Source: https://law.justia.com/cases/federal/appellate-courts/F3/315/696/632941/
Timestamp: 2019-09-23 11:46:29
Document Index: 73172686

Matched Legal Cases: ['§ 623', '§ 626', '§ 1626', '§ 630', '§ 203', '§ 630', '§ 158', '§ 402', '§ 1002', '§ 2611', '§ 203', '§ 2000', '§ 12111', '§ 220', '§ 202', '§ 7']

Equal Employment Opportunity Commission, Applicant-appellee, v. Sidley Austin Brown & Wood, Respondent-appellant, 315 F.3d 696 (7th Cir. 2002) :: Justia
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Equal Employment Opportunity Commission, Applicant-appellee, v. Sidley Austin Brown & Wood, Respondent-appellant, 315 F.3d 696 (7th Cir. 2002)
US Court of Appeals for the Seventh Circuit - 315 F.3d 696 (7th Cir. 2002) Argued September 6, 2002Decided October 24, 2002
COPYRIGHT MATERIAL OMITTED Jennifer S. Goldstein (argued), E.E.O.C., Office of the General Counsel, Washington, DC, for Petitioner-Appellee.
In 1999, Sidley & Austin (as it then was) demoted 32 of its equity partners to "counsel" or "senior counsel." The significance of these terms is unclear, but Sidley does not deny that they signify demotion and constitute adverse personnel action within the meaning of the anti-discrimination laws. The EEOC began an investigation to determine whether the demotions might have violated the Age Discrimination in Employment Act. After failing to obtain all the information it wanted without recourse to process, the Commission issued a subpoena duces tecum to the firm, seeking a variety of documentation bearing on two distinct areas of inquiry: coverage and discrimination. The reason for the inquiry about coverage is that the ADEA protects employees but not employers. E.g., Simpson v. Ernst & Young, 100 F.3d 436, 443 (6th Cir. 1996); see 29 U.S.C. §§ 623(a) (2), (a) (3), 630(f). To be able to establish that the firm had violated the ADEA, therefore, the Commission would have to show that the 32 partners were employees before their demotion.
Sidley can obtain no mileage by characterizing the coverage issue as "jurisdictional." It is the law that the EEOC cannot protect employers; and it is also the law that like any agency with subpoena powers the EEOC is entitled to obtain the facts necessary to determine whether it can proceed to the enforcement stage. EEOC v. United Air Lines, Inc., 287 F.3d 643, 651 (7th Cir. 2002); Commodity Trend Service, Inc. v. CFTC, 233 F.3d 981, 986-87 (7th Cir. 2000); SEC v. Brigadoon Scotch Distributing Co., 480 F.2d 1047, 1052-53 (2d Cir. 1973). Among these are facts bearing on whether the 32 demoted partners were employees within the meaning of the age discrimination law. The Commission is entitled to the information that it thinks it needs in order to be able to formulate its theory of coverage before the court is asked to choose between the Commission's theory and that of the subpoenaed firm. Only if, as in Reich v. Great Lakes Indian Fish & Wildlife Comm'n, 4 F.3d 490 (7th Cir. 1993), the information that the subpoenaed firm resists furnishing is not even arguably relevant, because it is evident at the outset that whether the agency has any business conducting the investigation depends on a pure issue of statutory interpretation, can the court resolve the issue then and there without insisting on further compliance with the subpoena. See also EEOC v. Shell Oil Co., 466 U.S. 54, 64-65, 104 S. Ct. 1621, 80 L. Ed. 2d 41 (1984); FTC v. Miller, 549 F.2d 452, 460-61 (7th Cir. 1977); FTC v. Ken Roberts Co., 276 F.3d 583, 586-87 (D.C. Cir. 2001); EEOC v. Karuk Tribe Housing Authority, 260 F.3d 1071, 1076-77 (9th Cir. 2001); EEOC v. Ocean City Police Dept., 820 F.2d 1378, 1380 (4th Cir. 1987) (en banc), vacated on other grounds, 486 U.S. 1019, 108 S. Ct. 1990, 100 L. Ed. 2d 223 (1988). The issue in Great Lakes was whether the Fair Labor Standards Act applies to game wardens on Indian reservations. If, as we held, it did not, the continued investigation of the wardens' employer was all burden and no benefit, making insistence on compliance with the Labor Department's subpoena unreasonable. See EEOC v. United Air Lines, Inc., supra, 287 F.3d at 653.
