Justifying Mandatory Retirement Ages in Professional Partnerships

The recent Employment Tribunal decision in Scott v Walker Morris LLP, whilst not a binding authority, provides an interesting illustration of how an employment tribunal will deconstruct the purported legitimate aims and proportionality of a firm’s mandatory retirement policy for partners, and closely scrutinise whether there is adequate evidence to support the firm’s justification.

In that case, the Tribunal was clear that, although Walker Morris LLP (the “Firm”) established two potentially legitimate aims, it failed to evidence that the Firm’s mandatory partner retirement policy actually supported those aims or was a proportionate way to achieve them.

The case highlights the apparent absence of concrete, real life examples which illustrated the business need of the Firm behind the legitimate aims, or of statistical evidence, meaningful consultation, survey results or otherwise, which could show that their mandatory retirement provisions were a proportionate way of achieving those aims. In our experience, this is not uncommon – some firms focus on identifying their stated legitimate aims for their mandatory retirement age, but do not do the groundwork to base it in the reality and succession planning issues of the particular firm and its partnership, with cogent evidence to back it up.

The decision is a worthwhile read for anyone interested in an exploration of the law and tribunal approach to mandatory age-related retirement provisions for partners. We summarise the key facts and some initial thoughts below.

Summary
Walker Morris LLP is a 57-partner strong firm of solicitors based in Leeds. Since approximately 1987 it operated a mandatory retirement age (MRA) of 60 for its partners. In 2018, after a decade of disquiet amongst certain partners about the lawfulness and sustainability of an MRA of 60, a majority of partners (including the claimant) nevertheless voted to retain it, but with the ability for partners to request an extension of their partnership to age 63, and a further extension to age 65. Such an extension request was, however, subject to approval of the Board and/or a Members’ resolution and satisfaction of certain conditions by the partner, including (i) demonstrating exceptional contribution (to which younger partners were not subject), (ii) agreeing to pass over their goodwill in the business, and (iii) entering into certain restrictive covenants.

Separately, the Firm’s remuneration system was also updated to become more assertive in managing partners’ performance and in recommending the removal of profit points for underperforming partners.

The claimant, Mr Scott, successfully received an extension to age 63. When he failed to receive a further extension to age 65 (having by age 63 passed over his client base and cases to other partners, as required by the retirement policy), he brought claims of direct age discrimination.

The Employment Tribunal found that he had been discriminated against because of age, first by the Board, and subsequently by the Membership (the Partner group), when they respectively refused to extend his partnership (and delay his retirement) by a further period from age 63 to 65; as well as by the Firm’s consequent decision to terminate his partnership at age 63.

The Tribunal’s reasoning
In this article we focus on the issues regarding the MRA, but we note there was an issue regarding whether the claims were made in time (the Tribunal finding they were).

An MRA is, on its face, direct age discrimination, but can be justified where it is a proportionate means of achieving a legitimate aim.

Legitimate aim
The legitimate aim must amount to ‘a real business need, be of a public interest nature and pursue social policy objectives’. After some consideration, the Tribunal identified the Firm’s legitimate aims as:

workforce and succession planning to ensure it had sufficient partners to run its business profitably (finding this fitted within the social policy aim of intergenerational fairness); and
maintaining a collegiate and cohesive atmosphere amongst its partner group in the interests of the business (finding this fitted within the general social policy aim of maintaining dignity of individuals in the workplace).

Proportionality
Proportionality, for the Tribunal, involved:

considering whether the treatment was an appropriate and reasonably necessary way of achieving those aims (it does not have to be the only way);
considering whether something less discriminatory could have been done instead; and
balancing the needs of the claimant and the respondent, weighing up the effect of the discrimination upon the claimant against the importance of the legitimate aim.

Regarding the aim of workforce and succession planning and the supporting reasons put forward by the Firm, the Tribunal found in this case that ‘there was a lack of cogent evidence’ that the Firm actually faced any of the following purported issues (this is not exhaustive):

lack of opportunities for junior employees and partners to progress;
employees leaving because of a perception of there being limited opportunities to progress to partner or from partner into full equity (the Firm conducted exit interviews, so the Tribunal implied any such evidence would have been present if it had been the reason for lawyer departures);
equity being ‘hogged’ by senior partners;
deterioration in the performance of partners as they approached 60, 63 or beyond;
difficulties recruiting staff; or
that the Firm gave any serious consideration to alternatives to its retirement policy.

