Courts have previously struggled in deciding when an individual meets the definition of “employee” under the Age Discrimination In Employment Act (ADEA). The confusion stems from the ADEA’s relatively unhelpful definition: “an individual employed by any employer.” The Eighth Circuit, however, recently shed new light on the definition. The court found that an equity partner from the law firm Armstrong Teasdale LLP did not meet the definition of an “employee” and therefore could not avail himself of the protections afforded by the ADEA. In interpreting this decision, questions remain how both equity and non-equity partners in multitier firms will be treated, and where the line between employee and non-employee will be drawn.
The issue before the Eighth Circuit Court of Appeals in Von Kaenel v. Armstrong Teasdale, LLP, No. 18-2850 was whether an equity partner was an owner in a law firm, or an employee afforded the protections of the ADEA. In Von Kaenel, the law firm had a provision in its partnership agreement that required mandatory retirement at age 70. Under its terms, an equity partner at the firm was forced out at age 70 at the end of 2014. The partner filed a lawsuit against the firm alleging the provision violated the ADEA. He alleged that but for the firm’s mandatory retirement provision, he would have retired around the age of 75 and would have then discontinued practicing law. The terms of the provision required the partner to discontinue practicing law to remain eligible to receive a severance package. He continued practicing law, and the law firm refused to provide him with the severance package.
The Eighth Circuit court centered its discussion on the factors discussed by the United States Supreme Court in Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003) to determine whether the partner was an owner or an employee of the firm. In the context of an Americans With Disabilities Act Claim, the Court in Clackamas discussed six factors in deciding whether shareholder physicians part of a professional corporation, are employees:
- whether the organization can hire or fire, or set rules for the individual’s work;
- whether and to what extent the organization supervises the individual’s work;
- whether the individual reports to someone higher in the organization;
- whether and to what extent the individual is able to influence the organization;
- whether the parties intended the individual to be an employee, as expressed in written contracts or agreements; and
- whether the individual shares in the profits, losses, and liabilities of the organization.
The Court in Clackamas stated that no one factor is decisive. The Eighth Circuit went on to discuss favorable decisions from the Seventh, Eleventh, and Tenth Circuits involving shareholders in closely held corporations and bona fide partners in professional firms.
In applying these factors, the Eighth Circuit found the equity partner Plaintiff was not an employee under the ADEA. Specifically, he was required to make a capital contribution for his equity. He also had the right to vote on changes proposed to the partnership agreement and benefited from the firm’s profits. He had the right to vote on the admission of new partners and was protected from involuntary expulsion and could lose his job and equity only through a vote by the partners or the operation of the mandatory retirement provision. In the aggregate, the court held that the equity partner was not an employee covered by the ADEA.
Despite this decision, law firms with multiple levels of partners should tread carefully when implementing a mandatory retirement policy. Partners—both equity and non-equity—that do not participate in the firm’s management and have few voting rights may still be considered employees covered by the ADEA. It may be prudent to narrow the scope of the firm’s policy to apply only to those equity partners who appear to fall under the Clackamas factors to prevent lawsuits filed by partners under the ADEA.