Issues In Law Office Employment

I. Introduction

This outline will discuss broad employment law issues pertaining to law office employment. The outline does not provide an in-depth analysis of partnership law or ERISA law, each of which has significance in law firm employment.

As employers, lawyers face the same issues in managing a work force that other businesses face. Employment issues take on greater significance in law offices, however, because lawyers are expected to be knowledgeable about employment law. There is a perhaps misguided expectation that lawyers will handle their own employment relations with somewhat greater precision than other businesses. But see, Bandy v. Sprecher, 1993 WL 276974 (E.D. Pa.). Therefore, employment litigation with a law firm as a party will attract attention, both within the legal profession and within the broader community. Law firms are target defendants, as shown by the multi-million dollar jury verdict in the Baker & McKenzie sexual harassment case.

The presumption of at-will employment applies in law office employment, as it does in the workplace generally in Pennsylvania. See, e.g., Solodky v. Post & Schell, P.C., 1998 WL 461854 (E.D. Pa.). Absent a contract for a pre-determined period or a contract for employment that limits the grounds for discharge, an employee of a law office may be terminated at any time, for any reason, or for no reason. Charleston & Fenerty, P.C. v. DeLuca, 17 Phila. Co. Reptr. 590, 1988 WL 679814 (Phila. Co. 1988), vacated and aff’d, 390 Pa. Super. 649, 561 A.2d 816 (1989). Courts will enforce the durational and notice requirements of law firm employment contracts, however. Doe v. Kohn, Nast & Graf, P.C., 862 F. Supp. 1310, 1324-1325 (E.D. Pa. 1994).

The common exceptions and limitations to the employment-at-will rule (civil rights laws and public policy principles) apply to law office employment. Additionally, the employment-at-will rule is limited by factors that are unique to law firms. At the equity partnership level, partnership agreements and the attendant fiduciary duty of partners and the duty of good faith and fair dealing limit the at-will doctrine. The objective means of quantifying performance for professionals and para-professionals may lead to compensation and benefits disputes The Rules of Professional Conduct give rise to public policy claims.

II. Contractual Issues

A. Partners

Fiduciary duty and duty of good faith and fair dealing – Continuing partners owe no fiduciary duty or duty of good faith to withdrawing partner after partner withdraws from firm. See, e.g., Poeta v. Jaffe, 51 Pa. D. & C.4^th 78 (Phila. Co. 2001)

Retirement benefits – A partnership may not retroactively modify retirement benefits to the detriment of retired partners who had fulfilled the requirements for benefits, e.g., completion of the requisite years of service and receipt of retirement compensation. Abbott v. Schnader, Harrison, Segal & Lewis, LLP, 50 Pa. D. & C.4^th 225 (2001).

B. Salaried Attorneys

Upon leaving a law firm, salaried attorneys have no right to obtain client files or to receive distribution of assets of the firm. Murphy v. Burke, 454 Pa. 391, 311 A.2d 904 (1973).

Salaried attorneys who accept compensation with no explicit agreement for payment of bonuses may not sue for additional compensation under a theory of quantum meruit. See Murphy v. Haws & Burke, 235 Pa. Super. 484, 344 A.2d 543 (1975).

C. Fraud

1. Partnership

Non-equity partner of firm stated claim for breach of contract and for fraud after being terminated without cause, in violation of an agreement that plaintiff could only be terminated for cause and would be reviewed for position as a full-equity partner. The fraud count stemmed from the law firm’s misrepresentations that the lawyer would be considered for a full-equity partner position and would share in a percentage of the gross fees of the firm. Gransante v. Allan Kanner & Associates, 1994 WL 517913, Motion to Certify Denied, 1994 WL 630209 (1994) (E.D. Pa.).

In McBride v. Thorp, Reed & Armstrong, 139 Pittsburgh 229 (1991), a tax partner won $685,000 in damages for breach of contract and fraud arising from his discharge after being recruited by a law firm from a corporate position, with the representation that the lawyer would be a partner and head of the tax department. Plaintiff believed that he was assured of "lifetime" employment; he based his breach of contract claim on an averment that he was promised a partnership interest until he reached the age of 70. However, the partner was asked to resign after one year.

2. Corporation Counsel

Claim of fraud in the inducement connected with entry into employment agreement is barred by parol evidence rule and by "gist of the action" doctrine, which will defeat fraud claim if action is primarily contractual. Titelman v. Rite Aid Corporation, F. Supp, WL, PICS No. 01-2230 (Slip Opinion 11/9/2001).

