By October 2006, new laws prohibiting discrimination on grounds of age will come into force. The legislation is expected to challenge firms to bring further diversity into their policies and practices that will touch the heart of partnership culture. It is doubtful whether many firms have started to think through, let alone implement, the changes to the way they are organised.
From next October it is almost certain that it will become unlawful to make decisions about partners or have policies that affect them based on age-related factors. Direct discrimination will occur if a decision is made based on a person’s age. Where a policy or practice is applied that disadvantages groups who are defined by their age, this will give rise to indirect discrimination.
All firms will have established policies relating to issues such as admission to partnership and progress within it, and agreed procedures defining the circumstances in which partners can be asked to leave or are compelled to retire – all of which may become discriminatory under the new laws.
Perhaps the biggest challenge that the new legislation is likely to present to law firms will be to the traditional lockstep model of promotion and financial reward. This method gives the best rewards to partners with the longest service. After October 2006 such a policy will discriminate indirectly against younger partners who have a shorter period of membership.
This model will not become unlawful overnight. However, it potentially discriminates against younger partners and may be unlawful unless it could be shown to be justifiable and proportionate. One of the reasons that this form of profit-sharing in law firms has become so popular is because it is believed to encourage team spirit and requires little management. However, it may be difficult to justify if it is challenged by younger partners who claim that, on merit, they are entitled to a greater share of the profits.
In the US it has been unlawful to discriminate on grounds of age for nearly 40 years. It is of real interest that, in US law firms, merit-based systems of reward are the norm. Partners commonly work into their late 60s and even their 70s. The structure of US firms means that equity partners in their 60s are not seen as blocking younger partners or as a drain on profits, unlike in the UK.
Evidence that partners, particularly in City firms, want to work on into their 70s is hard to come by. Yet it is questionable whether all partners want to retire by 55. Again, it is the lockstep structure that appears to be the underlying reason for the practice common among the large City practices of easing out partners in their 50s. Inevitably, those at the top of the equity take out a large slice of the profit. A partner at the top of lockstep who leaves frees up a share of profit large enough to split between two or more new partners. The new laws will make the easing out of partners who do not want to go unlawful and it will have to stop. Similarly, to require a partner to retire at a particular age will no longer be acceptable. If a partner is to be asked either to leave or retire, the rationale for doing so will have to be by reference to their performance and their capability to contribute effectively to the partnership.
Will we see law firms moving to a more meritocratic reward system? Will partnerships keep much better records of what partners do and evaluate more carefully each partner’s contribution? Some may see such changes as likely to undermine the collegiate ethos of partnership, while others may see them as an opportunity for introducing new vitality and a genuine diversity to partnership culture in the UK.
The outlawing of ageism looks likely to affect law firms in the most far-reaching ways. The next few years will determine whether or not the legal profession is really capable of embracing diversity in all its forms.
Roger Byard, partner, Cripps Harries Hall