Mandatory Retirement Age in Partnerships
The decision of the Supreme Court in the case of Seldon –v- Clarkson, Wright & Jakes is the latest instalment in a long running case in which Mr Leslie Seldon, a former partner in a firm of solicitors, made a claim for age discrimination in March 2007. It reinforces the need to take care when considering whether to ask someone to retire on the grounds of age.
Background
The partnership deed contained a provision requiring all partners to retire at the age of 65. The partners decided to enforce this clause and asked that Mr Seldon should retire at that age. Mr Seldon alleged that his forced retirement was an act of direct age discrimination. His claim failed in the tribunal and his appeals against that decision were largely unsuccessful in both the Employment Appeal Tribunal (EAT) and the Court of Appeal.
On his appeal to the Supreme Court, his case was supported by the Equalities and Human Rights Commission whilst the Secretary of State for Business Innovation and Skills assisted the firm.
In the employment tribunal, the firm had successfully argued that they had a number of legitimate aims in retiring him. The Employment Tribunal accepted three of these arguments
(i) ensuring that associates were given the opportunity of partnership after a reasonable period, thereby ensuring that they did not leave the firm;
(ii) facilitating the planning of the partnership and workforce across individual departments by having a realistic long term expectation as to when vacancies would arise; and
(iii) limiting the need to expel partners by way of performance management, thus contributing to a congenial and supportive culture in the firm.
The Supreme Court held that in a case involving the justification of direct age discrimination, an aim will only be legitimate if there is something in it that has a broad social policy objective. It is not enough to point to the specific objectives of the business such as an increase in competitiveness or reducing cost.
The three aims put forward by the firm were accepted as being potentially legitimate aims. Furthermore, the aims were related to the particular needs of the business i.e. they made commercial sense in the context of the particular law firm partnership.
However the Supreme Court determined that the question of whether the age of 65 was the right age to choose (i.e. was it a proportionate means of achieving these aims) should be looked at again by the tribunal. Whether a retirement age is justified is one question, whether this particular age is justified is another which now needs to be determined in this particular case.
The decision is clearly directly applicable to law firm partnerships but even then it would depend upon the particular circumstances of the firm as to whether or not any particular clause referring to a specific age will be regarded as a justifiable approach. However, the case will be a useful reference point for a variety of different types of partnership e.g. medical, accountancy or other professional partnerships. It is equally applicable to the retirement of individual employees.
Implications and Conclusions
Since the age discrimination provisions first came in and, in particular, since the default retirement age provisions were implemented, it has widely been recognised that it is potentially discriminatory to include any reference to a compulsory retirement age in an employment contract or partnership deed. The justifications put forward by the firm in this particular case were held to be potentially legitimate aims, but that may not be enough to avoid liability for discrimination; it will be interesting to see whether the employment tribunal determines that the age of 65 was the right age to choose in order to meet the legitimate aims in the most proportionate way.
It will now be more difficult to find reasons which might potentially be regarded as legitimate business aims since each of these will have to have some broad social policy component.
The case still gives little guidance as to the way that the balancing exercise must be done and any firm which decides to continue or to proceed down the route of incorporating a default retirement age into its partnership deed and to enforce this will do so at its peril.
In years gone by, either employees or partners would have been delighted to retire at the age of 65. However, in these difficult economic circumstances there is an increasing number of people who wish (need) to work beyond that age in order to make up for inadequate pension provision, and increased life expectancy.
From the employer’s perspective, without a compulsory retirement age, succession planning becomes more difficult (particularly in the smaller firm) and if the parties cannot reach a mutual agreement as to an appropriate retirement date, the continuing partners will have to resort to performance management to ease the older partner into a potentially less dignified exit.