Opinion: Firms should be shy of retiring their partners
26 January 2009
14 May 2014
16 May 2014
14 May 2014
11 August 2014
25 April 2014
Life expectancy is rising by 15 minutes every hour. For a 45-year-old partner it will have increased by five years by the time they retire at 65. Partners will, therefore, need to support themselves for 25 years or more after the end of their working lives.
The recent dramatic collapse in the value of investments such as property and shares will also force partners to work longer. Retiring at 65, never mind earlier, may turn out to be incompatible with their carefully laid plans.
Law firms that persist with a retirement age for partners of 65 or even less are nervously awaiting developments in age discrimination laws in which such policies are being challenged as unlawful.
Partners, as well as employees, are covered by UK anti-discrimination laws.
On the face of it, forcing someone to stop work merely because they have reached a set age is one of the most obvious forms of age discrimination.
Notwithstanding this, the age discrimination regulations incorporate an exception for retirement from the age of 65. For reasons that have never been entirely clear, this applies only to employees and not to partners.
This means that to retire a partner and avoid an age discrimination claim, a firm has to show that requiring partners to retire at a given age is ‘justified’. To do so, the firm must demonstrate that the retirement age represents a proportionate means of achieving a legitimate aim.
What might a firm’s reason be for needing to fix a mandatory retirement age for partners? The Employment Appeal Tribunal recently handed down its first judgment on this issue. The case involved 10-partner Kent firm Clarkson Wright & Jakes, which was sued by former senior partner Leslie Seldon after he was required to retire at 65.
The tribunal rejected Seldon’s claim after hearing three ‘aims’ given by the firm:
Ensuring partnership opportunities for associates;
Workforce planning through knowing when vacancies would arise;
Creating a ‘collegiate culture’ by limiting performance-related expulsions.
The tribunal accepted that the first two of these were legitimate. But it rejected the third as it was based on the ageist presumption that performance deteriorated from age 65 and there was no evidence for this before the tribunal. The case was sent back to the tribunal to reconsider whether or not the retirement rule was justified on the basis of the first two aims alone.
Whatever the ultimate outcome of this case, it highlights both the difficulty of justifying retirement ages for partners and the pressing need for firms to review critically and carefully record their reasons for retaining them.
Clarkson Wright & Jakes is a relatively small firm, with one or two partners in each department. The partnership opportunity argument will be less relevant in larger firms, where promotion depends less on a partner leaving to create a vacancy than on prospective partners demonstrating a business case contributing to the firm’s development.
Similarly, the aim of workforce planning only holds water where most partners actually work up to retirement. Where few of them do, this argument should not succeed either.
Ironically, one ray of light might be the economic climate. Firms will not be growing and partner opportunities will depend more on vacancies being created. As more partners will be forced to work through to retirement, the workforce planning argument will come back into play.
The situations in which mandatory retirement can be confidently retained will nonetheless be few – and the risks are substantial. Imagine a partner on £300,000 per year who can show they would have worked another five years if not forcibly retired. That’s a £1.5m payout.