Partnerships across the land have been awaiting eagerly the first appellate decision on the lawfulness of mandatory retirement ages for partners.

Background

A mandatory retirement age is, on the face of it, the most obvious form of direct age discrimination. Nonetheless, the Regulations incorporate at regulation 30 a default retirement age of 65 after which employers can lawfully retire employees provided that they follow a prescribed procedure. However, non-employees such as partners are not covered by this exception so any retirement age must be objectively justified.

The first challenge to a partnership mandatory retirement age involved a small firm of Kent solicitors. The partnership required partners to retire at 65.

In order to justify a potentially discriminatory measure like this, the firm has to demonstrate:

  • that it has a legitimate aim for the measure; and
  • that the measure is a proportionate means of achieving that aim.

Before the employment tribunal, the firm argued the following legitimate aims justified the retirement age:

  • ensuring associates had the opportunity of partnership and were therefore retained;
  • facilitating planning because it would be known when vacancies would arise;
  • maintaining a collegiate working environment by limiting the need to expel partners by way of performance management;
  • encouraging employees and partners to make financial provision for retirement;
  • ensuring each partner could become senior partner at some point; and
  • avoiding a situation in which it would be preferable to keep associates as employees or salaried partners rather than equity partners.

The employment tribunal accepted the first three of these as legitimate aims but not the latter three. It then went on to hold that the discriminatory nature of the retirement rule was nonetheless a proportionate means of achieving these aims.

The EAT decision

The EAT (Elias J presiding) agreed with the employment tribunal about the first two aims of ensuring partnership opportunities and facilitating planning but rejected the aim of avoiding performance management.

The EAT accepted that maintaining a collegiate working environment by avoiding performance management could amount to legitimate aim but that the premise that it was legitimate to retire partners at 65 as their performance declined at about that age was unsubstantiated by any evidence and based on a discriminatory assumption.

The EAT remitted the case back to the same tribunal to consider whether or not the two legitimate aims that it accepted were sufficient to justify the retirement age.

The EAT also disposed of a number of general points on justification.

It confirmed that the test for justification of direct and indirect discrimination is the same (see advocate general’s opinion in the Heyday case (click here to read our report of that case)).

It also confirmed that the legitimate aim did not need to have been consciously identified at the time the measure in question was established.

The EAT also held that the partner’s consent in the partnership agreement to the potentially discriminatory measure was a relevant factor as there was greater equality of bargaining power between partners than in an employment relationship in the same way that the collective negotiation with a union of a potentially age discriminatory measure was relevant (see Palacios and Loxley).

Further, the EAT was happy that the impact of the potentially discriminatory measure generally should be considered and not its discriminatory impact on the individual claimant. Though the EAT noted that the impact on the individual may well be relevant to the extent to which a less discriminatory measure could have been adopted to achieve the requisite aim.

The EAT’s conclusions on legitimate aims and on these general points all seem relatively uncontroversial.

It will be interesting to follow the tribunal’s deliberations when it comes to reconsider the case. On one hand, the betting must be on a tribunal that has already concluded that the retirement age was justified to come to the same conclusion second time round. However, on the facts this would seem difficult.

In considering the proportionality of the measure, as the EAT acknowledged, the discriminatory effect of a directly discriminatory measure such as mandatory retirement will be greater than the effect of an indirectly discriminatory measure and consequently the need to achieve the aim in that way more difficult to show.

In this case, it was acknowledged that a significant proportion of partners choose to leave the firm voluntarily before reaching the retirement age and even with those who reach retirement age, the partnership can agree for them to stay on. It would seem difficult, therefore, to understand how, in this case, the workforce planning and creation of partnership opportunities aims legitimately justify any retirement age and, even if they did, why a retirement age of, say, 70 might not serve the same purpose and be less discriminatory.

In considering the impact on other partnerships, particularly larger ones, these aims would seem even harder to satisfy. In most partnerships, the stresses and strains (as well as the financial rewards) mean that many partners retire before any retirement age negating the benefit of a retirement age in predicting vacancies. Further, in many partnerships promotion to partnership is predicated on a retiring partner creating a vacancy.

However, in today’s economic climate, two factors may weigh heavily in forcing the issue of partners’ retirement to the fore, namely a) the devaluation of pensions and savings forcing partners to work longer than they might have planned; and b) the end of rapid expansion meaning that vacancies at the partnership table will be predicated on a space being created by a departing partner.

A copy of the judgment can be found here.

Seldon -v- Clarkson Wright & Jakes [2009] 3 All ER 435, [2008] UKEAT 0063_08_1912, [2009] IRLR 176, [2008] UKEAT 0121_07_1812, [2009] IRLR 267