In our experience, most modern partnership/LLP agreements contain clauses which require partners/members to retire from the firm at a particular age, and most firms understand that forcing people to retire in accordance with such clauses will be direct age discrimination.
Some firms still appear to be planning to enforce mandatory retirement age provisions in the future based on the belief that they will not be liable for an act of discrimination because they will be able “justify” forcing people to retire at a particular age. As a matter of law they may be right – but we suspect that most firms will find it very difficult, if not impossible, to satisfy the “justified” criteria in the future, and will be taking a significant commercial risk if they try and force a partner/member to retire simply because they have reached a particular age.
In the case of Seldon v Clarkson Wright and Jakes  UKSC 16, the Supreme Court found that direct age discrimination could be justified and clarified the test for justification that would have to be satisfied. In broad terms, mandatory retirement at a particular age will not constitute discrimination if it can be objectively and reasonably justified by a legitimate aim, and if the means of achieving that aim are appropriate and necessary. The decision of the Supreme Court did provide some clarity on important points of principle:
- to be accepted as “legitimate aims” the aims must be of a “public interest nature” (as distinct from purely private aims of the firm);
- these “public interest nature” aims must be consistent with “social policy aims” of the State as exist at the time the retirement provision is sought to be invoked (the aims of the State will no doubt change from time to time);
- the “legitimate aims” must be those which are actually being pursued by the firm at the date that it seeks to invoke the mandatory retirement provision (and this is to be tested objectively at the time the provision is sought to be invoked; accordingly, identifying the aim of the partners/members when the retirement provision was drafted will not guarantee that this element of the criteria will be satisfied – but then, nor will it be fatal if the “social policy aims” were not articulated and recorded when the provision was agreed);
- the “legitimate aims” identified must be genuine aims of the particular firm at the time the retirement provision is sought to be invoked (so, for example, avoiding the need to expel partners/members on grounds of performance, and thereby avoiding humiliation and maintaining the dignity of partners/members may be a genuine aim for some firms but, it could not be a legitimate aim for a firm which operates a sophisticated performance management policy and has the power to remove partners for underperformance); and
- the mandatory retirement provision must be an appropriate and necessary means of achieving the legitimate aims (and the Supreme Court did not reach a decision in Seldon that mandatory retirement at the age of 65 was an appropriate and necessary means of achieving aims which it found to be legitimate; the question has been remitted to the Employment Tribunal).
Advocates of the continued use of mandatory retirement age provisions may point to the decision in Seldon and argue that as such a provision passed the “justified” test in that case, continuing to enforce such provisions in their firm is acceptable. It is of course correct that the Supreme Court accepted three “legitimate aims”:
- ensuring that associates are given the opportunity of partnership after a reasonable period as an associate, thereby ensuring that associates do not leave the firm;
- facilitating the planning of the partnership and workforce across individual departments by having a realistic long term expectation as to when vacancies will arise; and
- limiting the need to expel partners by way of performance management, thus contributing to a congenial and supportive culture in the firm.
However, when considering the Supreme Court’s acceptance that these were “legitimate aims”, it is important to have regard to the particular circumstances of Clarkson Wright and Jakes and the law relevant to retirement (for employees) as existed at the end of 2006 when Mr Seldon was compelled to retire. Firms which believe they will be able to satisfy the “justified” test by analogy with the Seldon case should take note of following specific circumstances:
- the firm had 10 equity partners (one of whom was part time);
- the firm employed 22 other solicitors and 5 trainees;
- the firm did not have a policy of performance review for equity partners;
- there was no power within the partnership deed to remove underperforming partners;
- there was no power within the partnership deed to reduce profit share to reflect underperformance by a partner; and
- the Employment Equality (Age) Regulations which came into force on 1 October 2006 included a Default Retirement Age which could be relied upon by employers to force employees to retire upon reaching the default age.
While the circumstances of Clarkson Wright and Jakes are perhaps not unique, there are a large number of firms whose circumstances will be very different (and of course they will not be invoking the provision in the wider context of circumstances which existed in 2006). In our experience the majority of firms do now have partnership/members agreements which include provisions regarding the removal of partners/members, a power to reduce profit shares of partners/members and large numbers of firms do now carry out some form of partner performance review.
Accordingly, we think it highly likely that even if firms can successfully argue that their mandatory retirement provisions satisfy the “legitimate aims” test (in that they are of a “public interest nature”, and satisfy “social policy aims” of the State) it will be extremely difficult to successfully argue that they are legitimate in the circumstances of any particular firm on an unknown date in the future.
There also remains the as yet unresolved difficulty of establishing that the particular age specified in a mandatory retirement age provision is the appropriate and necessary age at which a partner/member should retire. Why, for example, would 65 years of age be appropriate and necessary, but 66 years of age would not? The Supreme Court has sent the Seldon case back to the Employment Tribunal to consider whether it was proportionate in that case to provide for the mandatory retirement of partners at the end of the calendar year in which they reached the age of 65. However, the Tribunal will be considering the position as at 2006 when the Default Retirement Age for employees was 65. While it may be relevant for the Tribunal to take account of the Default Retirement Age as established by legislation, the extent to which it is taken into account in the Seldon case will be irrelevant in future cases given that the Default Retirement Age was phased out in 2011.
Our view is that it is impossible to predict whether a mandatory retirement provision drafted today will satisfy the “justified” criteria on an unknown date in the future when the circumstances of the firm and the state of the law is unknown. However, we strongly suspect that most firms will find it very difficult to satisfy the criteria. If that is correct, it would be unwise for firms to place much reliance on mandatory retirement provisions as a mechanism for managing the partner/member population. Accordingly, while it may be appropriate to retain mandatory retirement age provisions in partnership/members agreements, great care must be taken before any attempt is made to invoke such provisions.
As there is no limit to the damages that can be awarded for discrimination claims, the risks of an adverse finding do drive one to the conclusion that firms would do better by focusing their energies on ensuring that their partnership/members agreements and policies provide them with effective and less risky mechanisms for managing the partner/member population.
For more information please contact Clive Greenwood, or your usual Lewis Silkin contact