The Risk Manager, Spring 2010

Risk management considerations in restructuring and winding-up law firms.

  • Firms are now more at risk for employment claims: Panelists stressed that law firms as employers now face the same risk of an employee claim as any other business. These suits are brought by:
    • Partners claiming that they are employees and not owners.
    • Employed lawyers.
    • Non-professional employees of the firm.
  • Eight primary types of employment claims were identified:
    • Breach of contract
    • Discrimination
    • Retaliation
    • Failure to accommodate
    • Harassment
    • State law breach of fiduciary duty
    • Other tort claims
    • Statutory claims – there are over 20 significant federal and state laws applicable to the employment relationship
  • When is a partner an employee with standing to claim? Whether a partner is an owner or employee is the critical question in an employment claim by a lawyer that had a title of partner. See Clackmas Gastroenterology v. Wells, 538 U.S. 440 (2003), for guidance on answering this question. The panelists recommended a conservative approach by “Presuming coverage under the civil rights acts and afford all partners with the same policy and administrative protections that would be afforded employees – in other words – treat it as a risk management issue.”
  • Managing a reduction-in-force (RIF): Firms should prepare a RIF or winding up plan when restructuring or dissolving. Panelists recommended that RIF plans cover:
    • The underlying business reasons for the RIF.
    • The criteria used to determine how the selection process is made.
    • The procedures used in administering the RIF plan.
    • The separation benefits that will be provided to affected employees.
    • Identification of decision-makers.
    • Recall opportunities, if any.

It was pointed out that RIF plans often go wrong when:

  • RIF documentation is created in response to a lawsuit.
  • The employer is unable to identify who actually made the decision with regard to laid off employees.
  • Different members of management offer different reasons for selection
  • There is a lack of consistency in the process and procedures.
  • Be especially careful when terminating employees over the age of 40: It was strongly recommended that an impact assessment be made for employees over 40 under consideration for termination with special attention to the Age Discrimination Employment Act as amended by the Older Worker Benefit Protection Act.
  • Distinguish between at will employees who can be terminated for any reason and those with contractual rights: Some firms have employment contracts with law firm administrators and some levels of partner or shareholder. These can be in the form of written agreements or written firm policies covering specific classes of persons working in the firm. The panelists recommend that no RIF or restructuring decisions be made before reviewing individual employment contracts and firm employee policies and procedures.