Freshfields on the back foot as ex-partner paints bleak picture of pension reforms

Freshfields Bruckhaus Deringer is fighting to maintain that its controversial pension reforms and its £55m firmwide restructuring undertaken in the past two years are two distinct policies.

There have been multiple references to the so-called 'Size and Shape' restructuring throughout the ongoing hearing of age discrimination claims brought by former Freshfields insolvency partner Peter Bloxham against his old firm.

That is bad news for Freshfields - if the hearing itself was not unfortunate enough. The magic circle firm had brought in Jonathan Sumption QC of Brick Court Chambers to advise on the legal aspects of the pension reforms, which saw the firm scrap its unfunded pension for a less generous index-linked one named Schedule 2A, which was brought in last year.

Sumption had told Freshfields that pushing older partners out of the door under the auspices of pension reform, but actually with a view to changing the profile of the firm - which is what Size and Shape was all about - would be illegitimate. In all, 30 plateau partners retired from the equity, either staying at the firm as consultants or leaving altogether.

One could almost feel the unease felt by Freshfields co-senior partner Guy Morton when he was cross-examined by Tim Pitt-Payne of 11KBW last Wednesday (11 July).

Morton had to concede that changing the demographics of the firm was a "consideration" of the pensions reforms, if not the "motivation" behind them.

Those are murky waters for Freshfields to be swimming in, not least because, as revealed on page one today, more potential claims turn on the outcome of Bloxham's hearing, which is due to finish on 19 July (although a judgment might not be handed down for another couple of months after that).

One former Freshfields partner told The Lawyer: "They always denied Size and Shape was a motivating factor for pension reform - but no one I used to discuss these matters with believed it for a moment."

It must also be borne in mind that Sumption - who was not the only counsel approached by Freshfields to advise, it is understood - was not advising on whether the pension reforms would conform to the then pending age discrimination legislation: a point Bloxham's lawyers are keenly aware of.

Moreover, in the same afternoon Morton had to admit that the introduction of non-equity partners to the firm was "not ideal" - a blow to the impenetrable wall of optimism Freshfields' management normally presents on the subject.

Freshfields' lawyers have argued assiduously that the firm worked through multiple financial models and options before arriving at the most suitable pension reform. One option was to freeze the pensions of partners aged 50-54. This was rejected by the partnership council, said Morton, because it would create two classes of partner working together.

Saying this was inconsistent, Pitt-Payne retorted that this was exactly the situation Freshfields had created when it voted for fixed-share partners last June. Morton replied that de-equitisation and the introduction of non-equity partners had created a "two-tier system that was not ideal".

The issue of consultation is also key in the case. Bloxham maintains that Freshfields did not adequately consult older partners on the reforms, a claim that Freshfields denies. According to the firm, a group that represented the interests of older partners, named the Grey Panthers, was in constant dialogue with the 15-member partnership council.

The five-partner group was led by banking partner David Ereira, who is now at Linklaters, and included corporate partner Lois Moore, now at Shearman & Sterling.

Bloxham, meanwhile, said this group was unofficial and ad hoc. At the hearing he said: "The only way to find out what was going on was by going to the Grey Panthers."

This is consistent with the views of a former partner contacted by The Lawyer. He said: "I totally agree with Peter's description of the Grey Panthers. Lois instigated this, not management. The idea that the group existed as a means of disseminating information and collecting feedback among the older partners at the firm is pure spin. There was no formal line in or out to management, although the group was very willing to share the output of its meetings with management (and indeed anyone else interested). It was not a consultative body."

To further prove Freshfields' 'meticulous' consultation process, Freshfields' counsel Dinah Rose QC read out at the hearing emails from former real estate partner Graham Prentice and former environmental partner Paul Watchman, now both at LeBoeuf Lamb Greene & MacRae.

Both men were in the 50 to 54-year-old age bracket, who, like Bloxham, needed consent to leave Freshfields with their Schedule 2 pensions intact. Prentice's and Watchman's concerns were listened to and carefully replied to, said Rose.

The Lawyer contacted these partners to ascertain their opinions on the fact that their emails had been used as evidence of consultation by Freshfields. Had they known that their missives would be used in this way?Ironically, they said they had not been consulted.

The case
According to Bloxham's 80-page witness statement, his age discrimination claim against Freshfields arises out of the firm's "revisions to arrangements for the payment of retirement annuities to its retired partners. [...] When I retired, I was 54. If I had been 55, I would have been substantially more favourably treated. The disparity between the treatment of 54-year-olds and 55-year-olds and those partners who had already retired when the reform took effect, cannot be justified and amounts to unlawful age discrimination. I also complain of a difference in treatment between 54-year-olds and those aged between 50 and 53." Bloxham is seeking £4.5m, calculated as six months' partner profit share, plus the £40,000 annual difference between Bloxham's current £175,000 per annum lifetime pension and the full pension he would have received had he continued at the firm until his 55th birthday in March 2007. He retired aged 54 on 31 October 2006 and claims he was forced to do so. Age-inequity claims are different to other discrimination cases, because even if less favourable treatment on the grounds of age is proven, it can be justified if it is shown to be a proportionate means of achieving a legitimate aim.

The claim rests on the 20 per cent differential between 54-year-old and 55-year-old partners' pensions as prima facie evidence of age discrimination. The burden is on Freshfields to prove that this was proportionate and that there was no other alternative.