900-Lawyer Duane Morris Sued For Misclassifying Non-Equity Partners To Shift Business Expenses And Taxes To Underpaid Female And Nonwhite Attorneys

ABA Journal, Duane Morris Bestows Partner Title on Powerless Attorneys to Shift Tax and Business Costs, Suit Alleges:

Duane Morris reduces business expenses and tax obligations for equity partners by shifting some of the burdens to lawyers who carry the partner title but have no equity or power in the law firm, according to a lawsuit filed Wednesday.

“The firm intended nonequity partners to operate as employees but sought the benefit of classifying them as bona fide partners/owner,” says the suit filed July 31 in the U.S. District Court for the Northern District of California.

The proposed class action suit by Black female nonequity partner Meagan Garland [of the firm's San Diego office] also alleges that the firm violates California equal pay laws by “systematic gender and race-based pay inequity practices.”

“Duane Morris’ male-dominated, mostly white executive committee determines compensation for all attorneys, including nonequity partners, and does so in an opaque, even black-box fashion,” the suit says. “The secrecy about how compensation decisions are made only reinforces the pay inequity and enables the firm to continually disfavor female and nonwhite attorneys in favor of male and white attorneys.”

David Lat, Reversal Of Fortune:

The complaint’s most noteworthy allegation, as well as the one with the broadest implications for Biglaw, is misclassification of employment. Garland claims that Duane Morris “unlawfully classifies its nonequity partners as ‘partners’ and business owners of the Firm for taxation and employment purposes, when in fact these non-equity partners are employees who misleadingly bear the title of ‘partner.’”

Garland alleges that after a lawyer makes nonequity partner, as she did in 2021, the firm stops paying the employer’s share of federal and state payroll taxes for that attorney, as well as for benefits like healthcare and disability insurance. This saddles nonequity partners with the financial burdens of true partners—but nonequity partners “are not bona fide partners,” according to the complaint, and treating them as “partners” when they’re really just glorified employees violates the California Labor Code, the California Revenue and Taxation Code, and the U.S. Internal Revenue Code. ...

Firms with a nonequity partnership tier—an increasing number of Am Law 100 firms—should keep an eye on this case. If Duane Morris prevails, then they can carry on. But if the firm loses, similarly situated firms might have to make adjustments to their own nonequity programs.

• American Lawyer, Duane Morris Uses Nonequity Partnership as 'Income Shifting' Device, Class Action Contends
• Bloomberg Law, Duane Morris Sued for Misclassifying Non-Equity Law Partners
• Reuters, Duane Morris Hit With Class Action Over Partner Tiers

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