U.S. Markets closed
  • S&P 500

    +32.40 (+0.88%)
  • Dow 30

    +248.74 (+0.83%)
  • Nasdaq

    +87.05 (+0.70%)
  • Russell 2000

    +43.75 (+2.37%)
  • Crude Oil

    +0.45 (+0.99%)
  • Gold

    +0.90 (+0.05%)
  • Silver

    +0.18 (+0.76%)

    -0.0022 (-0.1819%)
  • 10-Yr Bond

    +0.0490 (+5.33%)
  • Vix

    -0.49 (-2.30%)

    -0.0015 (-0.1088%)

    +0.2800 (+0.2696%)

    +79.89 (+0.42%)
  • CMC Crypto 200

    -14.05 (-3.71%)
  • FTSE 100

    +59.96 (+0.92%)
  • Nikkei 225

    -58.13 (-0.22%)

Partnership and Employee Status

Arthur J. Ciampi

“Names are everything. I never quarrel with actions. My one quarrel is with words.” -Oscar Wilde

Determining whether an entity is a partnership, and whether one is legally a partner, an employee, or an independent contractor, has significant ramifications for an attorney in a law firm partnership, and for the partnership itself. At times, lawyers affiliated with law firms claim to be equity partners to take advantage of the rights accorded to equity partners, such an accounting of the partnership’s net assets. At other times, attorneys affiliated with law firms claim that, despite their title as “partner,” they are employees who are subject to the protection of various employment laws. For example, last year, a jury found in favor of a law firm “equity principal” who sued as an employee under a Maryland wage law. Miles & Stockbridge Vows Appeal After Verdict for Ex-Partner, New York Law Journal (June 23, 2018) (the matter is on appeal).

In this month’s column, we analyze the various indicia of partnership as well as the factors used to determine employee status.

What Determines Equity Partnership Status?

Section 10 of the New York Partnership Law, titled “Partnership Defined,” defines a partnership as “an association of two or more persons to carry on as co-owners a business for profit and includes for all purposes of the laws of this state, a registered limited liability partnership.” New York Partnership Law §10 (McKinney’s 2018).

Courts apply certain indicia to determine whether a relationship is a partnership. Typical indicia include: sharing of profits and losses, contribution of capital, intention of the partners to be partners, and participation in management. See, e.g., Matlins v. Sargent, 1991 WL 79219 (S.D.N.Y. 1991) (applying indicia of partnership including sharing of profits and losses, contribution to capital, intention to be partners, participation in management); Mazur v. Greenburg, 110 A.D.2d 605 (1st Dep’t), aff’d, 66 N.Y.2d 927 (1985) (indicia of partnership include intention to form partnership and holding out as partners, sharing of profits and losses, and participation in management of partnership).

Moreover, Courts also examine the parties’ tax returns to determine the nature of the relationship. Blonien v. Commissioner of Internal Revenue, 118 T.C. 541 (2002). In Blonien, the taxpayer, who was a partner in the law firm of Finley Kumble, tried to deny his partnership status, arguing, inter alia, that he never signed the partnership agreement despite urging by the firm. The firm had issued him a Schedule K-1 for years, however, and he enjoyed the benefits of filing his tax return as a partner. The court held the taxpayer was thereby prevented by the “duty of consistency” from subsequently claiming that he was an employee of the firm stating that “a partner who receives a Schedule K-1 and fails to notify the Commissioner of inconsistent treatment by filing Form 8082 is bound by the partnership’s position on its return.” 118 T.C. at 556. The New York Court of Appeals has similarly prevented parties from taking one position on their tax filings and another in a litigation. “A party to litigation may not take a position contrary to a position taken in an income tax return.” Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415, 422 (2009); Missan v. Schoenfeld, 111 Misc. 2d 1022, 1025 (Sup. Ct. New York County 1981) (finding partnership: “in holding plaintiff out to the public as a partner and based on the continuous filing of partnership tax returns for the period 1970 through 1978 plaintiff also became liable for the partnership losses … .”).

Equity Partners’ Right to an Accounting

Among the most powerful rights of an equity partner is the right to an accounting of the partnership’s net assets. Indeed, it is black letter law in New York that a partner who departs a partnership-at-will is entitled to an accounting of their interest in the partnership. N.Y. Partnership Law §§68, 73, 74, 75; 220-52 Associates v. Edelman, 241 A.D.2d 365, 367 (1st Dep’t 1997); Rella v. McMahon, 169 A.D.2d 555 (1st Dep’t 1991) (oral partnership agreement for indefinite period considered a partnership-at-will); Shandell v. Katz, 95 A.D.2d 742, 743 (1st Dep’t 1983) (partnership without duration is partnership at will).

