In this article, first published by Accountancy Daily, Managing Partner Clare Murray and Trainee Solicitor Rachael Parker discuss the challenges of unlawful age discrimination, retirement and succession planning faced by professional services firms.
The issue of succession planning and the risk of unlawful age discrimination remains a persistent challenge in professional services, including accountancy and law firms. The recent leadership race of Big Four accountancy firm EY brought the question of age-related policies to the forefront of industry discussions once again.
Controversy arose in relation to the perceived impact of the global network’s mandatory retirement age (MRA) on global leadership race candidate and early frontrunner, Andy Baldwin, one of the firm’s highest paid partners in the US.
Baldwin warned the firm against age discrimination, in response to reports that his age (57) and proximity to the firm’s mandatory retirement age of 60, were featuring too prominently in the candidacy discussions.
The appointment of the ultimately successful candidate, Janet Truncale (aged 53) is a significant step towards greater diversity and inclusion in global leadership. However, questions remain as to how firms ensure a level playing field for all in professional services, including older workers.
This also follows the highly publicised 2021 case of an Australian Deloitte partner, Colin Brown, who settled (on a confidential basis, for an undisclosed amount), a multimillion dollar claim of age discrimination.
His claim related to the firm’s reported expectation that partners would retire voluntarily at 62, and its practice of discussing that expectation with partners in the months leading up to their 62nd birthday.
Brown had claimed he was victimised for refusing to retire at 62 and that since May 2020 he had been treated as an ‘inactive’ partner, and that it was made very difficult for him to remain a partner at the firm. The settlement avoided a very public court hearing of his age discrimination claims against Deloitte.
The legal landscape
The UK Equality Act 2010 prohibits age discrimination at work. This protection extends to partners and LLP members in England and Wales, as well as employees and other categories of worker. Direct and indirect age discrimination, age-related harassment, and victimisation are unlawful.
However, there are certain circumstances when direct age discrimination – such as a mandatory retirement age for partners, might potentially be justifiable if (and it is a big if) the firm can prove, with evidence, that the discriminatory treatment is a proportionate means of achieving a legitimate aim.
It is the task of the employment tribunal to conduct a critical evaluation of the employer’s purported justification and supporting evidence to see whether the justification in fact holds water.
In our experience many firms are unprepared for this sort of close scrutiny of their justification for their mandatory retirement age provisions, and similar age-related arrangements such as their partner lockstep systems and annuity arrangements.
In seeking to justify a mandatory retirement age for partners, for example (which would constitute direct age discrimination) the burden will be directly on the firm to show, with evidence:
- That the firm is pursuing a legitimate, public policy-based aim. This can include intergenerational fairness, which was highlighted in the Supreme Court case Seldon v Clarkson Wright & Jakes (2012 UKSC). Lady Hale said that intergenerational fairness ‘can mean a variety of things, depending upon the particular circumstances of the employment concerned: for example, it can mean facilitating access to employment by young people; it can mean enabling older people to remain in the workforce; it can mean sharing limited opportunities to work in a particular profession fairly between the generations; it can mean promoting diversity and the interchange of ideas between younger and older workers’.
- That the aim is actually relevant to that firm’s specific circumstances, supported by evidence which shows – for example – that retention of potential partner candidates is actually a problem for the firm, and that the mandatory retirement age directly addresses that problem.
- That the mandatory retirement age provision is a proportionate and necessary way of attaining those aims, taking into account the discriminatory impact it will have on older partners, and the firm’s reasonable needs, working practices, and business considerations; and that it strikes a balance between the firm’s needs, older partners, and younger workforce members.
- That alternative approaches have been actively considered by the firm, including consideration of whether there are any less discriminatory means of achieving the firm’s legitimate aims than operating a partner mandatory retirement age rule.
Performance issues in court
The leading case in this area is Seldon v Clarkson Wright and Jakes [2012] UKSC 16 (CWJ), brought by an equity partner who was compulsory retired at 65 under the partnership deed, in circumstances where there was no power to expel for underperformance or for a performance management procedure.
The law firm sought to justify the mandatory retirement age and the age of 65 based on three legitimate aims: associate retention; workforce planning; and collegiality/dignity by limiting the need to expel partners for underperformance.
Seldon lost at pretty much every stage of litigation – all the way up to the Supreme Court and back to the employment tribunal, and his case had, for a long time, a chilling effect on other professional services partners considering challenging their firm’s mandatory retirement age.
