LLP Partners – Secured in Equity?
The default retirement age of 65 for employees is a distant memory, but the mandatory retirement age for LLP members remains common in professional services firms. In practice, this can lead to surprising and difficult results.
In a recent Caseafter a long and successful career dating back to 1982 with the accounting firm Moore Stephens, a partner was approaching his 60th birthdayand birthday, which was the normal retirement age in his company’s LLP agreement. He proposed that he should continue in service with the company. In response, the managing partner gave him the option to continue as an LLP member, but no longer as a partner. In fact, he had to choose between leaving completely or being demoted within the partnership. Considering that the drop in his annual income would be around £30,000 and believing that this did not warrant legal action, he decided to accept the company’s offer.
What happened next highlights the risks: the partner discovered that the company was planning to spin off and sell its accounting, wealth management and proprietary software businesses. The management board had decided to continue in this direction almost immediately after he had signed an agreement to renounce his participation. Had he remained as a partner, his share of the sale proceeds would have been nearly £3million. Therefore, he decided to file a complaint for age discrimination.
The narrow legal point that emerged from the Court of Appeal judgment is that the ordinary three-month time limit for the plaintiff’s employment tribunal discrimination complaint ran from the date of his demotion – even if the partner then continued to work and remained an ordinary (non-equity) employee partner in a company with a (presumably discriminatory) retirement age clause in his LLP agreement. The Court of Appeal accepted that the normal retirement age could apply only once to an individual and that in reality the plaintiff’s claim was for a one-time act of demotion, rather than an act of continued discrimination thereafter.
But what of the business point that plaintiff had put in over 35 years with the company, including 23 years as a partner, just prior to this demotion and exceptional capital gain event? Some will say that it is simply a stroke of luck: having reached the normal retirement age and accepted the downgrading of the capital, the requesting partner no longer has any contractual right to the distribution of any -values. Never mind the hard work they have put into developing the company’s business in the previous years.
However, in such circumstances, it is hardly surprising that the partner decided to assert his right to file a complaint for discrimination on the grounds of age. It is now up to the Labor Court to decide whether it would be fair and equitable to extend the normal three-month period. If that hurdle is cleared, the claim will not be about whether or not it was fair or reasonable that the plaintiff missed his share of the proceeds from the sale of the business, but about whether the he inclusion and operation of the normal retirement age provision in the LLP Agreement was objectively justifiable, for legitimate political reasons, 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 collegial and supportive culture (while avoiding mandatory retirement procedures for associates for other reasons) . A decade ago, similar grounds were found justifiable by the Supreme Court on the facts in the Seldon case. While the retirement age was 65, not 60 as in this case, for professional services firms in 2022, the challenges of succession planning and maintaining a collegial and positive culture seem more relevant than ever. As the world of professional work experiences unprecedented change as flexible and hybrid working becomes the norm, it looks like the mandatory retirement age for LLP partners is here to stay.