Telling someone that they must stop work merely because they have reached a particular birthday is a blatant form of age discrimination.
Laws prohibiting age discrimination came into force in 2006 and were this year incorporated, largely unchanged, in the new Equality Act. Age differs from other types of discrimination covered by the act, such as sex and race, in that direct age discrimination is capable of being objectively justified.
There are also certain situations where age discriminatory actions are deemed lawful, including an exception for the so-called ‘default retirement age’ (DRA). This applies if the employer’s retirement age is at least 65 and a set procedure was followed when retiring the employee in question.
The coalition government has announced that this DRA exception will be repealed in October 2011. Employers are now grappling with the implications and contemplating whether to abandon retirement ages, or retain them and argue that they are objectively justified.
Law firms are already familiar with this dilemma. For reasons which have never been clear, the DRA applies only to employees. As a result, retirement ages for partners have always had to be justified.
Most firms have nervously retained retirement ages for partners pending clarification from the courts on justification. In particular, they have been watching the progress of Leslie Seldon’s claim against the small Kent firm Clarkson Wright & Jakes which has now been considered by the Court of Appeal.
Seldon had been an equity partner since 1972 and by 2005 had become head of the firm’s commercial and civil litigation department. The partnership deed specified a retirement age of 65, which meant that he would retire at the end of 2006. During 2005, he handed over responsibility for his department and, with the other partners’ consent, began to wind down his practice and take time off to play golf.
Seldon hoped to agree terms to work part-time as a consultant after his retirement. However, he informed his fellow partners that if the firm decided otherwise he would accept it and not ‘invoke age-discrimination legislation’. In the event, terms could not be agreed and Seldon did bring a claim that his retirement amounted to unlawful age discrimination.
Justifying age discrimination involves satisfying two tests. It must be shown that the retirement age is needed to achieve a ‘legitimate aim’; and second, that it is a ‘proportionate means’ of achieving that aim.
Two of the aims put forward by Clarkson Wright & Jakes were accepted as legitimate by the Court of Appeal:
- The need to ensure associates had the opportunity of partnership after a reasonable period, and to facilitate partnership and workforce planning across departments by having a realistic long-term expectation as to when vacancies would arise. (This was referred to as the ‘dead man’s shoes’ aim.)
- Limiting the need to expel partners by means of performance management, thus contributing to the firm’s congenial and supportive culture. (This was dubbed the ‘collegiality’ aim.)
The court also accepted that the retirement age was a proportionate means of achieving these aims, taking into account the greater equality of bargaining power in a partnership than would have been the case in an employment relationship.
It is easy to sympathise with the firm, but the decision is perhaps surprising in accepting collegiality as a valid justification. There is little basis for saying that performance of partners does decline in their mid-60s, and no evidence supporting that assertion was advanced. Nonetheless, 70-year-old Sir Mark Waller, giving the court’s leading judgment, was prepared to accept that old age could catch up with partners like Seldon. Laws LJ (aged 65) and Hughes LJ (aged 62) agreed.
It could also be argued that any decline in performance of long-serving partners has more to do with staleness from their time in a post than with ‘age catching up on them’. Should concerns about the need for older partners to retire with ‘dignity’ really outweigh the discrimination suffered by high-performing partners who are forced to stop work merely on account of their age?
The ‘dead man’s shoes’ justification seems more powerful, although larger law firms, or those where few partners ever stay until retirement age, might find it more difficult to run.
Where does this leave law firms contemplating the issue of partner retirement? The important lesson is to consider very carefully the reasons for wanting to retain a retirement age and rigorously review whether or not there is evidence to back them up. In another age case, concerning a challenge by former Freshfields partner Peter Bloxham to pension changes being made by the firm, the extensive research and consultation that had been undertaken before the pension reforms were implemented were crucial to successfully defending the claim.
Several recent European Court cases have upheld retirement ages including, in Germany, 68 for dentists and 65 for cleaners. One consistent strand has been the court’s willingness to accept ‘intergenerational fairness’ – a variation of ‘dead man’s shoes’ – as a valid justification. But not all cases favour the employer. The retirement age of 48 for professional football referees has, for example, been struck down both in the UK and the Netherlands.
Firms that decide to do away with compulsory retirement may nonetheless find departing older partners expecting some sort of ‘pay off’. Retirement on performance grounds is likely to generate age claims from individuals with plenty of time on their hands, who will understand the legal fees and unrecoverable senior lawyer and management time that the firm will have to expend in defending their case.
On the other hand, if a firm does retain a retirement age, this will be undermined if partners are selectively allowed to remain beyond that age. Retired partners would then bring claims challenging the firm’s decision not to exercise discretion to permit them to stay on.
A compromise for firms might be to increase the current retirement age – say, to 68, 70 or even higher. Did you know our life expectancy increases by 15 minutes every hour? That’s one year in every four. So retiring nowadays at 70 is the equivalent of retiring at 65 in 1990.
James Davies is partner and joint head of employment at Lewis Silkin