Will you still need me?

The Court of Appeal’s judgment in Seldon v Clarkson Wright & Jakes [2010] EWCA Civ 899 gives law firms welcome guidance on the potential justification of a compulsory retirement age for partners.

Unlike the current position for employees as set out in the Employment Equality (Age) Regulations 2006 (SI 2006/1031: “the Age Regulations”), the relevant provisions of the Age Regulations for partnerships do not allow for a default retirement age of 65 for partners. Accordingly, partnerships wishing to enforce a compulsory retirement age for partners must be prepared to justify such action objectively as “a proportionate means of achieving a legitimate aim”. Only then will they have a defence to an act which, on the face of it, is a clear example of less favourable treatment on the grounds of age, categorised as direct discrimination under the Age Regulations.

The ruling approved two categories of legitimate aims which can justify compulsory retirement ages within law firms: first, the perhaps insensitively-coined concept of “dead men’s shoes”, covering the provision of opportunities for up-and-coming associates to become partners and, in addition, enabling partnerships to address their mind to workforce planning; and secondly, the aim of “collegiality” achieved through limiting the expulsion of partners through an arguably less dignified performance management process.

Mr Seldon’s claim

Mr Seldon had been an equity partner at Clarkson Wright & Jakes (“CWJ”) for around 34 years when he was compulsorily retired, in accordance with the terms of CWJ’s partnership deed, in the December following his 65th birthday. Mr Seldon offered to continue working in a self-employed capacity but, having declined this offer, CWJ implemented a term of their partnership deed allowing them to retire partners over 65. Mr Seldon brought a claim for direct age discrimination.

At first instance, the employment tribunal held that the compulsory retirement of Mr Seldon could be justified, on account of the following three aims put forward by CWJ:

• ensuring associates were given the opportunity of partnership after a reasonable period;
• facilitating the planning of the partnership and workforce across the individual departments by having a realistic long term expectation as to when vacancies would arise; and
• limiting the need to expel partners by way of performance management, thus contributing to the congenial and supportive culture in the firm.

On appeal, the employment appeal tribunal agreed with that assessment of the aims put forward by CWJ, save for the third “collegiality” aim which they held was based on a discriminatory stereotype that performance tends to drop at 65. Without evidence supporting this assertion, the EAT found that this aim could not justify CWJ’s compulsory retirement age. Mr Seldon appealed, on numerous grounds, to the Court of Appeal.

Issues on appeal

The Secretary of State for Business, Innovation and Skills intervened before the Court of Appeal and Mr Seldon was backed by the Equality & Human Rights Commission. The key issues raised before the court were:

• Does the aim have to be based on social policy or public interest?

Much of the judgment dealt with Mr Seldon’s argument that the intervening ruling of the European Court of Justice (“ECJ”) on Age Concern’s challenge to the default retirement age provisions for employees, R (Age Concern England) v Secretary of State for Business Enterprise and Regulatory Reform [2009] ICR 1080, required CWJ to establish that their aims were of a social policy/public interest nature. This argument was rejected: the Court of Appeal drew a clear distinction between the issue to be determined by the ECJ (whether the Age Regulations were valid) and that to be determined by them (whether CWJ’s decision to have a compulsory retirement age of 65 was justified).

The court held that the requirement for aims to be underpinned by social policy or public interest applied to the Age Regulations and not the aims of employers or partnerships. It went on to say that a partnership might have “mixed motives” when implementing a compulsory retirement age, but, if its aims are at least consistent with the social policy justifying the legislation, it would be contradictory to render that provision unlawful if it met the other parts of the relevant legal tests. Accordingly, each of CWJ’s three aims was held to be legitimate.

• Can the aim change over time?

Mr Seldon argued that each aim CWJ put forward must achieve its original purpose. The Court of Appeal disagreed and adopted the ECJ’s approach to an indirect discrimination case, holding that a “discriminatory measure may be justified by a legitimate aim other than that which was specified at the time the measure was introduced”.

In any event, the tribunal hearing the original claim had found that even if there was no written record, the partners had these aims in mind at the time of the incorporation of the clause in the partnership deed and its enforcement in Mr Seldon’s case.

• Consent to the relevant clause

The court held that the fact that Mr Seldon had, as a partner, agreed to the introduction of the clause into the partnership deed, where the court identified both parties as having “equal bargaining power”, was a legitimate consideration in this case.

• Justification of retirement age

Mr Seldon argued that a different clause in the partnership deed, which required a partner to be given 12 months’ notice but only if there was a prospective partner in the wings, would be less discriminatory, and further that it was wrong for the tribunal to find the clause was justified without evidence of the number of partners wishing to stay on after 65. However, the Court of Appeal held that the clause suggested by Mr Seldon would not have achieved the same aims as the clause being challenged. It also held that the number of partners who retired without enforcement of the rule was irrelevant to the aims identified by CWJ.

• Why 65?

The court identified a distinction between the need for a cut-off age in relation to the “dead men’s shoes” aim and the “collegiality” aim. Mr Seldon’s argument that an age of 66 would be less discriminatory was given short shrift by the court, which confirmed that, as long as the age in question was a proportionate means of achieving the aims, then the fact that a different age would be less discriminatory did not render the clause unlawful.

Practical implications

On that last point, the Court of Appeal specifically noted the default retirement age (“DRA”) of 65 for employees and held that this supported the argument that 65 was a fair and proportionate cut-off point for a partner. However, the Government recently announced proposals to abolish the DRA in October 2011, which would bring the position for employers into line with partnerships, requiring them to justify objectively any compulsory retirement age. Law firms will, therefore, no longer be able to rely on the DRA analogy to support a cut-off point of 65 for partners and will have to ensure that they have other supporting research and evidence to justify their chosen retirement age.

The aims of CWJ approved by the court identify a tension within legal partnerships: between partners who wish to continue working past retirement age and associates keen to progress to partnership. In light of the “dead men’s shoes” aims which were endorsed by the court, some firms may take a commercial approach to succession planning with a view to attracting and retaining top quality associates who will, inevitably, have their eye on the availability of partnership positions. This issue is of particular relevance in the current economic climate where incentivising and retaining top talent is more important than ever.

The collegiality aim was explored at length, in particular at the EAT, which identified different approaches that law firms may take when partners reach a certain age. It appears to be universally accepted that the dismissal of a longserving partner through a protracted performance management process lacks an element of dignity which can, arguably, be retained by a respectfully managed retirement. However some (likely those who have contributed to the goodwill of the firm who wish to continue working past 65) may argue that the aim of collegiality will never be achieved by enforced retirement, as there is always a risk of stereotypical notions regarding fee-earning performance at the later stages of a partner’s career.

While the Court of Appeal has helpfully provided firms with a starting point for justification of a compulsory retirement age, it is likely that the planned abolition of the DRA, and the imminent commencement of the Equality Act 2010, will increase the awareness of the requirement for such a cut-off to be justified and may result in further claims. Prudent partnerships will have to be forward-thinking in balancing the interests of fee-earners across the firm and carefully address their minds to the question, “How old is too old?”

• David Morgan is a partner in the employment law unit at Burness LLP. He would like to thank Jennifer Skeoch, senior solicitor.