Great Lakes does not hold, as Sidley argues, that characterizing a threshold issue as "jurisdictional" takes a case out of the general rule (on which see Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 212-14, 66 S. Ct. 494, 90 L. Ed. 614 (1946); Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 508-09, 63 S. Ct. 339, 87 L. Ed. 424 (1943); EEOC v. Peat, Marwick, Mitchell & Co., 775 F.2d 928, 930-31 (8th Cir. 1985); FTC v. Ken Roberts Co., supra, 276 F.3d at 585-87) that enforcement of a subpoena cannot be resisted on the ground that the information the agency is seeking would not justify an enforcement action. The cases are legion that there is no general exception to the rule for issues going to the agency's jurisdiction. See, e.g., FTC v. Feldman, 532 F.2d 1092, 1095-96 (7th Cir. 1976); FTC v. Ken Roberts Co., supra, 276 F.3d at 585-87; United States v. Sturm, Ruger & Co., 84 F.3d 1, 5-6 (1st Cir. 1996). As explained in United States v. Construction Products Research, Inc., supra, 73 F.3d at 470, "at the subpoena enforcement stage, courts need not determine whether the subpoenaed party is within the agency's jurisdiction or covered by the statute it administers; rather the coverage determination should wait until an enforcement action is brought against the subpoenaed party." Sidley gains nothing, therefore, from characterizing the coverage issue as jurisdictional, and so we need not decide whether the characterization is correct.
But the cases leave intact the principle that a subpoena may be challenged as unreasonable. And one basis on which it may be found unreasonable is that, as in Great Lakes, the agency clearly is ranging far beyond the boundaries of its statutory authority. As the Supreme Court explained in United States v. Morton Salt Co., 338 U.S. 632, 652, 70 S. Ct. 357, 94 L. Ed. 401 (1950), "of course a governmental investigation into corporate matters may be of such a sweeping nature and so unrelated to the matter properly under inquiry as to exceed the investigatory power. But it is sufficient if the inquiry is within the authority of the agency, the demand is not too indefinite and the information sought is reasonably relevant." In Endicott Johnson Corp. v. Perkins, supra, 317 U.S. at 509, 63 S. Ct. 339, the Court noted that "the evidence sought by the subpoena was not plainly incompetent or irrelevant to any lawful purpose of the Secretary in the discharge of her duties under the Act, and it was the duty of the District Court to order its production for the Secretary's consideration" — implying therefore that had the evidence sought by the subpoena been "plainly incompetent or irrelevant to any lawful purpose," enforcement would have been denied. See also United States v. Construction Products Research, Inc., supra, 73 F.3d at 471.
The case law dealing with challenges to subpoenas contains the statement that the EEOC's "investigative authority is tied to charges filed with the Commission; unlike other federal agencies that possess plenary authority to demand to see records relevant to matters within their jurisdiction, the EEOC is entitled to access only to evidence `relevant to the charge under investigation.'" EEOC v. Shell Oil Co., supra, 466 U.S. at 64, 104 S. Ct. 1621; see also EEOC v. United Air Lines, Inc., supra, 287 F.3d at 650. But this was said with reference to Title VII; the ADEA's grant of investigative authority to the Commission is not cabined by any reference to charges. 29 U.S.C. § 626(a); 29 C.F.R. § 1626. Anyway the Supreme Court has held that the Commission can file its own charges of violation of Title VII. EEOC v. Shell Oil Co., supra, 466 U.S. at 69-70, 104 S. Ct. 1621. So it is doubly irrelevant that none of the 32 demoted partners has filed a charge.
Although the EEOC does not concede that the 32 are bona fide partners even under state law, it is emphatic that their classification under state law is not dispositive of their status under federal antidiscrimination law. The antidiscrimination laws do not exempt partnerships from coverage (Sidley concedes that) or deny partners, as such, the protection of the laws. Employers are not protected by discrimination laws such as Title VII and the ADEA, but are partners employers? Always? Always for purposes of Title VII or the ADEA, or the other federal laws that prohibit employment discrimination? Statutory purpose is relevant. When the Supreme Court in Robinson v. Shell Oil Co., 519 U.S. 337, 346, 117 S. Ct. 843, 136 L. Ed. 2d 808 (1997), was faced with the question whether "employee" in Title VII includes a former employee, it looked to "consistency with a primary purpose of antiretaliation provisions: Maintaining unfettered access to statutory remedial mechanisms. The EEOC quite persuasively maintains that it would be destructive of this purpose of the antiretaliation provision for an employer to be able to retaliate with impunity against an entire class of acts under Title VII." And when in Papa v. Katy Industries, Inc., 166 F.3d 937 (7th Cir. 1999), we held that, in deciding whether a firm has the minimum number of employees required for it to be covered by federal antidiscrimination law we would not pierce the corporate veil, we did so on the basis of "the policy behind the exemption for employers that have very few employees." Id. at 942.
