In a case closely followed by the legal community, the Chicago-based law firm Sidley Austin LLP announced that it has reached a settlement with the Equal Employment Opportunity Commission over the treatment of 32 former firm partners.

The EEOC alleged the firm forced the lawyers out of the partnership because of their ages. Under terms of the agreement, Sidley Austin will pay $27.5 million to the 32 lawyers. Nearly all were over 40 at the time of their demotions, but many have stayed with the firm.

"This settlement puts the cost, time and distraction of this litigation behind us," the firm said in a statement. "Moreover, continuing litigation with the EEOC would have placed us in an adversarial position with former partners."

The EEOC brought the suit in 2005 under the Age Discrimination in Employment Act. According to EEOC regional attorney John Hendrickson, three partners retired in the 1990s under the firm's age-based retirement policy, while the remaining 29 were expelled from the partnership in connection with an October 1999 reorganization. A spokesman for Sidley Austin says the firm didn't -- and still doesn't -- have a mandatory retirement policy.

At issue in the EEOC's suit: whether partners in the law firm qualified as protected employees under the ADEA. Under terms of the settlement, the firm "agrees that each person for whom EEOC has sought relief in this matter was an employee with the meaning of the ADEA."

However, because the terms of the settlement apply only to the case at issue, the larger question -- whether law-firm partners are covered by the ADEA -- remains open. "It's an issue that needs to be resolved," says Leslie Corwin, who works on partnership law issues at Greenberg Traurig LLP. "As baby boomers head into retirement, law firms need to know whether their retirement plans are going to hold up."

The agreement also bars Sidley to the end of 2009 from "terminating, expelling, retiring, reducing the compensation of or otherwise adversely changing the partnership status of a partner because of age" or "maintaining any formal or informal policy or practice requiring retirement as a partner or requiring permission to continue as a partner once the partner has reached a certain age."
According to Ronald Cooper, the EEOC's general counsel, the case "shows that the EEOC will not shrink from pursuing meritorious claims of employment discrimination wherever they are found."