Aren’t Non-Equity Partners Really Just Glorified Associates?

By Murray Gottheil | July 6, 2024

With a nod to the danger of generalizing, I would have to say that as a group, I like non-equity partners (“NEPs”) just as much, if not better, than equity partners. They are often people who are primarily interested in practicing law and doing well by their clients, as opposed to promoting themselves and reaching the top of the earnings heap.

On the other hand, I don’t think much of the concept of non-equity partnership.

Let’s start with the definition of “partnership”. The definition in Section 2 of the Partnerships Act (Ontario) is as good as any other: “Partnership is the relation that subsists between persons carrying on a business in common with a view to profit.”

So, if that is the definition, what would you call someone who works at a business for a fixed amount of money or a percentage of their personal production, without reference to the profitability of the business? That would be an employee (or contractor).

I may be slow, but I just don’t get how law firms are permitted to announce to the public that people  who are really something else are “partners”, all the while labelling them as NEPs internally.

We know why they do it: to mislead clients into thinking that they are dealing with real partners; to feed the ego of NEPs; to give NEPs some tax advantages; to offer the illusion of promotion to a higher level within the firm without having to split the profit pie further (often to keep NEPs from moving on); and sometimes to misrepresent how many women and visible minorities are partners in the firm.

The question is why this charade is permitted to continue in a profession that prides itself on the importance of ethics and transparency. (Let’s not even get into why the tax department tolerates it.)

Now understand that I think that being a partner in a law firm is over-rated, and I don’t actually buy into the notion that being a partner necessarily means that you are a better lawyer than someone who is not a partner. But clients do believe this to be the case, which is precisely why lawyers would rather call themselves ‘partners’ than ‘associates’ and why law firms are happy to accommodate them even when they are not willing to make them real equity partners.

It is all being done to fool clients. Isn’t there something wrong with that?  Shouldn’t the Law Society put an end to it (with the possible exceptions of using it as device to introduce equity partners into a new firm or to ease equity partners into retirement?)

Murray is a happily retired lawyer who lives in the country, drives a pick-up truck, writes, teaches and mentors. You can reach him at [email protected] or see what he is up to at lawanddisorderinc.com.

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