Further, while a partner paper had identified a succession problem, this appeared to be caused by the cliff edge created by the MRA of 60 – a problem with too few rather than too many partners.

On collegiality and cohesion, the Tribunal again found ‘a lack of objective evidence’, for example:

of any deterioration in performance of partners in their 50s and 60s (the Tribunal noted the Firm’s ‘discriminatory assumptions’ about older partners performance and energy levels tailing off in their 50s and beyond ‘are the type of assumption that the age discrimination legislation is designed to counter’); and
no comparative evidence of partner performance at different ages (despite the Firm conducting annual performance reviews).

The Tribunal found there was ‘limited evidence’ that the Firm had considered less discriminatory alternatives to the MRA generally, or an MRA at age 60. The Tribunal identified a number of less discriminatory alternatives that, in its view, the Firm could have adopted (some of which had been identified in papers created by the Firm), for example:

succession and planning:
- annual career conversations with partners and staff to identify short and long term career goals, including as part of the Remco process for partners;
- requiring return of a degree of equity and influence, whilst retaining partner status;
- the Firm could have adopted a higher retirement age than 60 or 63;
- allowing partners to work longer whilst incentivising early retirement and ‘moderated late retirement’, with partners losing 10% of their equity for each year they remained a partner over a certain age;
- part-time working arrangements to accommodate partners who did not wish to devote such long working hours but who equally did not wish to retire; and
- use of the LLP’s power to expel on notice if a partner did not wish to retire, where the Firm nevertheless needed to succession plan.
collegiality and cohesion:
- use and strengthen the existing remuneration/appraisal process to deal with any perceived underperformance; and
- use of the LLP’s power to expel on notice.

Finally, the Tribunal conducted its balancing act, finding:

the impact of the MRA on affected partners was severe (career loss);
the specific extension policy did not mitigate against this severe impact, because of the high bar set to achieve an extension (which excluded many partners) and the conditions attached to the extension such as the handing over of goodwill and client relationships and the imposition of a restrictive covenant;
the 43/45 partner vote in favour of the retirement policy (including by the claimant himself) was ‘a factor’ but ‘not the most important’ and ‘not determinative’; and
the state pension age is 66 (due to increase to 67) and many employers have abolished MRAs entirely, with retained MRAs higher than 60 (taken on judicial notice).

In short, the Firm had not persuaded the Tribunal that the Firm’s mandatory retirement policy and specifically the criteria imposed on the claimant in seeking an extension of his partnership (past the MRA of 60) from aged 63 to 65, was appropriate to achieve its aims and reasonably necessary to do so.

While this is an Employment Tribunal decision and may well be appealed, the Tribunal’s rationale can nevertheless provide some helpful takeaways for firms.

