by Roger Byard, Cripps Harries Hall, Kent


Partnerships and age discrimination

The first significant case: Bloxham v Freshfields Bruckhaus Deringer

On 9 October 2007, the employment tribunals gave judgment in the claim brought by Peter Bloxham, a former partner at City law firm Freshfields Bruckhaus Deringer, that he had suffered detriment by reason of age discrimination in relation to his pension provision. This article examines the reasons for the decision that, although Mr Bloxham had suffered a detriment by reason of his age, this was justified as a proportionate means of achieving a legitimate aim.



The background

Peter Bloxham joined Freshfields in 1977 shortly after qualifying. He led the restructuring and insolvency team until 2005, when he handed over to another partner in anticipation of his intended retirement in March 2007 (aged 55).



Freshfields operated a lockstep 'points' system for sharing the profits between active partners. The governing agreement between the partners was the memorandum of terms of partnership (MTP). Schedule II of the MTP, which was introduced in 1974, provided for pension payments to be made to retired partners. From this time, the profits of the firm were divided by the total number of profit points held by both active and retired partners. Retired partners received their pension not from funds set aside during their career, but from the latest profits earned by the current partners. The reward for one generation of partners paying the pensions of retired partners was a pension paid to them by the next generation of partners.



Under schedule II, the amount of pension depended on a partner's length of service and on his age at retirement. Those who retired on or after 30 April nearest their 55th birthday received a full payment. Partners who wished to retire between the ages of 50 and 54 needed the consent of the partnership board to do so and would only receive a percentage of their pension (based on their age).



By 2003, confidence in schedule II had become severely undermined by a growing perception of what the tribunal described as 'intergenerational unfairness'. Younger partners were contributing more than older partners had previously contributed because the expansion of the firm meant the number of pensioners was growing. An ever larger proportion of the profits of the younger partners were being used to pay the retired partners. Further, under schedule II, no more than 10% of profits in any year could be allocated for the payment of retirement allowances. Projections suggested that by 2018 the 10% cap would be reached. Younger partners would then suffer a double disadvantage: they would have to pay out more for the retired partners' pensions, and when they came to retire, they would suffer from the 10% cap.



Consultations about the terms of schedule ll began in 2003 and continued until May 2006 when schedule II closed and schedule IIA came into force. Transitional provisions were agreed, under which partners over 50 could elect to retire on or before 31 October 2006 and still take their schedule II entitlement based on their accrual at 30 April 2006 and subject to the relevant discounts based on their age.



Peter Bloxham then had three choices: (1) he could retire with his schedule II rights preserved (subject to a 20% discount because he was not 55 at that date) as long as he did so by 31 October 2006; (2) he could retire as in (1), and accept the offer of a consultancy; or (3) he could stay and retire at some point in the future with a schedule IIA pension. In July 2006, he sought and was granted consent to retire on 31 October 2006 under the transitional provisions with a schedule II pension.



Age discrimination claims

Mr Bloxham brought claims of both direct and indirect age discrimination. He claimed that the application of the 20% reduction to him (by virtue of the transitional arrangements) amounted to less-favourable treatment on the grounds of age. Freshfields argued that the reason for the difference in treatment related to the pension rights a partner had at the date of the scheme closure and not his age; when a pension scheme closed there was bound to be a cut-off date which would disadvantage those whose rights were not fully accrued at the closure date. Mr Bloxham said the reason for his treatment was his age at 30 April 2006 (54 not 55).



The tribunal agreed with him and held that he had suffered less favourable treatment compared with partners aged 55 and over at 30 April 2006. The question was whether such treatment could be justified.



Legitimate aim

To justify the discriminatory treatment, Freshfields had to show that it had a proportionate means of achieving a legitimate aim. The tribunal found that Freshfields' aim was to reduce the effect of 'intergenerational unfairness whereby younger partners would contribute more and more as active partners against the prospect of receiving a smaller and smaller pension themselves when they came to retire'. It held that Freshfields' specific aim for the transitional arrangements was to minimise the effect that those who were at or near to retirement age would suffer.



The tribunal said it would be an error of law to concentrate solely on the treatment and not consider the context in which the treatment occurred. With this in mind, the tribunal found that the attempt to provide a more financially sustainable pension scheme to reduce the unfairness on younger partners was a legitimate aim.



The tribunal noted that the transitional scheme resulted from full consultation with the relevant group of partners (the Consent Group) during which what would happen to other partners if the Consent Group were not subject to the discount was considered. Freshfields did not feel that it could or should enhance the benefits of partners in the Consent Group when all others partners' rights had been reduced. The firm pointed out that the arrangement was arrived at after many months of analysis and expert advice as well as full consultation.



The tribunal accepted Freshfields' arguments and noted that no alternative less-discriminatory solution could be conceived and none was suggested by Mr Bloxham. It concluded that the transitional scheme was a proportionate means of achieving a legitimate aim and was not merely met but 'comfortably passed' by Freshfields.



Mr Bloxham's claims of indirect discrimination failed because he did not identify an age-neutral provision, criterion or practice which Freshfields had applied equally to the comparator group.



This is an important decision, for although it is fact-specific and does not answer every question, it demonstrates that where it is recognised that action might be discriminatory on grounds of age, then it may be justified if no alternative solution is available and there is clear evidence of proper consultation. How these principles might apply to a challenge to the forced retirement of a partner in their 50s remains to be seen.