Resolving the Title VII partner-employee debate.

• Author: Johnson, Kristin Nicole
• Position: Case Note

TABLE OF CONTENTS INTRODUCTION I. DARWINIAN ADAPTATIONS: DEVELOPMENTS IN STRUCTURAL ORGANIZATION AND BUSINESS FORMS A. Mistaken Assumptions: Comparing Modern Law Firms with Traditional Partnerships 1. Law Firms Choose from a Variety of Business Forms 2. Changes in the Internal Hierarchy of the Firm B. The Complexity of the Partner-Employee Debate in the Modern Law Firm II. TESTS DEVELOPED BY LOWER COURTS TO DETERMINE A PARTNER'S STATUS A. Applying a Bright-Line Rule to Blurry Distinctions: The Fallacies of the Per Se Rule Distinguishing Employers and Employees B. Closer to the Target: But Still Missing the Mark: The Inconsistencies in the Economic Realities Test III. STRUCTURING A SOLUTION THAT WORKS CONCLUSION INTRODUCTION

In January of 2001, a New York court issued an order affirming a plaintiff's ability to bring suit against a law firm partnership for discriminatory acts that occurred during her tenure as an associate at the firm. (1) The plaintiff, Stacy Ballen-Stier, joined Hahn & Hessen, L.L.P. as an associate, and, on January 1, 1997, the firm invited her to join the partnership. (2) According to Ms. Ballen-Stier's complaint, the words and actions of a fellow partner, Mr. Blejwas, created a hostile and abusive work environment (3) and continued to plague her "even when [she] was away from the office." (4) Ms. Ballen-Stier alleged she was the victim of sexual harassment that began when she was an associate and continued for a significant period after she became a partner. (5) While permitting Ms. Ballen-Stier to proceed with the claims involving acts that occurred when she was an associate, the court order dismissed the claims regarding harassment that occurred after her promotion to partner. (6) Although the alleged harassment continued in the same manner before and after her promotion, the court reasoned that Ms. Ballen-Stier's status as a partner prevented her from bringing the claims relating to harassment she experienced after her promotion. (7)

Discrimination against partners in law firms presents a unique legal issue. (8) While the Supreme Court has recognized that Title VII protects law firm associates from discriminatory acts committed by supervising partners, (9) the circuits are split on the issue of whether Title VII covers partners alleging to be victims of discrimination. (10) In accordance with well-established principles of jurisdiction, plaintiffs seeking protection under Title VII must fall within the purview of the statute. (11) Title VII covers "employers" and "employees." (12) Courts determine who qualifies as an "employer" or an "employee" by looking to the statutory definitions of the terms, (13) and they decline to exercise jurisdiction if the party alleging discrimination does not qualify as an employee (14) or the party accused of discriminating is not an employer as defined by the statute. (15)

While the plain language of Title VII explicitly forbids employers from treating employees less favorably because of race, color, religion, sex, or national origin, (16) the statute fails to offer a substantive definition of who qualifies as an employee. An employee, according to the definitional provision, is "an individual employed by an employer." (17) This circular definition offers trial courts inadequate guidance for determining who should be included or excluded from the definition of employee. (18) The definitional provisions of other antidiscrimination statutes such as the Americans with Disabilities Act ("ADA") and the Age Discrimination in Employment Act ("ADEA") contain similarly ambiguous language. (19)

While there is hope that a decision resolving the issue is forthcoming, (20) the Supreme Court has not yet addressed the question of whether or not partners qualify as employees under Title VII. To evaluate whether or not partners can claim employee status for the purposes of Title VII, lower courts have relied on precedent addressing related issues. (21) In resolving the partner-employee question, most courts apply dicta from the seminal case Hishon v. King & Spalding. (22) In Hishon, the Court considered a female associate's claim that the defendant law firm partnership discriminated against her because of her sex in the decision not to promote her to partner. (23) Ruling in favor of the plaintiff, the Court opined that consideration for partnership constituted a term, condition, or privilege of employment and evidence that the firm considered an impermissible characteristic, namely the plaintiff's sex, in the selection process was subject to scrutiny under the provisions of Title VII. (24) The Court held that Title VII explicitly forbids discrimination against a member of a protected class on the basis of an immutable characteristic when deciding to promote associates to partner. (25) Hishon left unresolved the issue of whether a partner facing analogous circumstances--discrimination based on her sex--could bring a Title VII claim against her partnership. (26)

