Freshfields can start to look forward with Bloxham win vindicating pension reform
15 October 2007
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Nearly a year after former insolvency partner Peter Bloxham filed his age discrimination claim against Freshfields Bruckhaus Deringer, a judgment was finally handed down last week (10 October). It found unanimously for Freshfields.
Last week's decision is undoubtedly a triumph for the magic circle firm. Barring an appeal that would overturn the judgment - extremely difficult to do given that Bloxham can now only appeal on points of law rather than on fact - it rids the firm of a huge albatross.
Freshfields started 2007 with a conflict of interest hearing looming over it, a firmwide restructuring that had gone £15m over budget and at least three lawsuits filed that had stemmed from its controversial pension reforms.
It enters the last quarter of the year decidedly unburdened and bolstered for future spats.
Although as a first instance decision last week's judgment is non-binding for anyone other than Freshfields and Bloxham, it will be highly persuasive for firms that find themselves in a similar position to Freshfields. The flip-side is that the judgment is likely to be discouraging for anyone in a similar position to Bloxham.
That includes Lois Moore, Freshfields' former corporate partner who is now at Shearman & Sterling. She too filed an age discrimination claim against the firm that is comparable to Bloxham's on points of law. While a victory for Bloxham could have left Freshfields open to not only a settlement, or worse in Moore's case, there are now questions over whether Moore will decide to drop her claim or persevere.
At press time Moore's case was still scheduled to be heard at the London Central Employment Tribunal on 14 December.
Her solicitor, Herbert Smith senior partner David Gold, declined to comment. If she does proceed, said one source close to the Bloxham case, "it leaves Lois open to costs".
Freshfields is yet to make a concrete decision on whether or not it will pursue its legal costs against Bloxham, but his next step will colour the firm's strategy. If he appeals, a source close to the case said, Freshfields would seek redress for legal costs.
The source said there were already grounds to seek costs, but that "Freshfields was not in this to be vindictive. The claim was on many points unsettleable."
The two sides are unsurprisingly viewing the judgment from very different perspectives: while Freshfields' solicitors Lewis Silkin described it as "fluent and well-written", sources close to the Bloxham side saw it as "disappointing in its brevity".
Out of the key claims Bloxham made against his former firm, the tribunal found that only one instance was potentially discriminatory - namely Freshfields' transitional arrangements between the old, uncapped Schedule II pension scheme and its successor, Schedule IIA. Age discrimination differs from other forms of bias in that, if it is shown to be a proportionate means to a legitimate aim, it is justifiable.
The tribunal found that Freshfields' argument that the transitional arrangements were part of a reform of an unfair and costly pension system "was a proportionate means of achieving a legitimate aim that was not merely met, but was comfortably passed".
Bloxham's complaint turned on the question of the 20 per cent 'cliff', or disparity, between 55-year-old partners and 54-year-olds. The 55-year-olds were entitled to their full Schedule II pension, while 54-year-olds were entitled to 80 per cent of it. Again, the judgment found that the cliff was legitimate. It also rejected Bloxham's claim that he had been "forced" to retire, upholding Freshfields' argument that a consultancy had been offered to Bloxham.
Despite the tribunal's findings that Bloxham suffered less favourable treatment than his 55-year-old peers under the transitional arrangements, the tribunal also decided that "no alternative, less discriminatory solution could be conceived" by the magic circle firm in reforming its pension scheme.
Eversheds employment partner Paul Fontes, who was not involved in the case, said: "Crucially, it doesn't seem that Bloxham or his legal team could put forward a fairer solution."
During the hearing much consideration was given to the role of the so-called 'Grey Panthers', an unofficial body that was a conduit of information between Freshfields' management and older partners during the pension reforms.
The judgment reads: "The transitional arrangements themselves were put in place as a result of consultations made by the group of partners known as the Grey Panthers."
However, one Grey Panther disagreed strongly with the findings of the tribunal. He told The Lawyer: "We were not in any way representative and were not a formal body.
"We didn't purport to have any responsibility for consulting partners - that was management's job. The Grey Panthers didn't really exist; it was just a name one partner came up with."
During the hearing two partners and 'members' of the Grey Panthers were particularly cited: former finance partner David Ereira and Moore.
The irony is not just that both partners have left the firm as a result of the pension reforms, but that both have brought claims against the firm - Ereira has since settled his (The Lawyer, 3 September).
Although undoubtedly a landmark decision (it was the first time new age discrimination laws were majorly tested since their inception in October 2006), the judgment does not answer every question hanging over Freshfields' reform process. It makes no mention of 'Size & Shape', the name given to the £55m restructuring. Bloxham had alleged that pension reform and Size & Shape were one and the same: that it was an attempt to improve profit by forcing underperforming partners out the back door.
During the hearing, and in Bloxham's 80-page witness statement, it emerged that Jonathan Sumption QC of Brick Court Chambers, the barrister who Freshfields had brought in to consult on the pensions reforms, had already warned that getting rid of older partners under the guise of pension reforms, but actually with a view to Size & Shape, would be illegitimate.
Lawyers on Bloxham's side hinted that this might be grounds for new claims, while Freshfields' management told The Lawyer that the absence of any mention of Size & Shape in the judgment was an implicit acknowledgement by the tribunal that Bloxham's side had failed to put forward any evidence that the two reforms had been confused.