Takeaways

This case is not saying that firms cannot operate a mandatory retirement age or policy for their partners, whether at 60 or another age. Rather it highlights that it is potentially unlawful age discrimination to operate that MRA or retirement policy, unless the firm can clearly demonstrate – with real life evidence – that their MRA is objectively justifiable as a proportionate way of achieving actual legitimate aims of that particular business. Simply quoting e.g. “inter-generational fairness” and “workforce planning” is not enough!
The MRA, and choice of age, must be grounded in the specific circumstances of the firm. You should be looking at the MRA of your firm in the context of the overall strategy and long-term succession planning of your firm and its particular needs and challenges.
Lead with the data and gather meaningful feedback from consultation, surveys, exit interviews, appraisals and promotion processes etc. Gather data about the generational spread of the workforce; the nature of the client base (e.g. predominantly self-generated or inherited); challenges (actual, perceived or otherwise) of recruiting, retaining and promoting staff – and the reasons for that; the relative performance and contribution of the team members, regardless of age.
Consider all the potential alternatives to your existing MRA – remove, modify, mitigate? Ditch your preconceptions and instead consult, gather data and look at any other evidence as to what other options might be feasible and which have a potentially less discriminatory impact. Consider whether your firm can remove your MRA completely, and rely on robust performance management across all generations; or whether your evidence supports increasing the retirement age to 65, 66 or upwards (in the Walker Morris case, 60 already seemed anecdotally out of step within the wider professional services sector).
Don’t assume your potential MRA extension provisions are the answer to age discrimination (although they could in certain circumstances be helpful mitigation). In this case, it was actually the extension provisions and the conditions around them, that were an issue, without the Tribunal actually having to determining whether the MRA of 60 itself was specifically unlawful age discrimination.
Don’t subject older partners to more onerous conditions or performance management than their younger peers. For example, requiring a higher standard of performance from older partners than others to continue in their role. Operating effective and rigorous annual reviews and performance management of partners across all generations, adopting clear and measurable criteria which fit within and drive the overall strategy of the firm, is essential – not just to protect against age discrimination but to drive the success of the business overall.
Consider what range of impacts the MRA might have on the partners and how you can soften them. For example, what would happen if a partner is removed or downgraded in status because of their age, and then loses out on participating in the capital proceeds of a sale of the business or part of it? Consider whether you should factor this into the retirement arrangements in the firm constitution, for a set period post partner retirement.
Partner consent is not enough (even if the complainant themselves agrees to it at the time) but consent is still a key factor, so document the discussion and ultimate vote.
Targeted documentation is key. In Walker Morris, the parties had an agreed bundle of nearly 1,000 pages and detailed a number of reports and committees which discussed the legality and appropriateness of the Firm’s MRA, yet the Tribunal consistently found insufficient evidence in defence of its MRA. Firms should investigate, consult, evidence and document:
- the legitimate aims of the MRA;
- how the particular age of the MRA meets those aims;
- factors that mitigate against the discriminatory impact of the MRA; and
- consideration of a range of possible alternatives to the MRA (and clear justification as to why these were not chosen).
Revisit the MRA provisions and retirement policy regularly. Consider whether the policy, and the particular age chosen, is appropriate for the Firm at the current time. Ideally this would be part of an annual cycle, where the MRA is considered and discussed (with a review of the existing and any new evidence) alongside other cyclical business risks, such as the firm’s working capital requirements (including the annual assessment for LLP salaried member rules purposes) and budgets. For law firms, this regular review also supports the obligation under the SRA Code of Conduct for firms that ‘you treat those who work for your fairly and with respect, and do not … discriminate unfairly against them’.
Create a culture which understands and recognises the contribution at all levels of a multi-generation workforce and partnership. In this case the Tribunal highlighted that it is inappropriate to express views which are based on assumptions and stereotypes about age and partners’ performance and energy as they get older. Strong leadership and training is key to nurturing a well informed and supportive culture which promotes the firm’s objectives.
A mandatory retirement age should not be viewed as a ‘blunt instrument’ and panacea for succession. Firms should strive to have open dialogue with partners approaching retirement age about their future plans and how the firm can support them to transition into retirement, for example with personalised coaching, helping them to identify new opportunities or interests post-retirement and manage the emotional adjustment to retirement, as well as practical and financial help with personal insurances, tax advice and other assistance. Providing such resources demonstrates the firm’s commitment to the wellbeing of its partners beyond their active professional lives.

This remains an area where firms require bespoke, commercial solutions to issues such as succession planning and firm culture. We have advised firms on their introduction and continued use of MRAs, as well as alternatives to MRAs. Firms should be ready to engage with these issues notwithstanding the legal risks and complexities and we would be happy to discuss your particular circumstances with you.

This news alert was authored by partnership and employment specialist, Liz Pearson, with additional expert contributions from Kelsey Murrell, Clare Murray, Corinne Staves , Zulon Begum and Emma Bartlett, who are all members of the partnership, employment and regulatory team at CM Murray LLP. Please contact Liz, any of the other contributors, or your usual CM Murray LLP contact, if you would like to discuss any issues relating to partner retirement ages and related partnership matters for firms and partners, or you can reach us at info@cm-murray.com or +44 (0) 207 9339133.