Holding Back The Years

New age discrimination legislation comes into force on 1 October 2006. Tina Williams of solicitors Fox Williams considers the practicalities which partnerships need to address.

We asked people about the practice areas they had acquired, and for law firms, private client teams were the most popular, followed by litigation teams. Real estate and tax tied for equal third place. Among property practices, commercial property teams were clearly the most sought after.

Property practices have acted more swiftly than law firms to limit liability, and we found that almost half of those we spoke to had converted to become a company, while a little under a third had taken the LLP route. In contrast, none of the law firms had incorporated, while a third had become LLPs. Of those law fi rms which were still traditional partnerships, 92% saw conversion to LLP as ‘likely’.

The Regulations (Employment Equality (Age) Regulations 2006) which come into force on 1 October 2006, make it unlawful to discriminate against employees or partners on the grounds of age. They will override any agreements between the parties (including a partnership agreement). Both old and young will be entitled to bring a claim for breach of the new legislation. However, claims for both direct and indirect discrimination can be defeated by showing that the discrimination is a proportionate means of achieving a legitimate aim. Proportionality involves balancing between the discriminatory effects of the measure and the importance of the aim pursued.

Firms should review their recruitment procedures. It will be unlawful for an employer to discriminate against a person in the arrangements made for the purpose of determining who should be offered employment. Advertisements for recruits at either employee or partner level should avoid creating the impression that only candidates above or below a certain age need apply – words and phrases such as ‘aged 28 to 35’, ‘dynamic’, ‘mature’ or ‘gravitas’ should be avoided.

Any potentially discriminatory criteria for internal promotion to partnership – such as a requirement for a certain length of experience – will also need to be justifi able. Criteria such as candidates being required to be of a certain age or having a certain length of service with the firm should be avoided. The promotion process will be as important as the criteria themselves.

Remuneration systems for partners will require review. A system which is wholly or partly lockstep (based only on length of service as a partner) is potentially discriminatory although there is an exemption where the lockstep disadvantages partners whose length of service (defined as doing work at or above a particular level) is five years or less. Where the length of service of the disadvantaged partner exceeds 5 years, it must reasonably appear to the firm that the particular lockstep system fulfi ls a business need of the firm.

Lockstep undoubtedly discriminates indirectly against younger partners. It may promote legitimate aims – retention of older partners, encouraging loyalty, rewarding long term contribution to goodwill – but is it reasonable in fulfilling a business need of the firm? The greater the difference in remuneration between those at the top and bottom of the lockstep, the more difficult it will be to justify the system as reasonable.

Lockstep may also discriminate against older partners. In some systems, there is

an automatic and staged reduction in profit share in the years immediately preceding retirement. Firms will need to consider whether this is justified regardless of continuing contribution to the business.

The imposition of a retirement age for partners of 65 is not legitimised by the Regulations (although it is for employees). If the partnership agreement is to set any default retirement age, careful consideration will need to be given to both the aim the firm wishes to achieve and whether the importance of that aim justifies compulsory retirement at the particular age set.

Older partners have sometimes been expelled not on grounds of performance but because room has to be made in the equity for younger partners. These older partners may be unable to secure partnerships in other firms, so that the loss they suffer may equate to their profit share for the balance of their anticipated working lives. It is sobering to note that the compensation that can be awarded for age discrimination is unlimited.

Records of partner appraisals will become key to defending a claim that an older partner who has been compulsorily retired was discriminated against on grounds of age.

Every firm should begin to review both its partnership agreement and its recruitment, promotion, reward, appraisal and expulsion procedures. Discussions with older partners for retirement before 1 October (with appropriate compensation) might be apposite now, to avoid a potentially longer term succession planning problem.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.