Age of Reason
28 May 2012
What impact have the Employment Equality (Age) Regulations 2006 had since implementation?
Arpita Dutt, partner, Stewarts Law: Since the regulations came into force on 1 October 2006, the number of Employment Tribunal (ET) claims for age discrimination has increased steadily. Younger and older workers have been empowered to challenge 'age-old' stereotypes and comments, and employers have been required to give considerable thought to and provide evidence as to how to justify age discriminatory practices.
One of the key areas in which the regulations have had effect is retirement ages. Prior to the regulations, while a default retirement age of 65 might have been a cause of chagrin to individual employees (and some employers), it did provide certainty.
The 2011 amendment that removed the default retirement age has brought some uncertainty to employers. Older employees have become wary of reasons for their redundancy selections and certain compensation scheme rules, giving rise to the need for advice. Indeed, a new body of HR 'age management' has been looking at barriers facing younger and older workers.
Where has the Seldon case left default retirement ages for partnerships?
Dutt: In Seldon the Supreme Court has provided some useful clarification about the type of aims that might be considered 'legitimate' in imposing a compulsory retirement age - essentially aims that have a social policy, labour market or public interest element.
The difficulty with drawing general principles from the case is that it's quite fact specific. There were no provisions in the partnership deed or culture to allow for Mr Seldon's removal by performance management. It was also a small business where it might be reasonable to avoid workplace conflict by minimising the necessity to use performance management to remove partners and where it was important for staff retention that there be reasonably predictable opportunities for promotion and admission to the partnership.
For partnerships that can show their aims and ethos in seeking to enforce a compulsory retirement age are similar, Seldon provides a framework in which such an argument could succeed, but appellate court litigation is a likely outcome. Even then, with increasing life expectancy, the phased increase in the qualification age for the state pension and other economic factors, adopting 65 as the retirement age in 2012 may not be justifiable.
There are certainly going to be moves from partnerships to review their succession planning processes and revisit the removal provisions for partners in LLP agreements. There should also be the potential for creative succession planning, whereby older partners are given consultancy or advisory roles.
Does the Tiffin case encourage the use of multi-tiered partnerships?
Dutt: Partnership, whether in the traditional sense or of an LLP, connotes a broad (and contiguous) spectrum. Tiers of partnership may be demarcated by profit share, financial contribution to the business and/or management rights.
Tiffin confirmed that the true nature of the relationship will be determined by the factual and commercial reality. The judgment also suggests that there is unlikely to be any practical difference between the way full equity partners and fixed-share partners are viewed for the purposes of employment legislation.
However, there is a real and relevant difference between salaried partners and other types of partner where a salaried partner does not take a share of profit, makes no capital contribution and has no rights to join in management decision-making. Such a partner is an employee in all but name.
Tiffin does not necessarily encourage the use of tiered partnerships, but it does emphasise that partnerships should be clear internally about the intended status of partners.
Where it is intended that such an individual be a genuine partner, it is important that they assume the rights and obligations commensurate with partnership. However, where a tiered scheme delineates such rights and obligations it will be likely to assist in resisting any challenge to the status of an individual as anything other than a partner. It is a matter of substance over form. Is the next question to be determined by the appellate courts whether a partner can ever be an employee?
What are the employment issues that will affect alternative business structures (ABSs), particularly in a listed arena?
Dutt: Lawyers used to the 'packed-up' role of partners in traditional firms may find that, in an ABS, they have less control over how the business is run. It's also likely that the introduction of independent shareholders and specialist managers leads to greater analysis of business models and increased performance management for employees delivering front-line legal services.
In line with common commercial practice, some ABSs will choose to remunerate employees partly by way of shares (and share options) in the ABS. For the first time legal services providers may need to deal with employees as shareholders and the issues this can cause on termination of employment. Employees will need to understand how deferred compensation works, taxation and the forfeiture provisions that will be attached to these shares.
Career development for senior lawyers who can no longer find a path to equity and have to relinquish partner status will also be an issue. This could give rise to more flexible professional development into other senior business roles and more business-focused continuing professional development (CPD) training.
Lawyers who are also office-holders in an ABS will need to consider any actual or perceived tension between their legal and ethical regulatory requirements - for example, to act in the best interests of a client and the fiduciary duties of an office-holder.