An individual who was classified as a partner-employer under state partnership law might be classified as an employee for other purposes, including the purpose for which federal antidiscrimination law extends protection to employees but not employers. Against this conclusion it can be argued that partners should be classified as employers rather than employees for purposes of the age discrimination law because partnership law gives them effective remedies against oppression by their fellow partners, because partnership relations would be poisoned if partners could sue each other for unlawful discrimination, and because the relation among partners is so intimate that they should be allowed to discriminate, just as individuals are allowed to discriminate in their purely personal relations. This is not the occasion on which to come down on one side or the other of the issue, though we note that in Hishon v. King & Spalding, 467 U.S. 69, 78, 104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984), the Supreme Court rejected the argument that the intimate nature of the partnership relation precludes a challenge under Title VII to a discriminatory refusal to promote an employee to partner.
Perhaps the most partneresque feature of the 32 partners' relation to the firm is their personal liability for the firm's debts: not because unlimited liability is a sine qua non of partnership (there can be limited partnerships, and there are other business entities besides partnership that have unlimited liability — a sole proprietorship, for example), but because it is the most salient practical difference between the standard partnership and a corporation. Sidley does not have limited liability, and this means, by the way, that although under the firm's rules each partner is liable for the firm's debts only in proportion to his capital, a creditor of the firm could sue any partner for the entire debt owed it. Is this enough to pin the partner tail on the donkey? Wheeler v. Hurdman, 825 F.2d 257, 274-75 (10th Cir. 1987), comes close to saying it is; see also Fountain v. Metcalf, Zima & Co., P.A., 925 F.2d 1398, 1400-01 (11th Cir. 1991). Yet it does not quite deny the necessity of considering other factors. And tugging the other way are Strother v. Southern California Permanente Medical Group, 79 F.3d 859, 866-68 (9th Cir. 1996) (interpreting a similar provision of state antidiscrimination law), and Simpson v. Ernst & Young, supra, 100 F.3d at 441-42. Simpson classified partners as employees in circumstances broadly similar to, though distinguishable from, those of the present case:
The problem of line drawing presented by this case is not unique to employment. It arises whenever legal consequences turn on classification as partner versus employee, whether in tax and tort cases or in discrimination cases. See, e.g., Armstrong v. Phinney, 394 F.2d 661, 663-64 (5th Cir. 1968) (tax); Davis v. Loftus, 2002 WL 31031467 (Ill.App. Sept.9, 2002) (tort liability). The law does not allow firms to obtain the benefits or avoid the costs associated with particular forms of doing business by simple redesignation. Of course firms have broad freedom of election among the different forms of doing business, such as the corporate, partnership, LLC, and so forth. Their freedom is not unlimited; there is, for example, the "substance over form" rule of tax law. See, e.g., Yosha v. Commissioner, 861 F.2d 494, 497-98 (7th Cir. 1988). But the question, as we have been at pains to emphasize throughout this opinion, is not whether Sidley is a partnership; it is. The question is whether, when a firm employs the latitude allowed to it by state law to reconfigure a partnership in the direction of making it a de facto corporation, a federal agency enforcing federal antidiscrimination law is compelled to treat all the "partners" as employers.
Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 323-25, 112 S. Ct. 1344, 117 L. Ed. 2d 581 (1992) (citations and internal quotation marks omitted). In a subsequent case, we said the most important factor in deciding whether a worker was an employee or an independent contractor was the employer's right to control the worker's work. Ost v. West Suburban Travelers Limousine, Inc., 88 F.3d 435, 438 (7th Cir. 1996). That is a potentially important factor here as well. Both decisions reject mechanical tests.
We can get a little help on the question in our case from Justice Powell's concurring opinion in Hishon v. King & Spalding, supra, 467 U.S. at 79-81, 104 S. Ct. 2229, one of the few discussions of the applicability of Title VII to partnerships. Here is what he said (id. at 79-80, 104 S. Ct. 2229; record reference omitted):
Justice Powell was saying that a traditional law partnership, involving "the common conduct of a shared enterprise" and a relationship among the partners that "contemplates that decisions will be made by common agreement or consent among the partners," has a governance structure different from the one contemplated or assumed by Title VII. At the same time he was making clear that labeling as a partnership an enterprise that does not have the structure, the character, of the traditional partnership will not immunize it from the statute. In a case in which we held that partners were employers for purposes of Title VII, the partnership was, so far as appears, an equal partnership of four partners. See Burke v. Friedman, 556 F.2d 867, 868 (7th Cir. 1977).
