It is well known that it’s unlawful to discriminate within partnerships on
grounds of sex, ethnic origin or disability. Now heading the way of all
partnerships from 1 October 2006 are new laws prohibiting discrimination on
grounds of age. The new regulations will affect how both equity partners and
members of limited liability partnerships behave towards eachother within the
Many professional firms now have policies in place that encourage women,
people from ethnic and other minorities and those who have disabilities both to
aspire to and achieve top positions within a partnership. The age discrimination
laws will challenge professional firms to bring further diversity into their
policies and practices. There is a widespread belief, however, that this
legislation will introduce changes that will go right to the heart of
professional partnership culture and affect it in a way that other
discrimination laws do not.
From the beginning of next month it will be unlawful either to make decisions
about partners or to have policies that affect them which are based on
age-related factors. So, for example, if a partner is obliged by the partnership
deed to retire at a certain age this will amount to direct discrimination.
Equally where a policy or practice is applied that disadvantages groups who are
defined by their age then this would amount to indirect discrimination. As an
illustration, it has been suggested that this could impact on the way in which
partnerships are financed since the strategic objectives of younger partners
could be very different to those of partners who are approaching retirement.
Most professional firms will already have well-established policies dealing
with admission to the partnership, progress within it and the circumstances in
which partners can be asked to leave or compelled to retire. Under the new
regulations all of these policies and procedures may become discriminatory and
will require review. A discriminatory practice could be lawful but only if it is
capable of being
‘objectively justified’. This would mean showing that the discrimination was
a ‘proportionate means of achieving a legitimate aim’. It is expected that it
will be a rare case where a discriminatory practice could be shown to be
justified in this way.
The policy that has come under the widest and closest scrutiny so far is the
‘lock step’ system of promotion and financial reward within a partnership. The
‘lock step’ in its simplest form, commits partners to a system which is intended
to deliver increasing remuneration as they progress up the steps of the profit
sharing ladder year by year. Financial reward under this system is based on the
number of years a partner has been at the firm, and gives the best rewards to
partners with the longest service. While lock step is intended to reward loyalty
the partners who benefit most are likely to be older people. The new law will
mean that such a policy will indirectly discriminate against younger partners
who have a shorter period of membership.
Some commentators see this as heralding the death of lock step and a
wholesale move to merit based systems of remuneration within professional
partnerships. However this is to overstate the impact the new legislation will
have. It will not be the case that, overnight, it will become unlawful for a
partner to receive a share of profits based on their length of service.
Nevertheless as a lock step system will potentially discriminate against younger
partners a partnership that uses it will need to consider how they could show
that this way of sharing profits is in pursuit of a legitimate aim and
Reasons advanced to explain why this form of profit sharing is so popular
include the belief that it encourages a strong partnership ethos, promotes team
spirit and requires little management. This could be enough to meet the test of
justification. It remains to be seen if younger partners who claim that they
are entitled to a greater share of the profits by the measure of their
contribution will challenge it.
Age old problem
It has been unlawful to discriminate on grounds of age in the US for nearly
40 years. In American professional service firms, merit-based systems of reward
are the norm and partners commonly work into their late sixties and even
seventies. The structure of US firms means that equity partners in their sixties
are not seen as blocking younger partners or as a drain on profits. In contrast
in England, because a partner at the top of the lock step system could be taking
out profits large enough to split between two or more new partners at the bottom
of the ladder, the practice of ‘easing out’ partners in their fifties has become
prevalent particularly in London.
Evidence that partners want to work on well into their sixties and seventies
is hard to come by, but it is very doubtful that many partners want or are able
to retire by the age of fifty-five. The new laws will make the practice of
easing out unlawful and it will have to stop.
Similarly, it will no longer be lawful to require a partner to retire at a
particular age. The job for life is back. If a partner is to be asked either to
leave or retire the rationale for doing so will have to be by reference to their
performance and their capability to contribute effectively to the partnership.
Professional service firms are waiting to see if there will be a trend
towards a more meritocratic reward system. If this is the case, partnerships
will have to keep much better records of what partners do and evaluate more
carefully each partner’s contribution.
Some may see such changes as undermining the collegiate ethos of partnership
while others may see them as an opportunity for introducing new vitality and a
genuine diversity to partnership culture in the UK.
The outlawing of ageism looks likely to have a significant and potentially
far reaching effect on professional practices. The next few years will determine
whether or not such firms are capable of embracing diversity in all its forms.
The regulations will cover directdiscrimination, indirect discrimination,
harassment and victimisation:
• A national default retirement age of 65 will be introduced. Employers will
no longer be allowed to force someone to retire before then.
• All employees will have the right to request to work beyond the age of 65
or any other retirement age (if there is one) set by the company, and employers
will have a duty to consider, although not to accept, such a request.
• Employers must give at least six months notice to employees about their
intended retirement date so it is not assumed that ‘retirement’ is being used as
cover for unfair dismissal.
• There will no longer be an upper age limit for unfair dismissal and
• Age limits will be removed for statutory sick pay, statutory maternity pay,
statutory adoption pay and statutory paternity pay.
Roger Byard is a partner and specialist in employment law
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