Over recent months an increasing number of female partners have expressed the view that they have been unfairly and particularly targeted by the processes for selecting partners for exit.

These partners mostly appear to fall mainly into certain key categories.

There are those female partners who have taken periods of maternity leave and whose financial performance has been affected both by their absence and by the time it takes to rebuild their figures on their return.

Junior equity partners who are still building their practice and may need longer and need more support to re-establish themselves on return from maternity leave seem to be particularly affected by financial-based partner selection criteria.

Female partners who take two periods of maternity leave within a period of 3-5 years, again appear to be more frequently affected by financial based selection criteria ­ either due to the reality of their practice and performance being affected by two or more relatively close periods of leave or by the unfair perception of lack of commitment to being a partner.

Female partners with childcare responsibilities who work part-time are often more likely to be adversely affected by financial performance selection criteria; we have seen cases where, in their haste, the firm actually forgot that the partner worked part-time and that a pro-rata adjustment needed to be made to financial targets.

On reassessment, they discovered in one case that the partner was actually overachieving against targets, however, the damage was done to the relationship with the partner. In other cases the female partner has felt that the selection process was simply used as a covert way to remove part-time partners.

An increasing number of female partners in predominantly male firms or departments have suddenly been faced with an unexpectedly negative partner development review, which is then used as the basis for their selection for dep arture. A history of decent or even excellent appraisals may have been ignored in the firm’s decision to select in such circumstances.

Discrimination Protection
Section 11 of the Sex Discrimination Act 1975 makes it unlawful for a firm (including an LLP) to discriminate against female equity partners in relation to, amongst other things, expulsion or by subjecting them to any other detriment, including for example by ‘de-equitisation’.

As the courts have recognised direct evidence of discrimination is rare and tribunals have to infer discrimination from all the material facts, a female partner is assisted somewhat by the burden of proof in these cases.

She has to prove facts from which inferences could be drawn that the firm has treated the female partner less favourably on the grounds of sex. If she does so, then the burden of proof shifts automatically to the firm, which must then prove on the balance of probabilities that the expulsion or de-equitisation was not on the grounds of her sex.

If the firm does not provide a satisfactory non-discriminatory explanation for the treatment, the tribunal must draw an inference of discrimination against the firm.

If the firm does not have a thorough, well thought out and consistently applied system and paper trail to support the assessment and selection process for partner exits, they will find themselves at a disadvantage in trying to show a non-discriminatory reason for selection.

If the female partner is successful, her main remedy is loss-based compensation, subject to a duty to mitigate, but without any maximum limit. Given the challenges in the current market, this could run to a number of years’ profit share, including any shortfall suffered if a lesser paid role elsewhere is secured.

There is also normally a relatively modest award for injury to feelings. Subject to certain limited exceptions, any claim must normally be brought to an employment tribunal within three months of the relevant act of discrimination.

However, while the recently publicised £40m race claim against a leading firm of accountants may suggest otherwise, the greatest cost to a firm facing any discrimination claim is usually the potential long-term damage to its brand, its reputation, its recruitment, its retention of female talent and its ability to satisfy the exacting equal opportunity requirements of multi-national corporations in new client tendering processes.

Taking simple best practice steps to prepare for partner exit processes and minimise the risk of discrimination claims should be a core component of any firm’s risk management and business planning processes.

Clare Murray is managing partner at specialist employment and partnership law firm, CM Murray LLP.

FIRMS BEWARE

Twenty-one days; ten days; two hours: the diminishing periods of advance warning that many equity partners are now being given by senior management of their imminent departure from the firm.

And the impression in some cases is that an equally short amount of time may have been dedicated by senior management to assessing the legal risks, planning the strategic and tactical handling, and documenting the selection process for those partner departures. This can often severely undermine the firm’s possible defence to such claims.

Discrimination cases are often cracked open by a well-placed written grievance by the partner, a subject access request under the Data Protection Act 1998 (which, in summary, requires the firm to provide to the partner copies of all their personal data held by the firm in manual files and on its computer systems – such as emails and memos about the partner, within 40 days and on payment of only £10) and a detailed discrimination questionnaire submitted to the firm.

Such standard processes frequently expose any vulnerabilities and flaws in the firm’s selection process.

MINIMISING THE RISKS

● Get your ducks in a row: carefully consider, in advance, the firm’s powers and obligations in relation to proposed partner exits; non-discriminatory selection criteria; the exit process and tactical options; whether there are any alternatives to departure – for example, de-equitisation, consultancy, part-time working, etc; if no exit deal can be reached, expulsion options and any partner right of response.

● Put your paperwork in place: document the need to make cuts in the partnership, where such cuts need to be made and why, and the basis of assessment of partners for potential exit, including the selection criteria and process.

● Remember that relying purely on financials can perpetuate discrimination: avoid adopting simplistic selection criteria, such as pure recent financial performance, which may disadvantage certain categories of partners and amount to unlawful discrimination. Factor in other relevant values into the selection process, such as team contribution, technical skills and support, client relationships, etc. If the results of your initial selection process appear to target certain categories of partner, such as maternity returners or part time working mothers, revisit your criteria and the selection pool of partners.

● Allow enough time: bouncing a partner into a forced exit in a very short timescale will only reinforce the partner’s perception that the decision is an unjustifiable knee-jerk reaction and potentially discriminatory.

● Anticipate what an exiting partner will want: consider the two things that an exiting partner normally needs most – time to find a new role while still in the office and a financial cushion to support them for a reasonable period if they cannot.

● Prepare the exit agreement in advance: having a decent exit agreement ready in advance for the partner to take away from the first meeting is tactically vital for an amicable exit.