The Non-Equity Partner Tier - If It Blows Up, It Could Take Equity Partner Profits Down with It

"What’s unclear is whether the lawyers [suing Duane Morris and Thompson Hine about non-equity partnerships] will prevail, send shockwaves through Big Law and lessen the use of the tier that has boosted firms’ bottom lines. Conversely, solid wins by the law firms could boost firms’ confidence in the classification." - Bloomberg Law, August 12, 2024

About 48% of the top 200 law firms use non-equity partners (NEPs). Most recently, Cravath and Paul, Weiss have jumped on board. 

The advantages of this tier are primarily for the law firm. The major one is that NEPs can be billed out at a higher rate. That boosts Profits Per Equity Partner (PPEP). Those have surged 90% since 2013 when this classification grew. Another benefit to the firm is that it can retain experienced lawyers. In this sector, when business is brisk, it is easy to lose midlevel associates in the lateral game.

Overall, it has been widely known that the NEP tier was a problematic category for those in it. In my Short Short Fiction, I captured this gap between being granted a title and the actual rewards. The narrator, based on the Gold Coast of Connecticut, had just been anointed a NEP:

"The joy-killers and the cruel made me know that the NEP was shit. As a senior associate somewhere I could earn more and with less administrative duties."

In 2020, Roy Strom at Bloomberg Law detailed the negatives, at least at Kirkland & Ellis. At the top of the list was compensation. Back then NEPs were bringing in $2 million more than they were paid. In contrast share partners earned 10 times what they had billed. 

In the proposed class action lawsuit "Meagan Garland v Duane Morris" NEP plaintiff contends the employer actually misclassfied those in that tier with the title of "partner." After all, they can be hired and terminated at-will and do not participate in the goodies of ownership. 

On a granular level, the plaintiff describes an alleged shifting of expense from equity partners to NEPs, which resulted in her earning less after the promotion than previously.

The details allege transferring business costs as well as state and local taxes to NEPs, holding back 18% of fixed-fee compensation to pay for firm expenses and returning to the firm 4% of gross yearly compensation as a "capital contribution." There is also a beef about wages unlawfully deducted as a contribution to the firm's political action committee.

If the NEP tier blows up, PPEP could obviously take a hit. That would be at the worst of times for some law firms such as Kirkland & Ellis and Paul, Weiss whose poaching model entails high compensation which is reported to reach $20 million or more. However, there is no urgency since the transactional part of the business is picking up. Unlike some other sectors the good times could be rolling.

If these lawsuits get sustained exposure in the media and in social and more are filed law firms could be shamed into overhauling the terms and conditions of the arrangement or ditching the concept. On the other hand, if the lawsuits fail what has been called the "Kirklandization" of the business of law can become standard. 

In my coaching I find that NEPs tend to have no illusion about either their status or compensation. Like most moves in large law firms, agreeing to become a NEP could represent a leverage strategy. 

In business and life you usually have only one shot at whatever. Up the odds of success with Jane Genova. I am an intuitive coach, tarot reader and content-creator. Complimentary consultation (please text/phone 203-468-8579 or email janegenova374@gmail.com)