Pregnant partners need a fair profit share
17 September 2007
While law firms have spent a great deal of time ensuring their profit share arrangements comply with new age discrimination rules, many have not yet addressed the risk of claims by part-time or pregnant female equity partners for unfairly reduced profit shares.
Typical examples include paying a lower percentage of the profit share to a part-time female partner compared to the percentage of time they actually work - for example, paying 55 per cent of full profit share to a woman who works a 60 per cent week.
The rationale often given is that, within those shorter working hours women are perceived as not fulfilling the full supervision, management and business development roles of a partner to the same extent as a full-time colleague, who may feel they have to bear an excess load as a result.
Another example of potential unfair prorating of female partner pay is distributing the performance-based element of profit share to take account of maternity absence, even in situations where the female equity partner manages to achieve their annual target in their shorter working year. Or providing only a short period of paid maternity leave, with excess absence resulting in a reduction of her profit share.
Some firms make no provision in their partnership agreement for their female partners who have childcare commitments. Maternity leave and pay often go unmentioned - an indication of how the firms have failed to develop their thinking in these areas in any meaningful or consistent way.
This leaves female partners confused as to their entitlements. It may also be interpreted negatively by women and employment tribunals. As such, firms need to look carefully at their maternity and part-time arrangements for female partners.
Female partners receiving unfairly prorated pay have specific protections under the Sex Discrimination Act 1975. It is unlawful for firms, including LLPs, to discriminate against a female partner, for example, in relation to partnership terms as regards to maternity leave and part-time profit sharing arrangements, or by subjecting her to any detriment.
Female equity partners also have specific protection against discrimination on the grounds of pregnancy if the firm treats them less favourably during the period from becoming pregnant to two weeks after the pregnancy ends than it would have treated them had they not become pregnant. If the firm reduces normal profit share during that protected period, it is likely to be regarded as direct pregnancy discrimination.
While suspension of normal pay during employee maternity leave is lawful, that exemption does not apply to partners. Beyond this pregnancy period, the female partner relies on direct and indirect sex discrimination protections.
Allocating a less than pro rata amount of profit share to a part-time female partner with childcare commitments is also potentially indirect sex discrimination. The firm is effectively imposing a criterion that all partners have to work full-time to receive pay fully equivalent to their proportion of working hours. It will be relatively easy for the female partner to show the financial disadvantage she is suffering, but hard for the firm to justify the reduction in profit share, and show that it supports a legitimate aim. Possible justifications raised in the past include that a part-time partner does not work 80 per cent in her four days as she works fewer overall hours than full-time partners who may be in the office very late.
However, in the absence of clear evidence, it is unlikely that the tribunal would be impressed by the assumption that a part-time partner does not work a true pro rata number of hours.