[Recked]

I figure it can’t hurt to get some anonymous internet feedback. This question is probably gauged more at the older/more experienced crowd here.
Started with my sole/prop firm/employer in 2001 as an intern, and full time in 2002.
Did not apply for the CPA by 2009 when NYS changed the education requirements from 120 to 150, so in the mean time I got my EA, and waited out the clock on the 15 year experience pathway to CPA (instead of getting a masters).
In 2012 I figured out I was grossly underpaid for education and experience, and received a minimal raise, and I agreed to stay under the condition that I was earning in equity into the firm aka, building something for the future. (For reference, someone I know was making 60k/year 5 years out of school in industry with no CPA.)
My employer is now 74 years old, works part time, and is pulling about 50% more in comp. He says he can’t afford to pay me more, yet pays for 2 BMWs, always gets the newest iPhone, travels for a month every Dec-Jan including international travel, etc etc etc. He’s very much broke and lives above his means. When I got licensed I received a large raise $25k to keep me here, but then lost my $10k post tax season bonus that I had received the year before, effectively cutting my raise, and I brought in enough new work to pay for the rest of the raise. It’s coming up on a year and 9 months and we’ve made no progress on the negotiations. He keeps stalling and postponing conversations. I thought I had already “paid my dues” but after I got licensed he wanted to start me at 20% and work me up to 50% over the next 4-5 years, without a change in compensation, and he won’t make a move unless I agree to buy the other half at 100% of receipts. Internal acquisitions are averaging 75-80% based on numerous sources I have talked to.
The firm has grown from about $200k in 2002, to a little over $400k in 2019, which is decent for only 2 professionals. The way I see it, is if I keep bringing in work for every dollar I bring in, I am increasing my buyout by 25cents, and seeing no increase in comp for the extra work. I have received authorization to start a side practice which I did this year, but that just means working even harder just to try and get ahead while still being employed full time.
I feel he wants to have his cake and eat it too, collecting 50% more comp now, and then wanting 100% for his half on the back end as well. If I were to leave I estimate about 100-130k of the business going with me, which doesn’t get me to my 50% which is why I’m stuck. I have evidence of the verbal agreement, but no specific terms were laid out. Employer and I share a friend who is an attorney who is trust worthy and I bounce ideas off of, and he has recommend that I seek counsel so I have an appointment for Monday.
In 2002 I started at $30k a year. Comp for each year as follows. All comp figures include wages, health, and any other benefit I receive, except CPE.
2002 – 20k (Part year)
2003 – 31k
2004 – 34k
2005 – 35k
2006 – 37k
2007 – 39k
2008 – 40k
2009 – 41k
2010 – 42k
2011 – 42k
2012 – 46k
2013 – 55k
2014 – 56k
2015 – 64k Licensed EA
2016 – 73k
2017 – 89k
2018 – 101k Licensed CPA (mid year raise)
2019 – 107k (First full year with raise)

Did I get screwed or am I way off base? I realize a lawsuit is going to completely blow this thing up. I live small, save big, and have no debt. My unemployment can be measured in decades before I am in dire straights. I also have other offers, one of which is Tax Director for another area firm with comp of about 140k and fast track to shareholder, but it would require a change in work life balance that I’m not looking to accept at this point in my career. Opinions?

[jenpen]

Yeah, it definitely sounds like your employer is using your hard work to maintain his lifestyle. And if your estimate is correct and $130k go with you, then that is ~30% of the income, so his deal doesn't even start you out at what you're bringing in.

Do you think that if you consult with an attorney and maybe threaten him with any action you could potentially take, that would help resolve the equity situation without the need to go to court? Like you said, that is going to blow it up. It doesn't sound like you're worried about being unemployed, and I have no doubt you would be able to find a new gig with absolutely no issues. It also sounds like you could potentially walk away and start your own company with the business that would go with you.

I would definitely explore my options here. It doesn't sound like your employer is willing to give you what you've earned and have been working for.

AUD - 56 - 68 - 61 - 9/8/16
REG - 75
FAR - 7/15/16
BEC - TBD

Wiley CPAexcel and NINJA 10 Point Combo

[DocJ]

Well first and foremost, tell all this to your attorney, because this is definitely above most of our paygrades.

Though I will say that you sound very bitter (and rightly so). But you won't be able to sue just because he gives himself all the money or lives above his means or that you know someone who makes $60K or whatever. Don't let your anger and emotions get to you here, this is now a game of chess and your opponent is a greedy asshole boss who seems to be mistreating you.

Which is why you should be collecting literally EVERY piece of evidence you can get your hands on. Especially anything having to do with agreements and your job description and stuff like that. If it's in writing and he violated it (e.g. were you not supposed to lose your $10K bonus?), then yeah that's definitely sue-able.

Good luck.

