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


Age discrimination

The Employment Equality (Age) Regulations 2006 have been in force since 1 October 2006 and prohibit unjustified age discrimination in employment and partnerships. The regulations follow the familiar pattern of covering direct and indirect discrimination, harassment and victimisation.



Already at least one (well-publicised and no doubt substantial) claim has been brought under the regulations by a partner against a well-known legal practice. As we enter the first 'season' of financial year-end retirements after the introduction of the regulations, we may see many more such claims arising.



A rich source of discriminatory material is still to be found in legal practice partnership agreements. This article will look at some clauses found in partnership agreements, all of which have been made in the past five years, and examines the issues relating to age discrimination that arise.



While reference is made throughout this article to partners and partnership agreements, all of the points made apply equally to members of limited liability partnerships and their members' agreements.



Problem clauses

In regulating the relationship between partners, a partnership agreement will usually include provisions dealing with entitlement to holidays, benefits over and above a right to share in the profits of the business, obligations to avoid a partner becoming a burden to the other partners, and for retirement. In each of these areas, there is considerable potential for age discrimination.



Holidays

'Any partner aged 50 years or more at the commencement of an accounting period shall be entitled to 35 working days' holiday and all other partners shall be entitled to 25 working days' holiday.'



It is common for the amount of holiday to which a partner is entitled to increase with their length of service as a partner. This is indirectly discriminatory against younger partners. The clause above is similar but different, in that it increases holiday entitlement by reference to age rather than length of service. That is directly discriminatory against partners under the age of 50.



In either case, unless the clause could be objectively justified, it would be unlawful. Objective justification would require the firm to identify a legitimate aim, and to establish that the discriminatory act is a proportionate means of achieving that aim. It might be said that giving older partners more holiday provides a bridge towards retirement. However, as there is now no lawful age at which a partner could be compulsorily retired, this argument is unlikely to succeed.



It is clear from this that clauses permitting different amounts of holiday that are dependent on age or length of service are potentially unlawful.



Sabbaticals

'2.1 Upon the completion of 15 years' service as a partner, a partner shall be entitled to a sabbatical.



'2.2 The partner shall continue to receive his full share of profit during the sabbatical provided that he is under the age of 63 at the commencement date specified in his notice.'



Many partnerships make provision for partners to take a sabbatical after a prescribed period of membership. Typically this is ten years, although in the illustration above, a first sabbatical is earned after 15 years. A benefit of this type, which is so clearly based on length of service, indirectly discriminates against younger partners. In the absence of any objective justification, it would be unlawful.



Clause 2.2 of the illustration directly discriminates against older partners (specifically those aged 63 and over), since by implication there would be a reduction in their profit share if they took a sabbatical after their 63rd birthday. The clause is almost certainly drafted by reference to a fixed age for retirement, which is stated elsewhere in the agreement. The regulations make it difficult for partners to agree that they will retire at a particular age, since any age that is fixed must be capable of objective justification. It is thought unlikely that any age fixed for compulsory retirement would be held to be lawful. While it makes commercial sense to reduce a partner's profit share if they take a sabbatical in the year of retirement, this clause falls foul of the regulations because it is linked to a compulsory retirement age, and so should not be retained.



These two clauses highlight that the traditional criteria for entitlement to a sabbatical could be discriminatory against younger partners and possibly older partners as well.



The regulations provide that discrimination in the provision of benefits during the first five years of membership of a partnership is lawful. Thereafter any discrimination would have to be objectively justified. This suggests that a sabbatical awarded somewhere between four and five years after joining the partnership would not be discriminatory. Whether such a benefit might be capable of objective justification if it continued to be awarded after four or five years' further service remains to be seen.



Life insurance

'Each partner having one or more persons financially dependent upon him shall use reasonable endeavours to obtain and maintain in force in his own name or in the name of such one or more dependants until the age of 60 insurance on his own life capable of providing for his dependant(s) a gross sum of £150,000 or such increased sum as may be agreed.'



Many partnership agreements contain provisions that require partners to make life insurance arrangements, so that the partnership does not have any legal or moral obligation to their dependents in the event of their death. The clause above is discriminatory since it imposes this obligation on partners only up to the age of 60.



Compulsory retirement

'Any partner who shall attain the age of 65 years shall retire from the partnership at the end of the accounting period during which he attains such age.'



As noted earlier, the regulations do not provide any default retirement age for partners. This means that a partner cannot be compulsorily retired at any age. The clause above or something similar will be found in many partnership agreements, and is clearly discriminatory.



Compulsory retirement is likely to become the most significant issue for partnerships as a result of the regulations. Many partnership agreements will be tailored to provide a winding-down period before retirement, and a specific age for retirement gives certainty for both the partner and the continuing partners for planning purposes.



To remove this appears to be nonsensical. However, it is thought unlikely that a legitimate aim that would provide objective justification to require a partner to retire at a particular age will be found. Consequently, this clause will be unlawful.



Here to stay

The regulations outlawing age discrimination are here to stay. There is no doubt that the way in which they will affect legal practices, particularly with regard to length of service benefits and retirement, will cause (potentially very expensive) difficulties.



What partnerships should not do is to allow clearly discriminatory provisions in partnership agreements to lie dormant and hope that no one will challenge them. With partners moving on ever more frequently and the continuing rationalisation of the profession, it is important that the agreements that regulate the operation of partnerships are compliant with the law. Partners are encouraged to retrieve their copy of the partnership agreement from the bottom drawer, and, if on review there are any provisions that ought to be changed, to make sure the necessary amendments are made.