The Partnership Paradigm and Law Firm Nonequity Partners

Abstract

Law firms have traditionally been organized as partnerships. The law generally treats the relationship among or between partners as one of equals. Unfortunately, equality - for all its virtues - has a downside in professional partnerships. Some partners are simply more productive than others, regardless of how productivity is measured. In some firms, productive partners effectively subsidize their unproductive or under-productive peers. Equality poses other potential problems, as well. For example, some associates who become eligible for partnership based on years of service at a firm may not be prepared to assume the mantle of partnership and the professional obligations and responsibilities that come along, or their particular practices may not justify promotion to partnership. The perceived deficiencies or inefficiencies of traditional partnerships have not been lost on law firm leaders and those who advise them, and the 1970s accordingly saw the advent of two-tiered partnerships. Two-tier partnerships are characterized by a top tier of partners who hold equity in the firm and a lower tier of partners who do not. Most large law firms are now either two-tier or multi-tier partnerships. The widespread acceptance of non-equity partnerships does not, however, connote agreement among lawyers or courts on what it means to be a non-equity partner, or even whether non-equity partners are in fact partners. This article analyzes whether non-equity partners truly are partners in their firms as a matter of partnership law. It also explores the descending path to non-equity partnership, i.e., de-equitization. Consistent with the law of partnership expulsions, it explains that firms may de-equitize partners without incurring related liability so long as they do not do so for predatory purposes. Finally, it examines employment law constraints on law firms’ treatment of non-equity partners. It concludes that contrary to the views held by many lawyers and scholars, whether law firm partners are protected under anti-discrimination laws depends not on whether they are equity partners or non-equity partners, but on their workplace control.