LLP Partners – Secure in the Equity?

1 March 2022

The default retirement age of 65 for employees is now only a distant memory, but mandatory retirement ages for LLP members remain common in professional services firms.  In practice this can result in surprising and harsh outcomes.

In one recent case, following a long and successful career dating back to 1982 with the accountancy firm Moore Stephens, an equity partner was approaching his 60th birthday, which was the normal retirement age in his firm’s LLP Agreement.  He proposed that he should continue in service with the firm. In response he was given the option by the managing partner to continue as an LLP member, but not any longer as an equity partner.  Effectively he faced a choice between leaving altogether or being demoted within the partnership.  On the understanding that the drop in his annual income would be circa £30,000, and in the belief that this did not justify legal action, he decided to accept the firm’s offer.

What then happened highlights the risks: the partner discovered that the firm was planning to break up and sell its accountancy, wealth management and proprietary software businesses. The management board had decided to pursue this course almost immediately after he had signed an agreement to relinquish his equity partnership.  Had he remained as an equity partner, his share of the sale proceeds would have been almost £3 million.  Consequently he decided to bring an age discrimination claim.

The narrow legal point that has emerged from the court of appeal’s judgement is that the ordinary three month time limit for the claimant’s employment tribunal discrimination claim ran from their demotion date – even though the partner then continued working and remained an ordinary (non-equity) partner of a firm with an (arguably discriminatory) retirement age clause in its LLP Agreement.  The court of appeal accepted that the normal retirement age could only be applied once to any individual and that in reality the claimant’s complaint concerned a one-off act of demotion, rather than a continuing act of discrimination thereafter.  

But what about the commercial point that the claimant had put in over 35 years’ service to the firm, 23 years of which were spent as equity partner, immediately before this demotion and exceptional capital profit event? Some would say that it was simply the luck of the draw: having reached the normal retirement age and accepted demotion from the equity, the claimant partner no longer had any contractual right to distribution of any capital profits. Never mind how much hard work they put into developing the firm’s business over all the previous years. 

However, in such circumstances, it is hardly surprising that the partner decided to pursue his right to bring an age discrimination claim.  It is now being remitted to the employment tribunal to decide whether it would be just and equitable to extend the normal three month time limit.  If that hurdle is cleared, then the claim will turn not on whether or not it was fair or reasonable that the claimant missed out on his share of the business sale proceeds, but on whether the inclusion and operation of the normal retirement age provision in the LLP Agreement was objectively justifiable, on legitimate policy grounds, despite its age discriminatory aspect.  

The firm’s LLP Agreement included typical language designed to justify the discriminatory impact of the retirement clause: for example to facilitate succession and retirement planning, as well as the need to maintain a collegiate and supportive culture (whilst avoiding compulsory partner retirement procedures on other grounds). A decade ago similar grounds were held to be justifiable by the Supreme Court on the facts in the leading case of Seldon. Whilst the retirement age there was 65, not 60 as in this case, for professional services firms in 2022, the challenges of succession planning and maintaining a collegiate and positive culture concerns feel more relevant than ever. Whilst the world of professional work is witnessing unprecedented change as flexible and hybrid working become the norm, it seems that mandatory retirement ages for LLP partners are here to stay. 

This piece was first published by Accountancy Daily on 24 February 2022.

FURTHER INFORMATION

If you would like any further information or advice about the issues explored in this blog, please contact Andreas White or a member of our Employment team.

 

ABOUT THE AUTHORS

Andreas White is a partner in our employment team. He has substantial litigation experience, with a particular focus on complex and high-value employment and partnership disputes. Andreas has a particular interest in international and cross border employment law. He is a former president of the labour law commission of AIJA.

 

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