A functional approach need not always lead to an expansion in coverage. When physicians who were both the shareholders of a professional medical corporation and employees of the corporation argued that they were "really" employers for purposes of deciding whether the corporation had enough employees to come within the reach of the Americans with Disabilities Act, a panel of the Ninth Circuit, rejecting the "economic realities" test proposed by the dissent, refused to look behind the formal status of the medical personnel as employees and concluded that the corporation was indeed covered by the Act. Wells v. Clackamas Gastroenterology Associates, P.C., 271 F.3d 903, 905-06 (9th Cir. 2001), cert. granted, ___ U.S. ___, 123 S. Ct. 31, 153 L. Ed. 2d 893 (2002); see also Hyland v. New Haven Radiology Associates, P.C., 794 F.2d 793, 796-98 (2d Cir. 1986). Like the dissent in Wells, we had employed an "economic realities" test to hold that a professional corporation could be treated as a partnership, EEOC v. Dowd & Dowd, Ltd., 736 F.2d 1177 (7th Cir. 1984), and it could be argued that consistency precludes our rejecting the Commission's "economic realities" test in this case, at least at this early stage in the Commission's investigation. And even the majority in Wells stated that a firm could not, by affixing the label of "partner" to someone who was functionally an employee, avoid federal antidiscrimination law. Wells v. Clackamas Gastroenterology Associates, P.C., supra, 271 F.3d at 905.
29 U.S.C. § 630(f). Yet this does not condemn us to wandering forever through the mist like the Flying Dutchman. The ADEA was interpolated into the Fair Labor Standards Act, and its definition of employee tracks the FLSA'S. 29 U.S.C. § 203(e). It turns out to be a definition in wide use. Language essentially identical to the first clause of § 630(f) appears in the National Labor Relations Act, 29 U.S.C. § 158(b) (4) (i); the Labor-Management Reporting and Disclosure Act, 29 U.S.C. § 402(f); the Employee Retirement Income Security Act, 29 U.S.C. § 1002(6); the Family and Medical Leave Act, 29 U.S.C. § 2611(3) (incorporating § 203(e)); Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e(f); and the Americans with Disabilities Act, 42 U.S.C. § 12111(4). This means on the one hand that a search for legislative purpose is futile — Congress took off the rack language devised, and often used, for subjects other than employment discrimination — and on the other hand that a definition may be secured from opinions that have addressed these other statutes. For example, in Hishon v. King & Spalding, 467 U.S. 69, 104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984), all of the Justices assumed — and Justice Powell in concurrence was explicit — that a bona fide partner of a large law firm is not an "employee" for purposes of Title VII. More recently, when dealing with ERISA, the Court held unanimously that the definition's circularity should be fixed by incorporating into federal law the traditional state agency-law criteria for identifying master-servant relations. Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 322-27, 112 S. Ct. 1344, 117 L. Ed. 2d 581 (1992).
Darden turned on the distinction between an employee and an independent contractor. As they had done when resolving a similar problem in copyright law, see Community for Creative Non-Violence v. Reid, 490 U.S. 730, 109 S. Ct. 2166, 104 L. Ed. 2d 811 (1989), the Justices looked to the approach in the Restatement (Second) of Agency § 220(2) (1958). We have done the same in cases arising under other federal statutes that have circular definitions of "employee." See, e.g., Ost v. West Suburban Travelers Limousine, Inc., 88 F.3d 435, 437-39 (7th Cir. 1996). Likewise we have drawn from state-law principles — such as the rule that corporate form must be respected — to determine whether an "employer" has enough "employees" to come under a federal statute. See, e.g., Papa v. Katy Industries, Inc., 166 F.3d 937 (7th Cir. 1999). As Darden recognized, these bodies of law contain some flexible elements but give ready answers for the great majority of situations.