In response to the question of who qualifies as an employee, most circuit courts have adopted either a per se rule or an economic realities test. (27) To varying degrees, these two approaches rely on language from Justice Powell's concurring opinion in Hishon. (28) According to the concurrence, partners in traditional law firm partnerships do not require the protection of Title VII because of the intimate nature of a partnership. (29) Justice Powell's concurrence assumes that partners, having contributed similar amounts to the firm's capital structure, are co-owners of the business, participants in the firm's management structure, and contributors to the firm's decisionmaking process, which is characterized by common agreement. (30)

Relying on Justice Powell's concurrence, courts adopting the first method of analysis employ a per se rule to exclude partners from the definition of employee and to prevent partners from invoking Title VII against partnerships. (31) Some courts using a per se rule have applied the rule exclusively to businesses organized as partnerships with management officials titled partners. (32)

Courts adopting the second approach inquire as to whether the plaintiff-partner's economic reality, meaning her actual level of ownership and control, provides her with sufficient authority to combat discrimination levied against her. (33) These courts reject the argument that partners in law firm partnerships must be exempted from Title VII coverage by virtue of their job title or the law firm's chosen business form. (34) Instead, these courts propose a case-by-case analysis of the partner's relationship with the defendant-business and the partner's participation in the firm's ownership and decisionmaking processes. (35) The economic realities test aims to discern whether the partner alleging discrimination is "so dominated in or by the organization that he or she is really like an employee, with corollary susceptibility to discrimination." (36)

In recent years, many structural and organizational changes within law firms have complicated the partner-employee analysis. (37) In the years after Hishon, firms began to adopt business models that differ significantly from the traditional partnership model referenced in Justice Powell's concurrence. (38) Modern law firms may select from numerous forms of business organization, such as general or limited liability partnerships, limited liability companies, or professional corporations. (39) Depending on a law firm's choice of business form, the management structure may include directors, presidents and vice-presidents, shareholders, or managers. (40) Examination of the differences between the traditional law firm partnerships referenced in the Hishon concurrence and contemporary law firms raise doubts about the soundness of Justice Powell's assertion that partners are not among those Congress intended Title VII to protect.

This Note argues that the Court should interpret the term employee in Title VII to include partners and similarly situated executives. Noting that the Hishon concurrence has had a significant influence on the standards lower courts have adopted to evaluate the partner-employee question, Part I deconstructs Justice Powell's concurrence and identifies the mistaken assumptions in his reasoning. This Part explores the notable structural changes that have occurred in the modern law firm's nature and demographics and the available business organization forms. Part II contends that lower courts have relied on the reasoning articulated in Justice Powell's concurrence or some similarly flawed rationale and, as a result, the standards developed to determine who qualifies as an employee fail to offer a viable solution to the debate. Part III argues that interpreting the definition of employee in Title VII to include partners and similarly situated executives would satisfy the congressional purpose underlying the statute and offer a clear resolution to the debate, allowing litigants to predict with greater accuracy their coverage or. exposure under the law.

1. DARWINIAN ADAPTATIONS: DEVELOPMENTS IN STRUCTURAL ORGANIZATION AND BUSINESS FORMS

   While at one time the term "vulnerable partner" seemed like an oxymoron, recent organizational changes within law firms have altered leadership and ownership structures increasing the possibility that one can attain the status of partner and remain susceptible to the harms of employment discrimination. This Part contends that arguments denying law firm partners the ability to bring Title VII suits against their firms rest on fundamentally flawed assumptions. Section I.A examines Justice Powell's concurring opinion in Hishon v. King & Spalding. This Section argues that the structure of law firms deviates significantly from the firms envisioned in Justice Powell's concurrence, undermining his rationale for refusing to extend Title VII coverage to include law firm partners. Section I.B presents the Equal...