[aaronmo]

I do think you're underpaid, and I 100% agree with your analysis…but I'm not getting the basis of the lawsuit here, or the damages. I know you mentioned oral contract, but I guess I'm not following how it was broken, and I'm not sure how'd you quantify the damages.

I am not an attorney, and my state is far less labor friendly, so I really know squat. I do know contract law in a general sense, and I'm not sure I'm seeing damages here, or an actionable complaint.

As someone in legal hell right now, I also tend to view lawsuits as a last resort/all else fails.

My approach would be:

Tell your employer exactly what you said here. Tell him it has to improve, or it doesn't work for you. Be ready to walk.

Start looking at other local firms and seeing if anyone is interested in an arrangement…you're obviously well qualified and experienced to bring gravitas.

My gut thinking is that we have value…and you certainly have value. This guy isn't the only game in town…get a better game.

I am not trying to be insulting, but I'd expect more revenue from a two CPA firm. I worked at a small firm – two partners, one staff guy, an office manager, and usually one other supplemental person during season…and they did around 1.5.

[aaronmo]

One more thought…and I don't think I'm telling you anything you don't know:

Most of the hiring for the season has already been done, so your options to move may be limited. That said – his options are limited as well. You have leverage in terms of his need for you, but you also may have an issue if it doesn't work out and you're waiting until sept. for most tax jobs.

Honestly – with your background, intelligence, and drive…I think you walk, take your 125k, and do your own thing. You know how to grow the business as is. You may be hurting a year or two with software costs…office space…

Moonlight with some crap work if you have to…the turbotax $25/hr garbage.

[Josh]

So I've been through this 7 times over 5 years with the small firm I started with (no litigation for me, just contributed to the litigating). I really hate when I see partners who feel entitled to scrape more than the 1/3rd rule because “they built the business on their name regardless of what you brought through the door”. Anyway, I think if anything what you'll end up with here is a counter suit. If you have material evidence of clients and revenue you directly contributed into the firm then you can list that out and go for a final “if I'm not going to be paid X based on X then I'd like to leave and take (list) with me”. All of the CPA's I've had to help (low man in the firm at the time, grunt work was all me) put through litigation just left with what they could support was built by them and counter sued to keep their clients. Most of them won on the basis that no one can stop you from working and earning a living and everything is co-mingled in a firm setting but a couple lost who could not show evidence of building the list of clients they left with. Some offered to pay 50% of 1 year revenue to settle and move on with life. I'm not a lawyer and this certainly isn't legal advice, just sharing personal experience.

[Jimmy Dugan]

I don't see what we are going to be able to base a lawsuit on, but yeah he has treated you poorly. I think your better option is to threaten to leave and see if that gets you anywhere in the negotiation. That's your most powerful bartering chip of all because it sounds to me like you do most of the work there and he certainly doesn't want to carry that whole load or train someone else to do it. And if it doesn't get anywhere after that, actually leave and keep your own thing going. You said yourself you have a ton of cash laying around and can stand less income while you are building your business.

[Recked]

Thanks for all the feedback. I'll try and respond to all the issues raised.
–
I support roughly half the billable gross for the firm, in additional to doing all of the IT work. In 2017 I actually did more than half, his last hooray before I got licensed where I didn't see him until 2pm at the earliest.
The tricky part is that most of the work are “firm clients”. People that have been transitioned to me as he has cut back his hours. I've been doing these clients the past 10+ years, and they only have a working relationship with me. Most have asked what my plan is after I got licensed, and have expressed an interest in following me where ever I go. So if I were to leave and they came with me, that potentially opens me to a lawsuit, and the counter suit would be you didn't cough up the equity that I paid for already. A majority of the clients I currently handle are the more complex cases that he kept avoiding or ignoring, until I took over the file to keep the client from leaving the firm. So they may have been referred to this firm based on his name, but they have been handled by me from the start, or taken over due to his limited work schedule.
–
re: the 1.5mil firm. I don't take it as an insult at all, and I'm glad you are contributing to this thread. I hoped I would see you here.
We change too little as my employer is old school on the rates. My understanding is that most firms average 150k per professional, lower if there is a lot of bookkeeping/write-up work. We are the only 2 professionals, and then we have 2 part time support staff that copy returns, scan documents, do a hand full of weekly payrolls, etc. If you count it as a total of 3 people, the firm should be doing $450k to fit the average. I think we're at about $420-430 this year, and I doubt much else will be billed out.
–
The basis for the suit would be the reduced wages in exchange for sweat equity into the firm. The reduced wages would be determined by comparable salaries for someone with similar education and experience. The remedy would be cash, clients or equity. Or maybe I don't have a case at all. I consider the oral agreement to be broken because he is making no effort to bring me on as partner, and is actively ignoring the conversations. The latest example, I asked if we could talk 2 Fridays ago, and he said next week, then I asked last Friday and he said he wasn't feeling well and asked if we could talk Monday, and here we are another Friday and still no conversations. This is the way its been for the last almost 2 years. Constant avoidance to the topic. In 2018 I did say I would not be here next tax season unless I was made a partner and that got no response.
–
I have no written agreement or job description. No salary contract, or any basis for my comp or the bonuses I received. I just get a salary, and a bonus if he feels like it.
I've gone well above and beyond the scope of any ordinary job. From handling all of the IT work including ordering and transitioning to new computer systems every 5 years, to plumbing, heating, electrical repairs. I used to go to his house to help put in and take out the air conditioners. I've worked through the night on 2 separate occasions here. Once trying to get all of the extensions timely filed I worked through the night from April 14th to the 15th because the computers were running very slowly and I kept getting interrupted to fix his mistakes on returns he had done. The second time I worked through the night was when the server crashed 3 weeks before the October 15th deadline and I needed to get everything back up and running. The final straw that broke the camels back was the Winter of 2017 when I was trying to focus on the CPA exams. They left in December and we were having that real cold weather. I emailed that they should order more fuel oil because we had such low temperatures, which went ignored. Then I was out there in subzero temperatures making trips to a gas station to put fuel oil in 2 of the buildings (not the office, one was the house) because they had run out of heating oil, 2 weeks before my REG exam, while the office was full of packages that had been ordered online and shipped here while he was gone. The excuse was he couldn't afford to fill the tanks before they left.
–
Yea, I guess you can say I'm a little bitter.
Thank you everyone for your input. I hope I responded to all the concerns. I'll update with what the lawyer says.