In fact, in New York, the only manner in which a partnership can be wound up is through an accounting, wherein a firm’s financial status can be evaluated. Margate Indus. v. Samincorp, 582 F. Supp. 611, 620 (S.D.N.Y. 1984); Sitchenko v. DiResta, 512 F. Supp. 758, 762 (E.D.N.Y. 1981); see Shandell, 95 A.D.2d at 743; Ben-Dashan v. Plitt, 58 A.D.2d 244, 249 (4th Dep’t 1977).

Accordingly, in the case of a partnership-at-will, a departing law firm partner is entitled to an accounting of their interest in the partnership.

Equity Partners/Owners as Employees

Equity partners/owners, however, are traditionally not considered to be employees and therefore are not typically entitled to employment law protections such as protection from discriminatory actions, retaliatory termination, or failure to pay wages. Accordingly, law firms in the face of such claims often argue that such partners were indeed equity partners and that employment claims relating to the departed lawyers should be dismissed.

Generally, attorneys at law firms have had little success in such claims. Solon v. Kaplan, 398 F.3d 629 (7th Cir. 2005) (law firm partner found not to be an employee entitled to sue for retaliation under Title VII); Ballen-Stier v. Hahn & Hessen, LLP, 284 A.D.2D 263 (1st Dep’t 2001) (attorneys’ retaliation claims for acts while a partner were barred); Levy v. Schnader, Harrison, Segal & Lewis, 232 A.D.2d 321 (1st Dep’t 1996) (dismissing age discrimination claim pursuant to the Executive Law because plaintiff was partner). But see New York Law Firm Settles EEOC Age Discrimination Suit, 2012 WL 1203813 (E.E.O.C.) (April 11, 2012) (announcing settlement of age discrimination suit against law firm who agreed to end mandatory retirement policy of partners and made settlement payment).

Courts apply various factors to determine whether one is an employee. In Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440, 450 (2003), the United States Supreme Court, in the context of whether a shareholder-director was an employee, annunciated six factors to determine such status “with no one factor being decisive.” Id. at 451. The six factors are: “Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work, whether, if so, to what extent the organization supervises the individual’s work, whether the individual reports to someone higher in the organization, whether and, if so, to what extent the individual is able to influence the organization, whether the parties intended that the individual be an employee, as expressed in written agreements or contracts, whether the individual shares in profits, losses, and liabilities of the organization.” Id.

As the Supreme Court stated, “an employer is the person, or group if persons, who owns and manages the enterprise. The employer can hire and fire employees, can assign tasks to employees and supervise their performance, and can decide how the profits and losses of the business are to be distributed.” Id. at 450.

Determining Partner or Employee Status

As set forth above, the legal determination of whether one is an equity partner or an employee turn on a number of factors. Whether applying the indicia or partnership or the six Clackamas factors to determine employment status, no one indicia or factor is controlling and courts will instead examine the totality of the relationship, which is fact specific. In addition, the factors are applied separately and separate determinations are made to determine equity status (the indicia) or employee status (the six Clackamas factors). Accordingly, it is wise, to clarify this uncertainty, to specify in a written agreement the status of attorneys working for a law firm.

While the name partner is certainly not enough (“an individual’s title … does not determine whether the individual is a partner, officer, member of a board of directors, or major shareholder, as opposed to an employee,” Clackamas, 538 U.S. at 450), a partnership agreement which reflects the genuine intent of the parties and sets forth the rights, obligations, and responsibilities in accord with partnership indicia should greatly help clarify the parties’ relationship.

Firms and partners which seek to have an equity partnership relationship should share profit and loss sharing. These are typically the most persuasive indicia. In some cases, this is done by the application of a percentage applied to annual net profit, or the determination of the share of net profit by a committee based upon performance. Sharing losses is harder to define but is often evidenced by a partner assuming personal liability for a firm’s liabilities, or by the maintenance of a capital account for a partner, which will be reduced by the firm’s losses.

Non-equity partners typically receive a set salary and sometimes a discretionary bonus and, in order to keep the lines from blurring, it is also prudent to have a written non-equity partnership agreement which limits the non-equity partner’s obligations and rights in accord with the indicia of partnership.

Law firms who wish to treat certain attorneys as employees should also be careful not to have their compensation as a percentage of firm profit, have the employees bear responsibility for losses, or permit management decisions to be made by such employees. These limits should ideally, for clarity, be set forth in a written agreement.


Determining a lawyer’s status as partner or employee can have profound effects on the lawyer and the law firm. Being mindful of the indicia of partnership and the six Clackamas factors and incorporating those concepts into a firm’s written agreements can help reduce disputes when lawyers transition from their firms.

Arthur J. Ciampi is the coauthor of the treatise 'Law Firm Partnership Agreements' and is the managing member of Ciampi LLC. Maria Ciampi, of counsel to Ciampi LLC, assisted in the preparation of this article.