Articles by McGrigors
27 June 2006
Age Discrimination and Partnerships
(Scotland on Sunday)
Lawyers, accountants, surveyors, GPs and dentists across the land should be urgently reviewing their partnership agreements and retirement practices to ensure that they are not going to face claims in terms of the Employment Equality (Age) Regulations, which come into force on 1 October 2006. Employers have been given the means to dismiss fairly anyone over the age of 65, but surprisingly, this exception does not apply to partnerships, contractors, or office holders.
Partnerships may therefore be guilty of age discrimination by requiring a partner to retire at any specific age, and could be subject to substantial claims for compensation in terms of the loss of future income. Although the popular perception is that such professionals burn out at an early age, and eagerly count the days towards retirement, there will be those who object to enforced retirement, even if it is provided for in the partnership agreement. The fact that such agreements have been in place for years, and are the product of private and informed negotiation, will be no defence. The only defence will be if an enforced retirement is justified by reference to a "legitimate aim" of the business. By having a right to claim age discrimination in relation to any attempt to bring their working lives to an end by way of retirement, partners have been placed in a very advantageous position in comparison to employees.
The existence of a default retirement age is useful to employers by allowing them to plan their workforces and pension provisions, in particular, giving career opportunities for younger employees to access senior positions. It will be a matter for Employment Tribunals to decide in the future if such considerations will be sufficient to allow partnerships to impose a retirement age on their partners.
What evidence therefore could a partnership use to justify the use of a retirement age? In larger partnerships, it might be worthwhile trying to obtain some evidence, by means of a survey for example, of the reasons why younger professionals were attracted to that business, and the importance of career progression opportunities in that choice. Not every partnership can meet career expectations by means of continual expansion, and an enforced retirement age can provide some certainty of a career opportunity becoming available. It also allows the partnership to plan wage structure and pension provision against a known workforce profile. The Regulations however also require any justification to be a "proportionate means" of achieving a legitimate aim. The partner who is forced to give up a substantial income may be able to argue that even these aims, even if legitimate, are not proportionate to the financial detriment he is suffering.
Disputes in this area will be determined by Employment Tribunals which are unfamiliar with the concepts and principles of partnerships. The outcome of any argument on justification is therefore always likely to be uncertain.
In addition to considering retirement ages, partnerships will also have to review the operation of benefits and of remuneration schemes such as lockstep provisions and annuities. If benefits are provided directly by reference to age, or indirectly by criteria such as experience or knowledge, they may be open to claims of age discrimination if they cannot be justified. Benefits which are based on length of service alone will be easier to deal with. Any benefits based on 5 years' service or less are exempt, but the use of longer service can only be justified on the grounds that such benefits fulfil a business need of the undertaking. The examples given in the Regulations are encouraging loyalty or motivation, or rewarding experience. Again the challenge will be to come up with hard evidence of how such benefits actually achieve those aims, as it cannot be assumed that any Tribunal will accept these factors without evidence, even if they seem obvious to most of the working population.
The Regulations present challenges for all businesses, and are likely to give rise to a substantial body of litigation. All businesses need to challenge the assumption that allowing people to work on after age 65 is to be discouraged. The stated aim of the government was to encourage the creation of an active workforce over the age of 65 to meet the projected age imbalance in the workforce. The current retirement age exemption for employers is to be reviewed in 2011, and is likely to be phased out in the future. By changing their outlook and culture now, partnerships may in fact end up ahead of the game and set an example to employers by reaping the benefit of retaining older, experienced partners to enhance their businesses.
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