However, while mandatory retirement ages have been accepted in some cases as justifiable discrimination, the courts are quick to make clear this will always be assessed on a case-by-case basis and is always very fact specific.
A recent example of a case where an employer failed in justifying a mandatory retirement age is that involving four Oxford professors. Last year (2023) the employment tribunal heard the case (Nicholas Field-Johnson & Ors 3301882/2020) of those Oxford professors in their claim that the university’s ‘employer justified retirement age’ (EJRA) was directly discriminatory.
The policy was put in place ostensibly for a range of potentially legitimate aims, including, among others, inter-generational fairness, succession planning, and encouraging diversity for younger staff.
The EJRA was determined by the tribunal not to be a proportionate means to achieve a legitimate aim of diversity, as (amongst other factors) there had been no attempt made to measure its effect on actual vacancy creation.
Importance of detailed evidence
This case serves as a timely reminder, firstly, of the need for employers and firms to compile (potentially over years) detailed evidence to support their justification of their otherwise discriminatory rule; and also of the level of scrutiny that the tribunal will apply to that evidence to assess if the rule can be objectively justified.
We suspect some firms are simply crossing their fingers that most partners will accept the reality of succession planning and their retirement as others have before them, and not challenge the rule as being discriminatory.
However, the financial, reputational and (in some sectors) regulatory consequences of a partner age discrimination claim can be significant. If a partner is successful with an age discrimination claim, the remedy is primarily uncapped, loss-based compensation.
For a partner forced out at, say, 62, who would otherwise have retired at 67, they may seek to recover five years’ full losses, and argue they have limited opportunity to mitigate their losses due to their age, seniority and level of remuneration at the point of retirement.
These significant potential consequences, added to impact on culture, partner and staff morale and retention, provide a strong basis for firms to consider the practical steps they should be taking to both eradicate age discrimination, support older workers, and embrace intergenerational collaboration.
Practical tips to eradicate age discrimination
- Ensure that your firm’s diversity and inclusion (D&I) policies prohibit unlawful age discrimination, harassment (such as unwanted age-related comments and unwelcome jokes) and victimisation against partners for having raised age discrimination concerns; and that appropriate training is provided to support them. This also includes encouraging a culture where partners can raise concerns regarding age discrimination, and ensuring that complaints are dealt with effectively.
- Adopt clear and consistent partner performance management expectations, and rigorous performance review and feedback systems across all partner ages.
- Revisit your firm’s mandatory retirement age provision regularly to ensure it still supports and is proportionate to the firm’s legitimate needs and can be clearly evidenced as such. Consider whether it should be removed altogether. Ensure that it is still supported by partners, both in terms of the need for an mandatory retirement age itself, and also for the age at which it is set. Partner surveys, consultation programmes and statistics, etc, can be key in this respect. Document all of these considerations.
- Also revisit any other partner schemes or arrangements, including relating to partner remuneration or annuities, that are connected to age or indirectly connected through length of service (such as lengthy five plus years’ progression lockstep systems), to ascertain whether an age discrimination risk might exist and whether it might be objectively justifiable.
- Have regular and consistent discussions with all partners, regardless of their age, about their short, medium and long-term career plans.
- Maintain clear, well-documented processes when dealing with the above issues.
- Finally, in order to optimise the talent available to them, firms should actively encourage and embrace the benefits of a multi-generational workforce, such as with mentorship programmes (including reverse mentoring) which are an excellent opportunity to open communication between senior and junior colleagues to share advice and understanding of the wisdom that each respective individual possesses. There are also lawful positive action steps that firms can take to support their older workers (where it is a proportionate way to enable or encourage them to overcome or minimise a particular disadvantage that they face related to their age). For example, if a firm’s monitoring data on training shows that their partners or staff over 60 are more likely to request training in advanced IT skills compared with others outside this age group, the firm could provide training sessions primarily targeted at this group of older partners and staff.
In conclusion, firms should be alive to the risks of age discrimination and take active steps to minimise those risks, particularly given the potentially significant financial and reputational cost of losing a discrimination claim.
This article was first published in Accountancy Daily in February 2024.
If you have any questions arising from this article, please contact Managing Partner Clare Murray or Trainee Solicitor Rachael Parker, both of whom specialise in employment and partnership law.