3. Work Assignments

Former associate stated claim for fraud in the inducement against law firm that had recruited associate to handle environmental law work, with misrepresentations that the firm had secured a large environmental law client; that the firm was in the process of establishing an environmental law department; and that the associate would head the environmental law department. In fact, no environmental client existed and the firm had no actual or prospective environmental law practice. Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir. 1992).

 

III. Wrongful Discharge Claims

A. Attorneys

In New York, whose employment-at-will rule is even stricter than Pennsylvania’s, the New York Court of Appeals upheld a claim for breach of contract, arising from the firm’s discharge of the associate for making claims of ethical violations against another associate. Wieder v. Skala, 80 N.Y.2d 628, 593 N.Y.S.2d 752, 609 N.E.2d 105 (1992).

The Pennsylvania Superior Court denied a wrongful discharge claim by a corporate general counsel who alleged that his employer engaged in illegal conduct, but alleged no clear violation of Pennsylvania public policy. The plaintiff did not state any claim of violation of the Code of Professional Conduct. McGonagle v. Union Fidelity Life Insurance Corp., 383 Pa. Super. 223, 556 A.2d 878 (1989), appeal denied, 525 Pa. 584, 575 A.2d 115 (1990).

B. Staff

In two cases, federal courts in Pennsylvania have held that a subordinate employee of a law firm has a right to assert a claim for wrongful discharge if the attorney/employer retaliates against the employee for raising ethical concerns, as follows:

1. Paralegal stated a claim for wrongful discharge in violation of public policy in action for discharge and retaliation for notifying her employer’s lawyer in attorney disciplinary matter that the employer had submitted a backdated letter. Paralegal v. Lawyer, 783 F. Supp. 230 (E.D. Pa. 1992).
2. Paralegal/secretary could state a claim for wrongful discharge for refusing to participate in fraudulent billing scheme; she could not state a claim for wrongful discharge for gratuitously revealing to clients and authorities that the attorney billed paralegal time as attorney time, without notice. Brown v. Hammond, 810 F. Supp. 644 (E.D. Pa. 1993).

 

IV. Employment Discrimination

A. Statutory Coverage

1. Partners

A general partner in a law firm is not an "employee" within the meaning of the Pennsylvania Human Relations Act; therefore, a former general partner in a law firm has no claim under the P.H.R.A. for unlawful discrimination. Hull v. Rose, Schmidt, Hasley & DiSalle, P.C., 700 A.2d 996 (Pa. Super. 1997).

But see Wolk v. Unum Life Insurance Co. of America, F.3d, 1999 WL 437286 (3d Cir.), holding that an equity partner in a law firm is barred by ERISA preemption from suing under state law if the partner is designated as a plan beneficiary, notwithstanding ERISA definitions that appear to exclude equity partners from employee status.

A general partner in a law firm is not an "employer" and therefore is not subject to individual liability under federal law. See Caplan v. Fellheimer, Eichen, Braverman & Kaskey, 882 F. Supp. 1529 (E.D. Pa. 1995); Harper v. Robert J. Casey, Jr. & Associates, 1996 WL 363913 (E.D. Pa.); compare Siko v. Kassab, Archbold & O’Brien, 1998 WL 464900 *5 (E.D. Pa.) (partners in limited liability partnership not necessarily treated the same as general partners for purposes of calculating employee threshold; summary judgment denied). A partner may be individually liable under the Pennsylvania Human Relations Act for aiding and abetting discrimination. Davis v. Levy, Angstreich, Finney, Baldante, Rubenstein & Coren, P.C., 20 F. Supp.2d 885 (E.D. Pa. 1998)

A discrimination action naming each of the firm’s partners individually as well as the partnership will be treated as an action against the partnership. Birk v. Dobin, 1996 WL 284995 (E.D. Pa.).

2.

By contrast, a shareholder-employee, who received only salary and expenses, and was not a member of the managing committee, an officer, or department head, was an "employee" within the meaning of relevant discrimination laws. Jones v. Baskin, Flood, Flaherty, Elliot & Mannino, P.C., 670 F. Supp. 597 (W.D. Pa. 1987).

