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Freshfields Bruckhaus Deringer co-senior partner Guy Morton admitted that changing the demographics of the magic circle firm was a consideration, if not a motivation, of the recent pension reforms that have sparked an age discrimination claim against the firm.
It was also revealed that he thought the introduction of fixed-share partners last year was "not ideal".
Morton, who took the stand yesterday afternoon (11 July) in the age discrimination hearing, was the first witness to be called by Freshfields in its response to claims brought by former insolvency partner Peter Bloxham.
Bloxham argues he was "forced" to retire six months earlier than planned to take advantage of the unfunded pension that Freshfields operated until last year. He is seeking damages of £4.5m, equal to six months' partner profit share plus the differential between a full lifetime pension eligible to partners aged over 55 and one he qualified for aged 54, which was 80 per cent of that value.
As revealed by The Lawyer yesterday, part of Bloxham's claim is that Freshfields management confused the pensions reforms with ‘Size & Shape’, the name given to Freshfields’ £55m firmwide restructuring. This is despite Jonathan Sumption QC of Brick Court Chambers advising the firm that to do so would be illegitimate.
Under cross-examination by Tim Pitt-Payne of 11KBW for the claimant, Morton agreed that this 20 per cent ‘cliff’, or disparity, between 55-year-olds and 54-year-olds that is at the heart of the case, was most likely introduced as an incentive for partners not to leave the firm before they were 55.
But during the reforms that incentive was removed for partners such as Bloxham, who had the choice either to retire at 54 on an 80 per cent pension under the old scheme or stay on at the firm until 55 to earn a new full pension, worth less and than the old one and being paid out for 25 years rather than over a lifetime.
Without an incentive to stay, Pitt-Payne suggested that Freshfields' management could suppose that many older partners would leave and therefore change the firm's profile - in other words, what Size & Shape was striving for.
Morton replied: "We did consider the profile of the firm, but it wasn't our motivation. It was more important to us to produce a packet that was fair to the various generations."
One option during reform was to freeze the pensions of partners aged 50 to 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 that 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".