A step ahead

All solicitors may potentially be affected by the Court of Appeal's forthcoming decision in Seldon v Clarkson Wright & Jakes, in which Mr Seldon is challenging his former firm's compulsory retirement age of 65.

The case not only has consequences for all those approaching retirement age but, also, with younger partners and assistants traditionally relying upon the certainty of their elders retiring at a specific age, for those looking to gain partnership or an increased share of profits when current partners retire.

The case is also likely to accelerate the general move towards performance management. Firms may be forced to expel partners for poor performance, and they are likely to link remuneration ever more closely to performance, bringing about a significant cultural change in many firms, particularly smaller ones.

Mr Seldon brought the case under the Employment Equality (Age) Regulations 2006, which prohibit discrimination on the grounds of age which cannot be justified. Compulsory retirement at a specific age is directly discriminatory. However, while the regulations deem a compulsory retirement age for employees of 65 to be justifiable, there is no equivalent deeming provision for partnerships (although the deemed justification for compulsory retirement of employees is currently under challenge in the Heyday case).

Firms are required to justify any compulsory retirement age for partners, be it 55, 65 or 75, despite the mutuality of a partnership arrangement. Not only have partners agreed to a fixed retirement age more freely than employees (theoretically), but they will almost certainly have derived some benefit from former partners having been forced to retire, making the dichotomy between employees and partners particularly surprising.

Possible justification

The EAT upheld the employment tribunal's decision that it was, in principle, possible to justify a compulsory retirement age on the basis that it was a proportionate means of achieving a legitimate objective.

It also found that the three objectives put forward as justification were legitimate.

The EAT thought it 'plain' that a compulsory retirement age would assist retention of associates and 'self-evident' that it would assist forward planning. It also accepted that a fixed retirement age could help to achieve collegiality in a firm by preventing the need for subjecting poorly performing partners to disciplinary proceedings.

Further, the EAT held that the fact that the partners had had equal bargaining power and had agreed to the compulsory retirement age was a legitimate consideration as the partners must have perceived the rule to be in their collective interests.

Despite being in agreement with the employment tribunal thus far, the EAT remitted the case for further consideration. The employment tribunal had not indicated whether any of the three grounds would have been sufficient on its own, and had assumed performance dropped off at 65 '“ rendering a compulsory retirement age of 65 appropriate for achieving the collegiality aim.

The EAT held that the assumption that performance dropped off at 65 was not supported by evidence, and that the Employment Tribunal had not therefore been entitled to regard 65 as appropriate. (The EAT identified factors that weighed against 65 being an appropriate age for compulsory retirement, including the fact that many partners left before the age of 65 and the fact that partners could continue beyond 65 by consent.)

The EAT did accept, however, that any compulsory retirement age designed to avoid performance management controls would necessarily involve retirement at an age at which some partners would be able to perform satisfactorily, and that, although a firm could not directly rely on the provision deeming retirement at 65 to be justifiable for employees, the analogy does have some significance in circumstances where a compulsory retirement age is justified.

Revisiting arrangements

Whatever the decision of the Court of Appeal, the case serves as a reminder that partnerships which currently have a fixed retirement age should revisit their arrangements. It is unlikely that the Court of Appeal will give blanket approval to a fixed retirement age of 65, given the statutory distinction between employees and partners.

It also seems unlikely that the court will decline to recognise any justification for a fixed retirement age, given the disparate nature of partnerships and the clear benefits perceived by the EAT and by most firms. It is to be hoped that the court's decision will provide some useful guidelines, allowing each firm to consider its own particular situation in the light of those guidelines.

If faced with significant uncertainty, firms may think that they are better off relying on a right to expel at any age, and monitoring performance and strategy more actively. For many smaller firms, this will represent a large cultural shift, and it may require some delicate handling, but it may be worth it to avoid the threat of discrimination claims by some of their highest earning partners, and to retain junior talent.