 

B. Examples of Discrimination Claims

1. Gender Discrimination

Partnership consideration is subject to Title VII, and may not be based on factors prohibited by Title VII. Hishon v. King & Spalding, 467 U.S. 69, 104 S. Ct. 2229 (1984).

Subjective analysis of lawyer’s alleged insufficient legal skills provided adequate reason for failing to promote lawyer. Ezold v. Wolf, Block, Schorr & Solis-Cohen, 983 F.2d 509 (3d Cir. 1993), reversing 751 F. Supp. 1175 (E.D. Pa. 1990); cert. denied, 510 U.S. 826, 114 S. Ct. 88 (1993).

Use of lack of business development as a reason for denying partnership is a pretext for discrimination when the attorney was not told of the importance of developing business as a partnership criterion, in contrast to male candidates, who were so informed. Masterson v. LaBrum & Doak, 846 F. Supp. 1224 (E.D. Pa. 1993). A history of discriminatory treatment of women in hiring, professional development, promotion, and retention is relevant to show pretext. Masterson, supra.

2. Sexual Harassment / Retaliation

See Tupper v. Haymond & Lundy, 2001 WL 936650 (E.D. Pa.).

Law firm partner accused of sexual harassment has no cause of action against alleged victim of sexual harassment, arising from breach of duty to come forward and state that partner had not harassed her. Hull v. Andracchio, 1994 WL 742270 (W.D. Pa.).

3. Age

Pittore v. Thorp, Reed & Armstrong

, 757 F. Supp. 641 (W.D. Pa. 1990).

4. Disability

See Cain v. Hyatt

, 734 F. Supp. 671 (E.D. Pa. 1990) (AIDS); Doe v. Kohn, Nast & Graf, P.C., 862 F. Supp. 1310 and 866 F. Supp. 190 (E.D. Pa. 1994) (HIV-Positive status); Davis v. Levy, Angstreich, Finney, Baldante, Rubenstein & Coren, P.C., 20 F. Supp.2d 885 (E.D. Pa. 1998) (manic depressive condition); Herbst v. General Accident Insurance Co., 1999 WL 820194 (E.D. Pa) (heart problems).

5. Pregnancy

See Siko v. Kassab, Archbold & O’Brien

, 1998 WL 464900 (E.D. Pa.).

C. Evidence of Legitimate, Non-discriminatory Reasons

1. Objective Data

1. Fee production – Byrd v. Ronayne, 61 F.3d 1026 (1^st Cir. 1995).
2. Evaluation and attendance records – Plummer v. Aman, et al. 1984 WL 1346 (E.D. Pa.), aff’d, 772 F.2d 896 (1985), cert. denied, 474 U.S. 1058, 106 S. Ct. 801 (1986).
3. Disciplinary records – Pickens v. Tanoue, 2000 WL 964749 (E.D. Pa.).

2. Subjective Data

1. Partner evaluations – Ezold v. Wolf, Block, Schorr & Solis-Cohen, LLP, supra.
2. Client evaluations – Byrd v. Ronayne, supra.

D. Privilege Issues

1.

An employee may file a claim for employment discrimination without violating the attorney-client privilege so as to require dismissal of the litigation. Kachmar v. SunGuard Data Systems, Inc., 109 F.3d 173 (3d Cir. 1997); Dombrowski v. Bell Atlantic Corporation, ____ F. Supp.2d ____, 2000 WL 33121727 (E.D. Pa. 2000).

2.

Law firm may not defend against discrimination toward associate who had filed a claim of discrimination, on the theory that the Code of Professional Ethics required the lawyer to preserve confidences and exercise independent professional judgment; firm could not discriminate in assignment of cases for other than sound professional reasons. See Commonwealth, Human Relations Commission v. Thorp, Reed & Armstrong, 361 A.2d 497 (Pa. Cmwlth. 1976).

 

V. Unemployment Compensation

A. Self-Employment

A solo law practice was disqualifying self-employment by an ex-employee seeking unemployment compensation. O’Hara v. Unemployment Compensation Board of Review, 648 A.2d 1311 (Pa. Cmwlth. 1994).

B. Independent Contractor Status

A temporary, part-time attorney placed by a temporary attorney agency is an independent contractor, and is thus ineligible for unemployment compensation after the end of the temporary assignment. Krum v. Unemployment Compensation Board of Review, 689 A.2d 330 (Pa. Cmwlth. 1997); Attorneys on Call v. Unemployment Compensation Board of Review, 624 A.2d 754, 756 (Pa. Cmwlth. 1993).

