The age old question – retiring partners

In spite of the long-awaited decision in Seldon, firms will still have to give very careful consideration to any retirement age they choose to rely upon, says Susanne Foster

The Supreme Court judgment in the case of Seldon v Clarkson Wright & Jakes has today been handed down.  While the case makes for interesting reading (particularly with regard to an analysis of European case law on age), the judgment is not earth-shattering.  It is a further reminder that firms need to be careful if they choose to adopt a retirement age, both in terms of it being justified by a legitimate aim and how those aims are achieved in practice.

The case concerned Clarkson Wright & Jakes mandatory retirement age of 65 and whether this could be justified under the Employment Equality (Age) regulations 2006, which have since been repealed by and substantially re-enacted under the Equality Act 2010. 

Seldon, a partner in the firm, was compulsorily retired in 2006, the end of the year in which he reached 65.  He issued tribunal proceedings arguing that he had been directly discriminated against on the grounds of age, the now repealed statutory default retirement age of 65 never having applied to partners.  There was also a separate claim of victimisation.

There was no dispute in the case that the requirement for Seldon to retire at 65 was less favourable treatment than other partners and this was on the grounds of his age, thus constituting direct discrimination.  The question for the courts was whether this treatment could be justified. 

Seldon commenced proceedings in the Employment Tribunal (ET) in March 2007.  At the ET three legitimate aims of the firm were identified:

1.     Ensuring that associates are given the opportunity of partnership after a reasonable period as an associate, thereby ensuring that associates do not leave the firm;

2.     Facilitating the planning of the partnership and workforce across individual departments by having realistic long term expectations as to when vacancies arise; and

3.     Limiting the need to expel partners by way of performance management, thus contributing to a congenial and supportive culture in the Firm.

Aims 1 and 2 above being the so called ’dead-man’s shoes arguments’. 

The ET found that the mandatory retirement age of 65 was a proportionate means of achieving the three legitimate aims and therefore rejected Seldon’s discrimination claim.  Seldon then appealed to the Employment Appeals Tribunal (EAT).  

By the time the case reached the Court of Appeal, Seldon’s appeal was again dismissed. Today, the Supreme Court unanimously agreed to follow suit and reject Seldon’s appeal.

Seldon, with the support of Age UK, argued that the aims detailed above were individual aims of the business rather than social policy aims contemplated Article (1) of the directive, which transposed equal treatment in occupation and employment into UK law.  However, the Supreme Court determined that the three aims accepted by the ET were consistent with Article (1) of the directive and European jurisprudence.  Staff retention and workforce planning were directly related to the directive’s social policy aim of sharing professional opportunities between generations and were recognised in other European case law.  Further limiting the need to expel partners by way of performance management was directly related to the ’dignity’ aim, again recognised in other European jurisprudence.  The Supreme Court therefore accepted that the identified aims were legitimate. 

It’s not the end of the road for Seldon yet, though, with the case being remitted back to the ET to determine whether it was proportionate for the mandatory retirement age to be 65 as opposed to a different age.

It remains reasonably common for partnership/members’ agreements to contain a mandatory retirement age, although some have tweaked the age – changing it from 65 to 62 or 63; whereas some have removed it completely. Seldon was therefore much anticipated by professional partnerships in the hope that it would clarify what aims, when justifying a mandatory retirement age, will stand up in the UK courts as a legitimate.

However, the decision makes little impact practically; it remains more apparent than ever that firms and employers alike will have to carefully consider and document the rationale and justification behind the mandatory retirement age, if any, that they rely upon. What the case of Seldon has made apparent is that the UK courts are prepared to carefully and intricately scrutinise whether a firm’s aims are legitimate and justified and proportionate in the particular circumstances of that case.

It is worth noting that the judgment highlighted that the case was decided against the backdrop of the default retirement age of 65 for employees and that the default has subsequently been repealed.  This suggests that a different approach may be taken if the retirement took place now – although disappointingly the Supreme Court did not address what age would be appropriate.  The case also considered relevant, in terms of justification, that the partners who were subject to a mandatory retirement age in the firm may well have benefitted from that rule when they were younger, with older partners then being forced to retire, and the retirement age was negotiated comparatively recently between the partners, indicating that they thought at the time it was fair to have that rule.  

Increasingly firms are removing their mandatory retirement ages, but those firms that retain a specific age will need to continue to tread carefully.  The case of Seldon is fact specific and unlikely to apply squarely to many modern City firms, where partners and senior associates are now expected to build their own following rather than step into the shoes of departing partners –  an argument against the so-called dead-man’s shoes aims pursued in Seldon.  Workforce planning, though, remains a potential legitimate aim available to them. Collegiality seems unlikely to apply where performance management is operated consistently across the firm regardless of age.

Fundamentally, the Supreme Court’s decision today has practically changed little. Every firm will still need to give very careful consideration to any retirement age they choose to rely upon and document how that retirement age can be justified in their particular business.

Susanne Foster is a senior associate at CM Murray