Equal Employment Opportunity Commission, Applicant-Appellee v. Sidley Austin Brown & Wood
315 F.3d 696 (2002)
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Rule of Law:
An individual's status as a 'partner' under state law is not dispositive of whether they are an 'employer' exempt from federal anti-discrimination statutes like the ADEA. Courts will apply a functional, multi-factor analysis considering the economic realities of the relationship, focusing on the degree of management control, to determine if the individual is effectively an employee.
Facts:
- Sidley & Austin, a law firm with over 500 partners, was controlled by a 36-member, self-perpetuating executive committee.
- Partners who were not members of the executive committee had no vote in the election of committee members or on most firm-wide issues.
- The executive committee held absolute authority over non-committee partners, including the power to set their compensation, demote them, or terminate their relationship with the firm.
- In 1999, the firm's executive committee demoted 32 partners to the positions of 'counsel' or 'senior counsel'.
- Prior to their demotion, each of the 32 partners had a capital account, was allocated a share of the firm's profits as determined by the executive committee, and was personally liable for the firm’s debts.
- The 32 demoted partners served on various firm committees, but all such committees were appointed by and subject to the control of the executive committee.
Procedural Posture:
- The Equal Employment Opportunity Commission (EEOC) initiated an investigation into whether Sidley & Austin's demotion of 32 partners violated the Age Discrimination in Employment Act (ADEA).
- The EEOC issued a subpoena duces tecum to the firm, seeking documents related to statutory coverage and the merits of the discrimination claim.
- Sidley partially complied but withheld certain documents, arguing the demoted individuals were partners and thus employers not covered by the ADEA.
- The EEOC filed an application in the U.S. District Court (trial court) to compel enforcement of its subpoena.
- The district court granted the EEOC's application and ordered Sidley to comply in full.
- Sidley, as appellant, appealed the district court's enforcement order to the U.S. Court of Appeals for the Seventh Circuit, with the EEOC as appellee.
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Issue:
Does the Age Discrimination in Employment Act (ADEA) prevent the Equal Employment Opportunity Commission (EEOC) from enforcing a subpoena against a law firm to determine if individuals labeled as 'partners' are in fact 'employees' protected by the Act, when the firm claims these individuals are employers and thus outside the EEOC's statutory coverage?
Opinions:
Majority - Posner, J.
No. The EEOC is entitled to obtain the facts necessary to determine whether it has coverage before a court rules on the issue, as the determination of 'employee' status under the ADEA depends on the economic realities of the relationship, not merely the 'partner' label. The Commission has the right to investigate whether the demoted partners, who lacked any meaningful control over the firm's management or their own fate, were functionally employees protected by the Act. An agency's subpoena authority extends to gathering facts to determine its own jurisdiction, and it should be enforced unless the agency is clearly acting beyond its statutory authority, which is not the case here. The firm's structure, where a small, unelected committee holds all power, raises a legitimate question about whether its non-committee 'partners' are bona fide employers or de facto employees.
Concurring - Easterbrook, J.
No. While the 32 demoted individuals were bona fide partners under traditional agency law principles due to their profit-sharing and unlimited liability, the EEOC's subpoena should still be enforced. The majority's 'economic realities' test creates excessive uncertainty. The correct approach, based on Nationwide Mutual Ins. Co. v. Darden, is to apply traditional state agency-law criteria, under which sharing profits and being liable for debts are the defining characteristics of a partner (an owner), not an employee. However, the EEOC is also investigating the firm's mandatory retirement policy, which applies to all individuals Sidley calls a 'partner.' The Commission is entitled to investigate whether some of these other lawyers are partners in name only and are in fact employees, which justifies enforcement of the subpoena for coverage-related information.
Analysis:
This decision significantly impacts large, hierarchically structured partnerships, such as law and accounting firms, by rejecting the formalistic argument that a 'partner' label automatically confers 'employer' status. It affirmed the EEOC's broad investigatory power and established that courts must look past state-law classifications to the 'economic realities' of power and control. The ruling opened the door for partners who lack meaningful management authority to seek protection under federal anti-discrimination laws, blurring the traditional line between owner and employee and expanding the potential reach of such laws into the upper echelons of professional firms.
