Succession planning in the light of outlawing of age discrimination

Apr 17 2008 By The Journal

AS A result of recent legislation, it is now potentially unlawful to retire a partner. The Employment Equality (Age) Regulations 2006 introduced a statutory retirement age of 65, but this applies only to employees.

Partnerships must therefore be prepared to “objectively justify” any retirement by reference to age. The tribunals have shown that compulsory retirement can be objectively justified, but there are hurdles to
overcome.

In a recent case, a partnership deed provided that partners would retire at the age of 65. A partner was retired at 65 against his wishes and he brought a claim alleging age discrimination without justification.

The tribunal decided there was age discrimination, but the retirement could be “objectively justified”. The following factors were crucial:

:: The retirement age applied to all the firm’s partners.

:: The partner in question had made no attempt to change the compulsory retirement age.

:: The partnership needed to be able to offer advancement to partnership to its other employees.

:: The retirement age avoided the need to expel under-performing partners, so maintaining a harmonious atmosphere in the partnership.

In another case, a partner brought a claim for age discrimination, arguing that he had in effect been forced to retire early because of changes to his firm’s pension scheme.

The aggrieved partner retired with the partnership’s consent at the age of 54. Had he waited until the firm’s retirement age of 55 he would have suffered a 35% loss in his pension benefits because of the changes. The partner argued that he had been effectively forced to retire early because it would have been economic madness for him to stay at the firm until he was 55.

Again the tribunal agreed that the ex-partner had been discriminated against because of his age, but felt the treatment could be objectively justified because the firm’s 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”.

In another legal action, a part-time judge who was forced to retire at 65 brought a successful age discrimination claim. The tribunal rejected the Ministry of Justice’s argument that it was necessary to retire judges at 65 “in order to create vacancies for new blood to enter the judiciary” and to provide “sufficient experience” to younger judges.

The tribunal found many vacancies were created each year by judges being promoted and there were other ways to introduce new blood, such as adjusting the courts’ timetables. The Ministry of Justice’s argument was also undermined as it planned to reduce the number of judges by 10% over 15 years.

What next?

Because of some conflicting tribunal decisions and as the first mentioned case is being appealed, the law remains unclear. Retiring a partner on the grounds of age can be discrimination and every case will turn on its own facts, in respect of whether or not the defence of objective justification will succeed.

Factors to be considered by the tribunals include:

:: Does the retirement age apply to all partners?

:: Have any partners objected to the retirement age?

:: Has consultation been entered into in respect of the retirement age?

:: Is there any other way that the partnership can achieve its overall aim, eg assisting the advancement of other employees, whereby it avoids forcing partners to retire?

What other steps should be taken?

As the action of retiring a partner has to be objectively justified, it is advisable that firms take advice before forcing partners to retire. Firms should also begin tackling performance issues head-on as they can no longer rely on compulsory retirement to force out under-performing partners.

For further information, contact the employment team at Hay & Kilner solicitors on (0191) 232-8345 or visit www.hay-kilner.co.uk