Non-Equity Partnership Can Benefit Firms—and, Yes, Lawyers Too

What’s in a name—or a title? When it comes to “partner,” a lot.

In two lawsuits—one filed in February against Thompson Hine, and one filed in July against Duane Morris—lawyers allege their firms mistreated and discriminated against them. And they lay some of the blame on their status as non-equity partners.

Rebecca Brazzano, the ex-partner suing Thompson Hine, describes her title of income partner as “meaningless” and “more akin to an albatross.” Meagan Garland, the partner suing Duane Morris, claims in her complaint 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.’” Both firms deny the allegations and are fighting the lawsuits.

For better or worse, non-equity partnerships are proliferating. Today, 85 of the 100 largest law firms have non-equity partners, including such venerable names as Cravath Swaine & Moore and Simpson Thacher & Bartlett.

And the ranks of non-equity partners, also called income partners or non-share partners, grew by 5.3% in 2023—while the number of equity partners actually declined, according to data compiled by The American Lawyer. With non-equity partners currently representing 49.4% of all partners, they will likely outnumber equity partners in the near future.

Despite its popularity, non-equity partnership has its critics, including those who see it as a manifestation of law’s unfortunate transformation from a learned profession into a cutthroat business. But it’s not necessarily a negative development; non-equity partnership might just be an update of the concept of partnership.

As Bruce MacEwen, president of the Adam Smith, Esq. consultancy, pointed out to me, elite consulting firms and investment banks might have as many as eight to 10 tiers of professionals—and they’ve been like this for years. Having more than just three or four roles—partner, associate, and counsel or of counsel—is simply a hallmark of what it means to be a modern professional-services firm, in an increasingly complex environment for the delivery of legal services.

And there are reasons why the non-equity partnership is increasing in popularity. The bottom line is that it’s useful, to both law firms and individual lawyers.

“Well-conceived and managed non-equity partner tiers can fuel strong and highly profitable growth,” said consultant Peter Zeughauser of the Zeughauser Group. “They can materially contribute to a high-performing culture.”

The non-equity tier is used by different firms in different ways. Some firms, like Kirkland & Ellis, treat non-equity partnership primarily as a way station on the path to equity partner. Other firms utilize the non-equity tier for so-called “service partners,” who don’t generate much business but still play an important role in serving clients (often in niche areas). Still others use it for former equity partners who are looking to slow down as they get older.

Being able to call non-equity partners “partners” offers multiple advantages to firms. First, the more exalted title allows firms to bill out these lawyers at higher rates—which can be extremely profitable. Case in point: Kirkland & Ellis, where it’s been estimated that the average non-share partner bills close to $2 million more than they are paid.

Second, having the partner title on your business card (or LinkedIn profile) can help up-and-coming lawyers as they start to try building books of business. As Janet Stanton of Adam Smith Esq. wrote last year in an analysis of non-equity partnership, “Thrusting an associate directly into full equity status, and judging them immediately by their performance in roles they have never assumed and have no training for, invites disaster all around.” Non-equity partnership can be a “reasonable transition period,” in which associates are presented as partners to the outside world and mentored in their business-development efforts.

Third, the non-equity role can be useful for retaining service partners. As noted by Stanton, there are many “highly proficient, productive, and desirable lawyers” who just happen to lack the desire or talent for business generation—and who might otherwise be lured away by rival firms willing to give them the partner title.

And non-equity partnership can appeal to individual attorneys as well. As a group, lawyers place a lot of stock in prestige. People you meet at a cocktail party or relatives at Thanksgiving will raise their eyebrows approvingly when you say you’re a “partner”—and they won’t have any idea about the difference between equity and non-equity.

So at the end of the day, non-equity partnership can be useful for law firms that want to attract or retain talented lawyers while maximizing their leverage—and profits per equity partner. But like any tool, non-equity partnership must be used wisely.

First, firms must have a clear vision for their non-equity partnership. In Stanton’s words, “Make sure you know why you have/want non-equities and exactly what purpose they should serve.”

Second, firms need to be internally transparent about the meaning of non-equity partnerships. Individual non-equity partners should know where they stand: Are they still on track for equity partnership, or have they been passed over? Non-equity partnership should not be used to string along lawyers who aspire to equity partnership but will never get it.

Third, firms must actively manage their non-equity partnership. According to Stanton, “It’s about good management hygiene: Set clear expectations, reward the lawyers who exceed expectations, counsel the lawyers who don’t meet them, and ease out the lawyers who will not meet them.”

Finally, law firms shouldn’t use the non-equity tier to make themselves look to the outside world that they are more diverse than they are. Meagan Garland’s lawsuit alleges that Duane Morris underpays its women and minority lawyers—and implies that making them non-equity rather than equity partners contributes to that pay gap. The law firm denies these allegations.

Setting aside Garland’s claims, it’s a fact that women and people of color are underrepresented among the ranks of equity partners at major law firms. In 2023, only 23.7% of equity partners at multi-tier law firms were women and just 9.6% were people of color, according to the National Association for Law Placement. Non-equity partners as a group were significantly more diverse: 33.3% women, 14% people of color.

The old “up or out” model, in which associates either made equity partner or left the firm, was a creature of tradition—and while it continues to work for some firms and lawyers, it doesn’t work for all.

If a lawyer still excels at and enjoys their work, and if the law firm still values that lawyer’s contributions, keeping that lawyer at the firm as a non-equity partner can make sense—as long as both parties agree on what they talk about when they talk about “partnership.”

David Lat, a lawyer turned writer, publishes Original Jurisdiction. He founded Above the Law and Underneath Their Robes, and is author of the novel “Supreme Ambitions.”

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