Court Opinion

ID: 9495673
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:08:12.668023+00
Date Added: 2024-06-11T17:57:08.926479
License: Public Domain

*708EASTERBROOK, Circuit Judge,
concurring in part and concurring in the judgment.
I join my colleagues’ exemplary discussion of the law governing agency subpoenas (slip op. 699-701) but otherwise concur only in the judgment. I do not think that the scope of the adea’S coverage is as unfathomable as the majority makes out, nor do I believe that if the law were so ambulatory we should punt the legal question to the district court. Instead we should do our best to reduce uncertainty. Sidley and other large partnerships need to plan their affairs; their members also need to know their legal status. Can large law firms adopt mandatory-retirement rules? It is disappointing that the eeoo should profess, some 30 years after the adea’s enactment, that it hasn’t a clue about the answer. My colleagues’ opinion does not help matters, and this is a missed opportunity.
The adea’s definition of “employee” has a circular quality:
The term “employee” means an individual employed by any employer except that the term “employee” shall not include any person elected to public office in any State or political subdivision of any State by the qualified voters thereof, or any person chosen by such officer to be on such officer’s personal staff, or an appointee on the policymaking level or an immediate adviser with respect to the exercise of the constitutional or legal powers of the office. The exemption set forth in the preceding sentence shall not include employees subject to the civil service laws of a State government, governmental agency, or political subdivision. The term “employee” includes any individual who is a citizen of the United States employed by an employer in a workplace in a foreign country.
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 (Sec*709ond) 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.
So too with partnership law. No one believes that a bona fide partner is in a master-servant relation with the partnership, or that the partner “is employed by” the partnership. The qualification “bona fide ” is important; as Justice Powell observed in Hishon, an employer may not evade obligations under federal law by plastering the name “partner” on someone whose legal and economic characteristics are those of an employee. See also Restatement (Third) of Agency § 1.02 (T.D. 2, 2001) (parties’ labels do not control). But if a person has those attributes that differentiate “partners” from “employees” in normal legal usage, then Darden classifies that person as a non-employee for purposes of a federal statute such as § 630(f). It is neither our duty, nor our privilege, to invent a federal law of employment relations, as my colleagues appear to believe. The law must be federal (because § 630 is a federal statute), but Darden tells us that federal law tracks ordinary principles of master-servant relations that come from state law.
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 Sid-ley’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.
The 32 lawyers were real partners and consequently not “employees.” My colleagues’ suggestion that one can be a partner under normal agency principles and still be an “employee” because of a federal-law override is incompatible with Darden. Anyway, it makes both linguistic and economic sense to say that someone who is liable without limit for the debts of an organization is an entrepreneur (a princi*710pal) rather than an “employee” (an agent). Unlimited liability and profit-sharing give each partner an interest in monitoring (and if need be expelling) those other partners who are shirking or otherwise not carrying their part of the load. Their actions in this respect are those of owners. Cf. Eugene- F. Fama & Michael Jensen, Separation of Ownership and Control, 26 J.L. & Econ. 301, 315-17 (1983); Fama & Jensen, Agency Problems and Residual Claims, id. at 327, 334-36.
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 leads me to concur in the judgment is not any doubt about the right characterization of the 32 demoted partners but uncertainty about that of other lawyers. Sidley has a retirement age for everyone it dubs a partner. Whether this is lawful can be determined only by classifying, as “employee” or not, every lawyer who carries a “partner” label. The eeoo is entitled to investigate without knowing in advance how the inquiry will come out. It may well be that Sidley designates as “partners” lawyers who are paid straight salaries plus bonuses rather than a portion of the profit (or loss) set ex ante. Unlike my colleagues, I do not read the eeoo’s brief as conceding that all of Sidley’s members are just like the 32 about whom Sid-ley has provided information. How could the eeoo tell at this stage whether the 32 are a representative sample? It wants to know whether some “partners” are paid entirely on the basis of guarantees (that is, salaries) or have compensation packages slanted so heavily toward the guarantee that they would not be liable for the firm’s debts. The eeoo also seeks to learn whether all partners have capital accounts at risk as the demoted 32 did. These are things that the eeoc is entitled to find out for everyone covered by the mandatory-retirement policy.
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” *711demonstrate 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 Sid-ley’s members.
Dowd held that classification of a person as an “employee” under state law must be disregarded, for purposes of federal law, when the corporation is closely held — a professional corporation that differs from a partnership (beyond matters of form) only in the extent to which the members are personally liable for the firm’s debts. Clackamas held, to the contrary, that any person classified as an employee for purposes of state law necessarily is an employee for purposes of federal law. Dowd has at least the virtue of symmetry; it always looks through state-law forms (though I confess unease about what Dowd identifies as the legally important “realities”; professionals who are not personally hable for debts lack one of the principal attributes of partners). Clackamas, by contrast, states only a rule of inclusion: one can become an “employee” by virtue of state law even if one has all of the attributes that agency law associates with being an independent contractor or a partner, but a classification as a “partner” or “independent contractor” under state law is never conclusive in the employer’s favor. This is not Darden’s approach (nor did the ninth circuit cite Darden or Reid). If we are to use ordinary agency-law principles to identify an “employee,” we should be consistent. The ninth circuit, though, has a thumb on the scale in favor of classification as an “employee.”
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 Sidle/s other lawyers should be classified, so a remand is in order. Enforcing those aspects of the subpoena that call for information relevant *712to 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.