Age and partnerships

With the Employment Equality (Age) Regulations 2006 scheduled to come into force on the 1 October 2006, the publication by the Department of Trade and Industry on the 9 March 2006 of the final draft of the regulations was overdue. As with other laws against discrimination, the regulations apply to partners and members of limited liability partnerships. However, unlike other anti-discrimination provisions, which are all formulated to protect identifiable groups of people, anyone may be discriminated against on grounds of their age.


The regulations identify the ways in which discrimination could occur, all of which will be familiar. Discrimination could be direct or indirect, or arise through harassment or victimisation. Where a decision is made because of a person's age (or their perceived age) there would be direct discrimination. Indirect discrimination will arise where a provision criterion or practice is applied which results in a disadvantage to people of a certain age or who fall within a particular age group. In either case, the discrimination does not need to be intentional.


Ageist harassment might occur where a person experiences unwanted conduct that has the effect of violating their dignity or creates for them an intimidating, hostile, degrading, humiliating or offensive environment. Lastly, the regulations provide protection for a person who makes a complaint of age discrimination or assists someone else who makes a complaint from being victimised as a result of taking such action.




Partnerships and LLPs


The impact of the regulations of partnerships as employers has been well canvassed. The areas that have made the headlines for partnerships are retirement and partnership remuneration, particularly through the widely-used lockstep system. However, the regulations will impact on the recruitment (particularly lateral hires) and promotion of partners and the way in which older partners are sometimes managed out before they want to leave.


Although there had been a strong lobby for partners to be included within the default retirement age of 65, which applies to employees (regulation 30), and so would require no justification, this has not happened. Consequently, a fixed retirement age, whatever it is, will be discriminatory unless it could be justified. It seems likely that firms will stick to their existing retirement ages even though this may mean them trying to justify it on a case-by-case basis. While this will affect all partnerships, the regulations will have greatest impact on those firms where the retirement age is below 60.




Managing out


Many law firms have provisions in their partnership deeds or membership agreements giving power to the partners, often acting by a managing board, compulsorily to retire partners who are no longer perceived as being effective contributors to the partnership. Sometimes, they are seen as blocking the way for younger partners.


To manage out partners, other than for clearly documented performance-related reasons, is likely to lead to a challenge that what has happened to them is based in reality on their age and, as such, is discriminatory. With no cap on the amount of compensation that might be awarded for age discrimination, it is not likely to be long before a claim is made.


What this highlights is what must become the increasing importance of active management of partners' efforts and aspirations. Appraisals and records of achievement will become ever more important to the circumstances in which a partner may be invited to retire, either at the partnership's established retirement age or earlier.


Before the publication of the regulations, commentators suggested that the new law would mean the end of lockstep as a remuneration system. This now seems unlikely as the regulations provide an exception for rewards or benefits, which are based on length of service (see regulations 32 and 33). Such benefits may be justified provided they fulfil a business need (for example, loyalty or motivation) or act as a reward for experience.


Lockstep is clearly indirectly discriminatory against younger partners. However, the regulations should allow lockstep to survive on the basis that it can be justified as a system of reward for loyalty of longevity of service. Given that lockstep will usually apply on a partnership-wide basis, and is not necessarily directly related to individual performance, coupled with the fact that it is intended to secure the long-term future of a firm, it is reasonable to expect that lockstep will continue to be a commonly used remuneration system.




Recruitment and promotion


Regulation 17 makes discrimination in recruitment, promotion and training unlawful. While it is evident that it will be more difficult to justify the direct recruitment of graduates into the profession because it potentially excludes the non-graduate or a more mature person, it may not be so obvious that the regulations will affect the way in which solicitors are invited to join a partnership.


In many firms, a post-qualification threshold is set, below which solicitors would not be considered for partnership. After 1 October, such thresholds will be discriminatory. When considering candidates for promotion to partnership, firms will need to make sure that their selection procedures are not based on unjustifiable age-related factors. Partnerships will also need to be careful not to exclude older partners from training programmes.


The impact of the regulations will not force partnerships to change overnight. Nevertheless, over time there is likely to be a significant cultural effect, particularly in firms where previously partners have retired in their 50s. With unlimited compensation available, partners who feel that they have been managed out of the business before they want to leave may well seek to challenge what has happened on the basis that it was related to their age.


Whether or not partnership remuneration systems become more meritocratic, it is inevitable that there will need to be far more detailed monitoring of individual partners' performance. Without this, decisions about a partner's remuneration and retention might well give rise to claims of either direct or indirect age discrimination. Age discrimination can affect anyone and it may not be easy for partnerships to identify when they are being discriminatory. This means that partnership deeds and membership agreements, policies and procedures should be reviewed with a critical eye prior to 1 October 2006 to identify any areas that may require amendment or revision.


By Roger Byard, partner, Cripps Harries Hall, Tunbridge Wells