[Recked]

I don't really want to have a lawsuit, just trying to leverage some movement for a more equitable distribution.

[APV]

I can’t really speak to law side of this case. But looking at your salary at a numbers perspective and considering your 15 years experience along with the fact your are literally the face of the business, you seem to be underpaid. I think you have leverage if you threaten to walk away especially considering calendar year end is coming up and he apparently does very little work. But you have to be willing to back up your threats. Don’t know the legal ramifications of clients coming over or you reallly building out your own business, that’s probably where the lawyers comes in.

[Josh]

I completely get your frustration Recked and very much think you're trying very hard to move this forward amicably but if the other person is a brick wall you can only push so far. I love that you brought this here because I see it as the ugly side that does happen (often) and catches fresh CPA's off guard. If you perform professional services there's going to be litigation. If discussions continue to go no where I really feel like you're worth more than this and should craft the exit strategy that works best for you, I just also wanted you to know that litigation is completely understood and acceptable in these situations. I'm getting the feeling you're being pushed off until the end of the impending tax season so he has his golden goose for 1 more cash grab before he makes a decision. I really hope this turns out in your favor.

[DocJ]

“I have no written agreement or job description. No salary contract, or any basis for my comp or the bonuses I received. I just get a salary, and a bonus if he feels like it.”

Oh dear. You might be sh*t outta luck then.

Yeah, I know your boss is an a-hole and you prob built his entire company from the ground up. But end of day, you still technically volunteered to do all that stuff (and still got paid 6-figures the last couple years for it). Contract law, from what I gathered, tends to be very “that's on you” towards people who don't get agreements and stuff in writing first.

Again though, bring it up with an attorney. I ain't a lawyer and don't know your jurisdiction and could be very wrong, hopefully.

[vbmer]

Now that you have your ticket, and a bunch of experience, I think you should explore Director-level opportunities at other firms immediately. Even if you never make equity partner, hopefully you will at least get to work with people who are more professional than your current boss. $200k in 2002 dollars is almost $300k in 2019 dollars, possibly even more in professional services terms, so it looks to me like he doesn't have the drive to be a good partner. I'd rather receive a salary from a competent firm than share equity with a bad partner.

[Jen-J]

I think you've been taken advantage of all along (or at least the 2+ years I've seen your posts), unfortunately. Either you should go out on your own / join another firm, or you're stuck waiting for this guy to pass away. He strikes me as completely unwilling to retire. Why should he when you're doing the work and he gets the money? Heaven help you if he develops dementia but lives to be 90 or something – you could end up doing all the work for years! Do you have any relationship with whoever would inherit from him? How do you think things will go down after his death?

[Journeyman]

I don’t know much about law, but what I hear you saying is that you are the keys to his castle. He has an external reputation, it would seem, to protect. If you were to leave now, he would be in the worst kind of situation based on the facts you described. My advice is to not wait until after this year to make a move, force him to recognize your value immediately. He needs you right now, not the other way around.

[aaronmo]

I don't know case law on the area well enough to comment intelligently, especially in a state with different approaches to labor…

I wish you the best! I'd start a firm with you.

(Wondering if I'm wrong about the revenue in some way…when I'm running the numbers, it seems wrong). about 1000 clients – figure average is around 700/return…that's a lot less than my 1.5 figure.

[Author]

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