Are law firm partners employees? Can they be fired? Are you about starting a law firm business? If YES, here is what you must know about law firm partnership. If you are not into the law firm profession or if you are considering going into law as a career and you are wondering if law firm partners are employees of the law firm and perhaps if they can be fired, then you are in the right place because this article will give you the needed answer or clarification.
To Start With, What is a Law Firm Partner?
A law firm partner is not an employee of the law firm. A partner in a law firm is a highly ranked position indicating co-ownership of a partnership in which the partners were entitled to a share of the profits as “equity partners.” The title can also be used in corporate entities where equity is held by shareholders.
In law firms, partners are primarily those senior lawyers who are responsible for generating the firm’s revenue. The standards for equity partnership vary from firm to firm. Many law firms have a “two-tiered” partnership structure, in which some partners are designated as “salaried partners” or “non-equity” partners, and are allowed to use the “partner” title but do not share in profits.
This position is often given to lawyers on track to become equity partners so that they can more easily generate business; it is typically a “probationary” status for associates (or former equity partners, who do not generate enough revenue to maintain equity partner status).
Please note that the distinction between equity and non-equity partners is often internal to the firm and not disclosed to clients, although a typical equity partner could be compensated three times as much as a non-equity partner billing at the same hourly rate. In America, senior lawyers not on track for partnership often use the title “of counsel”, whilst their equivalents in Britain use the title “Senior Counsel”.
Available statistics shows that law partner compensation varies considerably. A 2012 survey carried out by Major, Lindsey & Africa found that law firm partners’ shows that the average annual compensation was $681,000 ($896,000 for equity partners, $335,000 for non-equity partners) and tended to go up based on number of years in the partnership:
- 5 or fewer years: $399,000
- 6–10 years: $633,000
- 11–20 years: $790,000
- 20+ years: $926,000
Partnership and Law Firms
Law firms are typically organized around partners who are joint owners and business directors of the legal operation; associates, who are employees of the firm with the prospect of becoming partners; and a variety of staff employees, providing paralegal, clerical, and other support services.
An associate may have to wait as long as 11 years before the decision is made as to whether the associate is made a partner.
Many law firms have an “up or out policy”, integral to the Cravath System, which had been pioneered during the early 20th century by partner Paul Cravath of Cravath, Swaine & Moore, and became widely adopted by, particularly, white-shoe firms; associates who do not make partner are required to resign, and may join another firm, become a solo practitioner, work in-house for a corporate legal department, or change professions. Burnout rates are notably high in the profession.
Making partner is very prestigious at large or mid-sized firms, due to the competition that naturally results from higher associate-to-partner ratios. Such firms may take out advertisements in professional publications to announce who has made partner.
Traditionally, partners share directly in the profits of the firm, after paying salaried employees, the landlord, and the usual costs of furniture, office supplies, and books for the law library (or a database subscription). Partners in a limited liability partnership can largely operate autonomously with regard to cultivating new business and servicing existing clients within their book of business.
When it comes to partner compensation methods, it will be important to state that it varies greatly among law firms. At major United States law firms, the “compensation spread” (ratio between the highest partner salary and lowest partner salary) among firms disclosing information ranges from 3:1 to 24:1. Higher spreads are intended to promote individual performance, while lower spreads are intended to promote teamwork and collegiality.
Several large law firms all around the world have moved to a two-tiered partnership model, with equity and non-equity partners. Equity partners are considered to have ownership stakes in the firm, and share in the profits (and losses) of the firm. Non-equity partners are generally paid a fixed salary (albeit much higher than associates), and they are often granted certain limited voting rights with respect to firm operations.
Can a Law Firm Partner Be Fired?
When it comes to the issue of termination, it is rare for a partner to be forced out by fellow partners from a law firm, even though that can happen if the partner commits a crime or malpractice, experiences disruptive mental illness, or is not contributing to the firm’s overall profitability.
However, some large firms have written into their partnership agreement a forced retirement age for partners, which can be anywhere from age 65 on up.
In contrast, most corporate executives are at much higher risk of being fired, even when the underlying cause is not directly their fault, such as a drop in the company’s stock price. Worldwide, partner retirement ages can be difficult to estimate and often vary widely, particularly because in many countries it is illegal to mandate a retirement age.