This article first appeared in the Law Society Gazette
Since the introduction of age discrimination legislation in 2006, firms and LLPs have been scared their formerly uncontentious retirement provisions will become an unwelcome source of litigation. This was the case in Seldon v Clarkson Wright and Jakes, where a partner was retired at age 65, in accordance with the firm’s partnership agreement. The Supreme Court gave its judgment on this dispute last week, approving the firm’s aims as justifying a compulsory retirement age. Given that the majority of professional services firms, including lawyers, have retained a compulsory retirement age for their partners (despite the risks) this ruling is likely to be welcomed, save, of course, by those partners who were looking to work beyond their firm’s retirement age.
Seldon does not, however, provide a blueprint for firms wishing to retain or impose a retirement age. They will still need to show that both the imposition of a retirement age is in pursuit of a legitimate aim and that the age chosen is a proportionate means of achieving that aim. Neither of these is straightforward.
Understanding what aims a court might view as legitimate grounds for imposing a compulsory retirement age has hitherto been difficult, not least because the legitimacy of any aim is judged against the standard of broad social and economic policy objectives, rather than individual business needs. Seldon offers some helpful guidance on what might constitute ‘legitimate aims’ and collates many examples from European cases. These include aims such as promoting access to employment for younger people, the efficient planning of the departure and recruitment of staff, sharing out employment opportunities fairly between generations and avoiding disputes about an employee’s fitness for work over a certain age. The court summarised these as reflective of two fundamental aims: ‘inter-generational fairness’, which includes the conflicting aims of facilitating employment access by the young and enabling older people to remain in the workforce and ‘dignity’, meaning the avoidance of disputes or humiliation about capacity or underperformance.
In Seldon, the firm in question was found to have had three legitimate aims for maintaining a compulsory retirement age, namely:
- ensuring associates were given the opportunity of partnership after a reasonable period, thereby ensuring they did not leave the firm;
- facilitating the planning of the partnership and workforce across 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 a congenial and supportive culture in the firm.
The first two of these aims were approved by the Court as they were reflective of the ‘inter-generational fairness’ category of legitimate aims. The third was approved as it fell within the ‘dignity’ category of legitimate aims under European law.
The aims approved in Seldon are of general application to professional partnerships and LLPs. However, the courts will investigate whether aims identified by a firm are truly the aims being pursued. Clarkson Wright and Jakes had originally put forward six objectives for its retirement age policy, but the Employment Tribunal only accepted that three of these were in fact aims of the firm. Firms which fail expressly to consider why they are retaining a retirement age may struggle to convince a court that adopting or retaining that age was truly in pursuit of a legitimate aim, rather than, say, for convenience or the result of inertia. A firm’s policies may also limit its ability to rely on a particular aim. Clarkson Wright and Jakes had a relatively unsophisticated partnership agreement which did not contain a power to remove a partner or reduce his profit share for underperformance. Firms that have such powers and, more particularly, firms which have used them, may be less able to claim that a retirement age is necessary to preserve a congenial and supportive culture.
Although Seldon may help firms to establish whether their aims in having a compulsory retirement age are legitimate, the Supreme Court noted that it is quite another matter to justify a particular retirement age as appropriate and necessary to achieve those aims.
In Seldon, the question of whether 65 was a proportionate age to choose has been referred back to the Employment Tribunal to decide. Although the Employment Tribunal may offer helpful guidance as to what age might be appropriate for professional firms generally, the Supreme Court noted that it will be a relevant factor that, at the time the discrimination in Seldon took place, there was a default retirement age of 65 for employees. This seems to be a fairly clear steer that the Employment Tribunal will find the age of 65 to be appropriate in Seldon, but will do nothing to help firms going forward, as the default retirement age for employees was abolished in October 2011. It seems likely that further litigation will be needed before there is clarity on this important issue.
Of wider interest is how the reasoning employed by the Court may be applied to employment relationships. Since the abolition of the default retirement age of 65 for employees, the legality of the retirement of employees at a particular age must be justified by the same test as for partners, to whom the default retirement age never applied. It is doubtful that the aims approved by the Court in Seldon would be of application to employment relationships outside the professional services arena and the lack of judicial guidance on what retirement age is appropriate remains troubling.
Although Seldon has moved the debate forward over how the courts will assess the aims of a firm in setting a retirement age, it fails to give the clear cut guidance hoped for. The Seldon decision was never going to give firms carte blanche to retire partners at 65 but, by failing to offer meaningful guidance on how firms might justify any particular age, doubts will remain over the enforceability of retirement ages. Partnership lawyers are likely to need to look to future decisions in the employment arena to inform their advice in this area.
Although Seldon does little to press firms to abandon retirement ages, firms looking to minimise the risk of litigation will need to examine closely their reasons for retaining a retirement age and should consider their own demographics in setting a compulsory retirement age. That, in turn, will necessitate firms revisiting their retirement age on a regular basis.
Tina Williams is a Partnership Law expert and Senior Partner of Fox Williams LLP and was assisted in the preparation of this article by Daniel Sutherland, a Senior Associate in Fox Williams LLP’s professional practices group.