C. Voluntary Quit

Deemed resignation – Claimant who made no attempt to preserve a position with the employer following maternity leave deemed to have voluntarily quit, so as to be ineligible for benefits. Kassab, Archbold & O’Brien v. Unemployment Compensation Board of Review, 703 A.2d 719 (Pa. Cmwlth. 1997).

Smoking ban – Employee who voluntarily terminated her employment after law firm employer imposed total ban on smoking held to have voluntarily quit, thereby precluding award of U.C. benefits. Quinn, Gent, Buseck and Leemhuis, Inc. v. Unemployment Compensation Board of Review, 606 A.2d 1300 (Pa. Cmwlth. 1992).

D. Willful Misconduct

Unsatisfactory performance – Unsatisfactory performance does not constitute willful misconduct. Norman Ashton Klinger & Associates, P.C. v. Unemployment Compensation Board of Review, 561 A.2d 841 (Pa. Cmwlth. 1989).

Absenteeism - Secretary’s taking vacation days without adequate notice constitutes willful misconduct. Landy & Zeller, Attorneys at Law v. Unemployment Compensation Board of Review, 531 A.2d 1183 (Pa. Cmwlth. 1987).

 

VI. Liabilities of Law Firm Employees

A. Indemnity

Law firm had indemnification claim against attorney who withdrew more than permitted under his draw, and indemnification claim for sums paid to reimburse clients injured by attorney’s conversion of trust funds and related expenses. Rubin, Quinn, Moss, Heaney & Patterson, P.C. v. Kennel, 832 F. Supp. 922 (E.D. Pa. 1993).

B. Negligence

The Eastern District of Pennsylvania, applying Pennsylvania’s choice of law rule, held that a supervising attorney may sue a subordinate attorney under New Jersey law for negligence in representing client. Kramer v. Nowak, 908 F. Supp. 1281 (E.D. Pa. 1995).

C. Negligent Supervision

Attorney was guilty of negligent supervision in failing to check on or supervise bookkeeper who diverted funds belonging to the firm and its clients. Schwartz v. Bryn Mawr Trust Co., 1996 WL 479659 (E.D. Pa.).

 

VII. Intentional Torts

A. Defamation

Law firm’s statements as to associate’s theft of confidential documents and firm’s conduct suggesting associate’s dishonesty at the time of discharge, create jury question on defamation. Doe v. Kohn, Nast & Graf, P.C., 862 F. Supp. 1310, 1327 (E.D. Pa. 1994).

A supervisor’s statement that a law firm’s employee was "not that strong" at her work was not defamatory. Grogan v. Duane, Morris & Heckscher, 1991 WL 98888 (E.D. Pa.).

Placement of a negative evaluation in an employee’s personnel file does not constitute publication necessary for a defamation claim. Herbst v. General Accident Insurance Co., 1999 WL 820194, *10 (E.D. Pa.)

B. Invasion of Privacy

Conduct by corporate investigators directed at former in-house counsel, including trailing counsel’s minor child in a car while child was walking to school bus, states claim for invasion of privacy; discovery about conduct is not protected under the work-product doctrine. Klages v. Sperry Corporation, 1986 WL 7636 (E.D. Pa.)

Jury question on privacy claim is presented by partner’s acquisition of letter regarding ex-associate’s HIV-Positive status; if letter was acquired through search of associate’s office and desk, tortious intrusion upon seclusion may have occurred. Doe v. Kohn, Nast & Graf, P.C., 862 F. Supp. 1310, 1325 (E.D. Pa. 1994).

C. Intentional Interference With Contractual Relations

Ex-corporate counsel stated intentional interference claim against ex-employer for calls to prospective law firm employer, disclosing ex-corporate counsel’s intent to sue corporate employer. Kachmar v. SunGuard Data Systems, Inc., 109 F.3d 173, 184-186 (3d Cir. 1997).

 

VIII. Insurance Coverage

Employment practices liability insurance will cover employment-related claims against law firms. An insurance carrier will have the authority to settle an action between a law firm and a former employee, even if the law firm refuses to concur in the settlement. Caplan v. Fellheimer, Eichen, Braverman & Kaskey, 68 F.3d 828 (3d Cir. 1995), reversing, 886 F. Supp. 498 (1995).

 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.