Partnerships and Professional Corporations: Increased Employment Litigation Risks
| Publication year | 1991 |
| Pages | 1621 |
| Citation | Vol. 20 No. 8 Pg. 1621 |
1991, August, Pg. 1621. Partnerships and Professional Corporations: Increased Employment Litigation Risks
Continued statutory and judicial expansion of employee rights threatens the substantial discretion that professional firms have traditionally exercised in personnel decisions concerning their professional employees, partners and shareholders. Firms that respond to the recent economic decline with associate layoffs, tightened partnership admissions standards or expulsion of unproductive partners create an increased likelihood of employment litigation. This articles examines several aspects of employment claims that affect professional firms in particular.
Since the 1984 case of Hishon v. King & Spalding, (fn1) the selection of associates for partnership has been subject to challenge under federal civil rights statutes. (fn2)In Hishon, the U.S. Supreme Court found that statements made during recruitment---that advancement to partnership after five or six years is a "matter of course" and associates are considered for partnership on a "fair and equal basis"---created a contract that could not be applied in a manner that discriminated on the basis of sex. Alternatively, the Court held that the firm offered consideration for partnership as a privilege of employment, which also was subject to statutory prohibitions against discrimination. (fn3) In a recent sex discrimination case, a federal district court ordered a professional partnership to admit a female associate to partnership. (fn4)
Colorado recognizes implied contract and estoppel claims based on employers' promissory conduct---typically termination procedures in employee handbooks. (fn5) Although probably not yet the law in Colorado, other states have expanded such claims to reach oral promises (fn6) and courses of dealing. (fn7) Under this theory, statements such as those identified by the U.S. Supreme Court in Hishon would support an implied contract claim.
Claims for breach of implied contract may go beyond the partnership decision. Firm practices contrary to a recruiter's representation about family leave, work assignments or pro bono opportunities could be actionable. For example, a claim might be made by an associate who received unfavorable evaluations due to disputes over conduct purportedly encouraged during a pre-employment interview. An associate laid off solely for economic reasons might base a claim on pre-employment statements about job security.
Colorado recognizes a claim for wrongful discharge in cases where an employee is separated for disobeying an order to commit an illegal act. (fn8) In other states, courts have defined the claim more broadly. For example, the New Jersey Supreme Court has allowed a public policy claim when an employee was discharged for refusing to follow directions that would violate ethical standards of the employee's profession. (fn9) A former associate sued a New York City law firm, claiming that the firm improperly separated him because he complained to firm management about unethical conduct by another associate. (fn10)
Professional firms have added vulnerability to employment claims because of the subjective nature of evaluating associates and selecting partners. Objective criteria, such as billable hours and seniority, would provide a relatively risk-free selection process. (fn11) Subjective factors, which are discussed below, may be attacked as lacking job-relatedness or permitting evaluators to exercise their individual biases. (fn12)
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