Can firms force partners to retire?

THE FIRST AGE DISCRIMINATION CASE to be heard in the Supreme Court involved a firm forcing a partner to retire at 65. But surprisingly it is not the forcefulness that continues to be appealed but the age at which that pressure can be applied.

The Supreme Court recently found in favour of a law firm Clarkson Wright & Jakes that it could force its partner Mr Seldon to retire at the age of 65 in accordance with the deeds of the partnership.

Age discrimination legislation means that any partnership or LLP (limited liability partnership) wishing to impose a compulsory retirement age on partners needs to show that the inevitable discriminatory treatment is a “proportionate means of achieving a legitimate aim”.

Direct age discrimination can only be justified based on the state’s public policy aims and not the business aims of the partnership, for example cost reduction. The court endorsed the aim of “inter-generational fairness” which could potentially apply to practices of all sizes and structures who wish to retain and promote staff where there is a career logjam based on age. One way of doing this is to have a fixed retirement age.

The court also endorsed the more controversial aim of maintaining the individual’s dignity in deciding to fix a retirement age. In this case one of the firm’s aims was to promote collegiality without having any formal exit provisions for poor performers. However that aim will clearly not apply to many practices which emphasises the need to consider each case on its own merits subject to the above guideline principles.

The firm had three justifications to its retirement policy: to ensure associates had the opportunity of achieving partnership after a reasonable period; facilitate workforce planning by having a realistic long-term expectation as to when vacancies would arise; and limit the need to expel partners by way of performance management, thus contributing to the congenial and supportive culture of the firm (the “collegiality” aim).

But this is only half the story. If there are legitimate aims to justify retirement the question is “at what age?”

The case has now been sent to an Employment Tribunal which will have to consider whether age 65 was “proportionate” in the sense that it was appropriate and reasonably necessary for a partnership with less than 20 partners. The Supreme Court has told the Tribunal to take into account the fact that employees at the material time could have been forced to retire by law at 65.

However the law has since changed as employees (like partners have always been) are not now subject to a statutory fixed retirement age unless it can be justified. In most cases this will make it difficult for partnerships to justify the retirement of partners at 65 (or any younger age).

The message of this lengthy litigation is clear. Should a partnership wish to retain or adopt a fixed retirement age for partners it must be prepared to carry out research to justify (if challenged) the rationale behind having a retirement age based on the Supreme Court’s guidelines and the rationale behind the choice of age.

The case is also relevant to accountancy practices as employers. Currently nearly all employers are operating without a fixed retirement age for their employees and this case is unlikely to change that.

Last month a survey indicated that 54 % of employees aged over 55 now want to work beyond state retirement age. This will increase to 66 in 2020.

The Chartered Institute of Personnel and Development has stated that managing a healthy ageing workforce has become a “national business imperative” and it is certainly true that the increased use of performance management will become a key focus for all employers in the absence of a justified retirement age.

As the Supreme Court identified, “there is a difference between justifying a retirement age and justifying this retirement age”. Therefore, after more than five years, the parties still await the outcome.

David Walker is a partner in the employment team at law firm Dundas & Wilson.