Review Your Partnership Agreement to Make Sure Your Partners
are Not Employees
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Source: Inside Public Accounting A federal court ruled in June that the Equal Employment Opportunity Commission can seek damages against the A lawsuit against the Sidley firm claims the equity partners have little or no authority and, therefore, have the legal status of employees with respect to matters such as age discrimination. This litigation may have a profound impact on accounting firms, especially larger firms and firms with partners having no input in financial and compensation decisions or the election of management. Factors that will mitigate this problem include: v Not having a mandatory retirement age. v Having an executive committee that includes partners with authority throughout different areas of the firm. v Allowing partners to vote on the selection of the management team. Partnership agreements should be clear about who has decision-making authority. There are practical matters in the governance of very large firms that may limit the rights of partners, but these partners are sophisticated and understand what they are signing. Firms that have not reviewed their agreements in the last five years or do not have partnership agreements are at risk. Small firms have less risk than large firms. The best policy is not to make decisions based on age. If you terminate a partner, do so on the basis of productivity or billings, and provide a method for challenging the decision. Partnership agreements should provide a method for resolving disputes, preferably through arbitration. Arbitration proceedings preserve partner confidentiality. From Inside Public Accounting, June 2005, p. 1. Hudson Sawyer Professional Services Marketing Inc. www.hudsonsawyer.com. Subscription $345 per year; back issues—nonsubscribers $40. |