This article was prepared for and first featured in Accountancy Age
On 29 July 2010, the Government published its consultation on phasing out the default retirement age of 65 for employees which is currently contained within the Employment Equality (Age) Regulations 2006 (the ‘Age Discrimination Regulations’). The abolition of the default retirement age will take effect on 1 October 2011.
What, you might ask, has this to do with partnership, to which the default retirement age contained in the Age Discrimination Regulations does not apply. On the face of it, nothing the change to the law will not directly change the position of retiring partners. However, on the day before the government’s consultation paper was published, the Court of Appeal handed down its decision in Seldon v Clarkson Wright & Jakes, an age discrimination claim by a former partner who was retired at the age of 65 in accordance with a provision in the partnership deed. Firms should take note of the Seldon cases which will have an impact on firms which wish to retire their partners when they reach a particular age.
What the legislation says
Age discrimination occurs when, on the grounds of age, one person treats another person less favourably than he treats (or would treat) others, and cannot show the treatment to be a proportionate means of achieving a legitimate aim. The Age Discrimination Regulations provide that it is unlawful for a partnership to discriminate against a partner by expelling him from the firm.
The Seldon decisions
Mr Seldon originally brought a claim before the Employment Tribunal claiming that the compulsory retirement age imposed by Clarkson Wright & Jakes was discriminatory.
The Employment Tribunal agreed that the provision was discriminatory, but held that it was justified as a way of achieving the following legitimate objectives:
- Retention of associates;
- Facilitation of succession planning; and
- Collegiality the firm was a traditional partnership which had chosen not to have a performance management process, as they considered that such a process would undermine the supportive culture of the firm. Under-performing older partners would be able to retire with dignity at 65 rather than suffer the indignity of being put through a performance management process and expelled when their age caught up with them.
The Employment Tribunal also held that it was reasonable to select the age of 65 as the retirement age because it was not unreasonable to assume that some partners who have reached the age of 65 are not able to make as great a contribution as they had done in the past. Mr Seldon appealed to the Employment Appeal Tribunal.
In the EAT, Mr Seldon argued that the objective of encouraging associates to stay on could be achieved in other ways, for example by having a provision compelling a partner to retire on 12 months notice if an associate was waiting in the wings. However, the EAT rejected this argument, stating that such a process would create uncertainty for the waiting associate, and could create unpleasantness if the older partner who did not want to go was forced to leave to make way for his assistant.
Mr Seldon argued that collegiality was not capable of being a legitimate aim. The EAT did not agree. The fact a congenial culture was fundamental to Clarkson Wright & Jakes entitled the firm to rely on it as a legitimate aim.
However, Mr Seldon did succeed on one point he argued that even if collegiality was a legitimate aim of the firm, there was no basis for choosing 65 as the age at which a partner should retire, other than the stereotyped assumption which the Employment Tribunal had made that performance of a partner would decline at that age. The EAT agreed with Mr Seldon, commenting With respect to the Tribunal, we think that reasoning of that kind is what the legislation is seeking to avoid?. If a firm wanted to impose a compulsory retirement age on its partners by reason of deteriorating performance after a certain age, the firm would need to analyse very carefully the age at which performance deteriorated and be prepared to provide evidence in support of the choice of a particular age.
Mr Seldon appealed the EAT’s decision to the Court of Appeal, arguing (amongst other things) that:
- The fact that Mr Seldon, when he was a partner, had agreed the compulsory retirement age clause was irrelevant. The Court did not agree, stating that it was legitimate that this rule was agreed by parties of equal bargaining power (including, of course, Mr Seldon himself).
- The choice of 65 as a retirement age was not a proportionate way of achieving the other two objectives (retention of associates and succession planning). The Court did not consider the specific age of 65 to be relevant to the first two objectives, but recognised that if a compulsory retirement age was to be chosen, some age had to be selected, and the selection of any age is going to be discriminatory to that age. The fact that a firm may be able to justify any one of a selection of ages does not make it unlawful to choose one. In addition, the Court drew support for the justification of 65 from the fact that 65 is the lawful default retirement age for employees.
The Court of Appeal dismissed Mr Seldon’s appeal.
Lessons to be learned from Seldon
Partnerships will continue to have to justify compulsory retirement ages if they are not to fall foul of a potentially costly age discrimination claim. Seldon shows that a retirement age of 65 may be justified, but it is important to bear in mind that Seldon was decided against the backdrop of a default retirement age of 65 for employees. Both the EAT and Court of Appeal refer to the default retirement age for employees as lending some support to a partnership choosing 65 as their age or retirement.
However, given that next year, the default retirement age for employees will be abolished, all businesses, if they choose to have a retirement age, will have to justify both the principle of having one (by reference to legitimate aims which the business is trying to achieve) and the particular age which is chosen. Assuming that a decline in performance is being used to support the choice of a particular age, the partnership will need to analyse carefully the age at which performance falls off and provide a considered and reasoned explanation (supported by evidence if possible) as to why a particular age has been chosen. It is possible that in professional service firms, 65 will prove too young to justify as a retirement age indeed, in Seldon, the evidence put before the EAT (such as it was) suggested that performance in professional positions did not begin to tail off until the age of 70.
Furthermore, the size of the firm will have an impact on the arguments that firms can use to justify a retirement age. Smaller firms may be able to rely (as in Seldon) on the fact that they choose not to have a performance management process so a compulsory retirement age is a necessary way of ensuring that as performance declines there is a cut-off point. However, it is unlikely that this argument will be open to larger firms, which are likely to have performance management processes. Similarly, the significance to be attributed to the partners consent to a retirement age will be affected by the size of a firm, as partners in small firms are more likely to have equal bargaining power so the agreement of a partner to a retirement age in such a firm will carry more weight than the agreement of a partner in a large, global firm.