exactly as the partnership agreement mandates, this might be a breach of contract claim, or at best a breach of the duty of good faith and fair dealing, as good as that goes.  But a claim that says that compensation decisions under the partnership agreement have a disparate impact on childbearing women because of its weight on billables and client origination?  That doesn't seem to be a fiduciary duty or other duty-type claim.

Shareholder Oppression.  As we know, some states recognize this doctrine to save shareholders in closely-held situations from losing their livelihoods and having their investments captive without hope of dividends, etc.  So, if the professional corporation statute is governed by the jurisdiction's for-profit corporation act, which includes some shareholder oppression remedy, then perhaps this is an option.  In Ms. Kirleis' situation, she was one of over 60 Class A Shareholders, so that may not be a closely-held corporation under a particular state law.  And, she wasn't fired or demoted.  Presumably, she had some exit rights.  She was still receiving a draw.  Oppression may in fact be a much higher bar than discrimination.

So, perhaps the fact that only 20% of law partners are women seems to reflect the "exit" remedy.

Title 15 Corporations and other Unincorporated Associations

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