Were the 32 lawyers bona fide partners? The majority all but concedes that they were. If this had been a suit under the diversity jurisdiction, and we needed to decide whose citizenship counted for purposes of the rule that a partnership has every partner's citizenship, see Carden v. Arkoma Associates, 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990), we would have acknowledged that all 32 were partners by normal reckoning. We know that all 32(i) received a percentage of Sidley's profits and had to pony up if Sidley incurred a loss; (ii) had capital accounts that were at risk if the firm foundered; and (iii) were personally liable for the firm's debts and thus put their entire wealth, not just their capital accounts, on the line. We also know that (iv) no non-partner has an equity interest in the firm. The most important of these is the first (which implies the third): under the Uniform Partnership Act, it is profit-sharing (coupled with the lack of organization as an entity under some other law) that defines a partnership and identifies its partners, all of whom are personally liable for the venture's debts. See Uniform Partnership Act § 202 (1997 rev.); see also Daniel S. Kleinberger, Agency, Partnerships, and LLCs § 7.2.1 (2d ed.2002). Illinois, which has enacted the model act into positive law, treats participation in profits as the defining characteristic of a bona fide partner. The court in Davis v. Loftus, 334 Ill.App.3d 761, 268 Ill.Dec. 522, 778 N.E.2d 1144 (2002), held that a partner who shares in the profits or loss is personally liable for the law firm's debts, while an "income partner" who receives a salary plus a bonus is an employee and not liable for the firm's debts.
Perhaps each practice group at a large firm is best viewed as a distinct venture, and the umbrella organization (run by the Executive and Management Committees at Sidley) as a partnership of partnerships. The top committees can make all decisions, but much power is bound to be delegated, just as departments at a university make their own hiring and salary decisions even though a self-perpetuating board of trustees holds all the legal authority. Membership on an academic department's appointments committee is a position of real influence and responsibility even though the trustees formally make all appointments. See NLRB v. Yeshiva University, 444 U.S. 672, 100 S. Ct. 856, 63 L. Ed. 2d 115 (1980) (holding that all faculty members are managers for purposes of federal labor law even though they lack any legal instruments of control). So too within the judiciary: committees of the Judicial Conference effectively make many of the most important administrative decisions although committee members do not sit on the Conference. Doubtless things work similarly at large law firms, so my colleagues ought not sneeze at Sidley's observation that all 32 demoted partners served on committees. But the relation between practice groups and the whole firm, and the allocation of managerial authority among the lawyers, do not matter to classification: a member of a large partnership including smaller associations remains a partner rather than an employee in both economic and legal senses. My colleagues tellingly do not cite a single state case, or any scholarly commentary, restatement, or model code, for the proposition that concentration of decision-making authority within an entity alters the legal status of those who share profits and bear all residual risk of loss.
What is more, EEOC v. Dowd & Dowd, Ltd., 736 F.2d 1177, 1178 (7th Cir. 1984), appears to commit this circuit to the view that state law forms don't matter, and that a federal court must assess for itself the question whether the "economic realities" demonstrate the existence of an employment relation. I say "appears to" not only because Dowd precedes Darden but also because any reference to "economic realities" poses the question which of many realities will be selected as those that matter. Maybe all that Dowd shows is that our court seeks to search out those realities that matter under ordinary agency law, and to look past veneers that lack legal or economic significance. That would align Dowd with Justice Powell's concurring opinion in Hishon, on which the panel in Dowd relied. But there would be little point in revisiting the matter today, because the Supreme Court will decide this Term whether Dowd is correct. The ninth circuit in Wells v. Clackamas Gastroenterology Associates, P.C., 271 F.3d 903 (2001), cert. granted, ___ U.S. ___, 123 S. Ct. 31, 153 L. Ed. 2d 893 (2002), rejected both the method and the outcome of Dowd, and the grant of certiorari enables the Supreme Court to resolve some or all of the problems that govern the classification of Sidley's members.
Darden is not alone in preferring symmetry. For example, Robinson v. Shell Oil Co., 519 U.S. 337, 117 S. Ct. 843, 136 L. Ed. 2d 808 (1997), holds that an ex-employee is an "employee" for some purposes under Title VII without regard to classification under state law, and Walters v. Metropolitan Educational Enterprises, Inc., 519 U.S. 202, 117 S. Ct. 660, 136 L. Ed. 2d 644 (1997), holds that for purposes of determining whether the employer exceeds the statutory size threshold an "employee" is a person on the firm's payroll at a given time, whether or not that person is paid for the date used in measurement. Both Robinson and Walters adopt rules that attach consequences to particular attributes, without asking what names state law (or particular employers) give to those attributes. Likewise with the question whether a person who shares in a venture's profits and losses and has unlimited personal liability for the enterprise's debts is an employee. We should ask not what the organization, or any given state, calls this person; we should ask how this set of attributes is classified under the prevailing law of agency. I think it very likely that the 32 lawyers Sidley demoted would be classified as partners rather than employees under this body of rules, but I do not know how Sidley's other lawyers should be classified, so a remand is in order. Enforcing those aspects of the subpoena that call for information relevant to the merits would be unduly burdensome until this task has been completed, and unless the evidence then shows that Sidley has classified as "partners" some persons who are employees under ordinary agency principles.