Mandatory retirement plans based on age are generally prohibited under the Age Discriminaiton in Employment Act. But, the ADEA, like Title VII of the Civil Rights Act covers employees, not business owners - including partners. True partners, those who manage and control a business, are not covered by the ADEA. Burke v. Freedman, 556 F.2d 867, 869 (7th Cir. 1977). So, who is a partner or shareholder?
In Clackamas Gastroenterology Assoc., P.C. v. Wells, 538 U.S. 440 (2003) (Americans with Disabilities Act), the U.S. Supreme Court found the following factors were important in deciding who is a partner and who is an employee:
- whether the organization can hire or fire the individual or set rules for the individual's work
- the extent to which the organization supervises the individual's work
- whether the individual reports to someone higher in the organization
- the extent to which the individual can influence the organization
- whether the organization and individual intend that the individual be an employee, as expressed in agreements, and
- whether the individual shares in the profits, losses and liabilities of the organization
In 2007, the EEOC sued the law firm of Sidley Austin Brown & Wood for age discrimination when it demoted 32 so-called partners to "of counsel" because of their age. The law firm settled the case with the EEOC. In a consent decree, the law firm agreed the 32 "partners" were actually employees. It agreed to not use age based retirement policies any more and it agreed to pay $27 million.
In EEOC v. Kelley Drye & Warren, No. 10-CV-0655 (S.D. N.Y. 2010), the EEOC settled a claim regarding a partner who was required to depart equity partner status at age 70. The law firm agreed to pay the attorney $574,000 and to refrain from basing a lawyer's status, pay or ownership on the lawyer's age. The law firm also agreed to undergo training on age discrimination. See New York Daily Record report.
But, in the case of Solon v. Kaplan, 398 F.3d 629, 633 (7th Cir. 2005), the court found that the partner was a true partner. The law partner was one of four general parners. He could only be fired by a two-thirds vote of the general partners. Mr. Solon held one-fourth of the power to allocate the firm's profits, whether to require additional capital contributions, make financial commitments, amend the partnership agreement, and dissolve the firm. With that sort of power, Mr. Solon was not an employee for purposes of Title VII of the Civil Rights Act of 1964, said the court.
Mr. Solon responded that the partnership agreement had no effect since the other partners ignored it. They met on their own and made decisions without his imput. But, said the court, Mr. Solon did not call for general meetings to oppose the decisions of the general partners. And, the court found that Mr. Solon exercised more control over the law firm than he admitted.
So, beware of those mandatory retirement policies. Even if the employer wins a lawsuit in the end, they still lose financial resources and time.