Herbert Smith partnership specialists Alan Watts and Hayley Evans on Seldon's impact on retirement ages

Is it time to abandon compulsory retirement ages? On 25 April 2012, the Supreme Court in Seldon confirmed what partnerships and limited liability partnerships (LLPs) need to do to make compulsory retirement ages lawful. While comfort can be gleaned from the Supreme Court's decision that the aims of the firm in Seldon were held to be legitimate, partnerships and LLPs must identify their aims and assess whether they are legitimate for their specific businesses.

This is particularly important for City partnerships and LLPs that should also grapple with the bigger question of whether a retirement age is a necessary backstop for partners not subject to performance management.

Discrimination

There is no dispute that enforcing a compulsory retirement age against a partner constitutes direct age discrimination. The issue is whether that discriminatory treatment on the grounds of age can be justified as a proportionate means of achieving legitimate aims.

So what are legitimate aims? The Supreme Court held that legitimate aims must be of a public interest nature within the meaning of the European Directive and also be consistent with the social policy of the state. A further hurdle is that the aims must also be legitimate in the particular circumstances of each business. However, aims that are purely specific to the partnership's or LLP's situation, such as reducing costs and improving competitiveness, are not seen as legitimate.

Legitimate aims

It would be imprudent to assume that one size fits all and that the Seldon aims will apply to all partnerships or LLPs (especially where there is a difference in size and culture). The firm in Seldon identified three aims which the Supreme Court found as legitimate: (i) ensuring associates were given the opportunity of partnership after a reasonable period; (ii) facilitating the planning of the partnership and workforce by having a realistic long-term expectation as to when vacancies would arise; and (iii) limiting the need to expel partners by performance management, thus contributing to the congenial and supportive culture in the firm.

Dignity

Looking at the established categories of legitimate aims, the first is 'dignity'. This is often described as avoiding the need to dismiss older workers on the grounds of underperformance or incapacity (leaving to one side the stereotypical assumptions underlying this aim). Partnerships and LLPs which regularly monitor each partner through performance reviews and those which, in the current climate, have had to embrace equity management, already have procedures in place for the departure of underperforming partners (regardless of their age). Therefore, the legitimacy of a compulsory retirement age that applies only to older partners is open to attack. As Lady Hale stated in Seldon, if "…the business already has sophisticated performance management measures in place, it may not be legitimate to avoid them for only one section of the workforce".

Inter-generational fairness

The other type of established legitimate aim is 'inter-generational fairness'. This could mean facilitating access to employment for young people, which has also been referred to as 'dead man's shoes'. Conversely, depending on the circumstances of the business, inter-generational fairness could also mean retaining older people in the workforce.

In the world of larger partnerships and LLPs, partners and up-and-coming associates are expected to build up their own client following rather than inheriting the practice of a retiring partner – the 'dead man's shoes' aim of allowing associates the chance of partnership only when a partner retires identified in Seldon does not fit squarely with the culture of a larger firm.

The Legal Week poll published in the 9 March 2012 edition ('Rejecting the Partner Mould') found that associates' views of career progression are less focused on achieving partnership than was once the case, but there is no shortage of young lawyers entering the profession and pressing for promotion to partnership. However, allowing the firm to plan its workforce by knowing when a partner will retire may well be a legitimate aim for larger businesses.

Bargaining power

Once the legitimate aims are identified, the final issue is justifying the compulsory retirement age as a proportionate means of achieving those legitimate aims (as a general rule and also as applied to an individual). As this particular issue has been referred back to the Employment Tribunal in Seldon, it remains to be seen whether the age of 65 was justified in this case.

In any event, the Employment Tribunal will decide this against the backdrop of Mr Seldon's retirement in 2006 when there was a default retirement age of 65 for employees (subsequently abolished). It will also be relevant if the partnership deed containing the compulsory retirement age was the product of bargaining between the partners (rather than being imposed) and if a partner benefited from the compulsory retirement age at an earlier stage of his/her professional career. These factors are unlikely to be as dominant if a larger partnership or LLP is faced with justifying a compulsory retirement age in the future.

Overriding issue

The fundamental question facing partnerships and LLPs is whether forcing a person to retire at a specified age suits their business. Compulsory retirement ages may well be otiose when a firm has a well-drafted partnership or members agreement which sets out the procedures for the departure of partners when it is in the best interests of the partnership or LLP (regardless of their age).

Alan Watts (pictured) is a partner and Hayley Evans of counsel in Herbert Smith's partnerships and LLPs group.