UK: The New Age Discrimination Legislation: What Partnerships Need To Know

The new Employment Equality (Age) Regulations 2006 (the "Regulations") came into force on 1 October 2006 and prohibit discrimination, harassment and victimisation on the grounds of age.

Even though genuine partners in a firm do not qualify for employment protection rights, they have the same protection as employees against age discrimination, as well as on the grounds of sex, race, disability, sexual orientation, and religion and belief. This also applies to members of LLPs.

Under the Regulations, both employees and partners are protected against direct and indirect discrimination, unless it can be objectively justified. Both young and old are protected. Direct discrimination is where a person is treated less favourably than another person in a comparable situation on the grounds of their age. An example of this would be where a firm only considered candidates who are over 35 for promotion to partner.

Indirect discrimination will occur where an employer or firm applies a practice, requirement or condition which has an adverse or disproportionate impact on a particular group or person. This would cover the situation where a firm only considers employees with at least 10 years’ post qualification experience for promotion to partner, as younger employees are less likely to have the requisite experience.

An employer or firm will be able to justify objectively both types of discrimination if they can show that the treatment complained of is a "proportionate means of achieving a legitimate aim". The Regulations do not contain any guidance on what may amount to legitimate aims. The DTI’s consultation document states that, while a wide variety of aims may be considered as legitimate, they must correspond to a real need on the part of the employer. The DTI noted that economic factors such as business needs may be legitimate aims. Accordingly, setting an experience level requirement for promotion to partner may be capable of being justified but a straightforward age requirement almost certainly will not.

All employers and firms should therefore be taking steps to ensure that their organisation as a whole is made aware of the Regulations and the policy behind them. This goes beyond simply rewriting company policies and procedures on equal opportunities - it requires training of staff at all levels in recognising the boundaries of acceptable behaviour and the consequences of going beyond these. Staff, particularly those with senior roles, should also be alerted to the risk of personal liability for their own discriminatory behaviour at work.

In addition to these more general considerations, the Regulations pose two important issues which are specific to partnerships.

Even though employees can lawfully be retired at 65 or above, there is no such exemption for partners under the Regulations. This means that any provision in a partnership agreement that requires partners to retire at a certain age will be discriminatory, unless it can be objectively justified. To avoid claims, firms will therefore have to identify a legitimate business aim that they intend to achieve by fixing a retirement age for partners. This is likely to be difficult where the retirement age in a partnership agreement has simply been retained from the past, without it having been given any further thought. The imposition of a fixed retirement age may in any event be difficult to justify as age is not necessarily a reliable indicator of a partner’s continued worth to the firm.

Accordingly, if firms are looking to "retire" older partners, it will be safer to do so on the grounds of competency or contribution. It therefore seems likely that the annual appraisal of partners will become increasingly important in helping a firm to justify the retirement, forced expulsion or demotion of a specific partner who is underperforming. Every partnership should therefore be taking steps to ensure that it has in place a formal appraisal process for partners which is based on performance targets that apply regardless of age or experience. The appraisal of partners should also be treated seriously and objectively within the firm.

The lack of a retirement age for partnerships under the Regulations also raises an important issue in respect of the provision of Permanent Health Insurance (PHI) to partners. Benefits under PHI schemes are normally expressed to cease on a specific retirement date, typically the retirement age specified in the partnership deed. However, partnerships who give partners an entitlement to PHI cover may now need to make arrangements with providers to ensure that sufficient cover is in place for all partners who remain in the partnership, regardless of their age. Given that providers are unlikely to insure a partner who is over 65 (at least not without significant premiums), it may be that firms themselves will be required to pay out to any partners continuing to work after this age who would but for their age have been able to draw upon PHI benefit a sum equivalent to the amount an insurance policy would have provided.

Remuneration structures

It is also possible that the traditional lockstep system (under which partners progress up a ladder over a fixed period of time and are allocated increased profit share based on years’ service) may expose firms to age discrimination claims. Younger, and possibly higher performing, partners may challenge the system on the grounds that it rewards longevity of service within the partnership and therefore indirectly age, rather than performance. However, it may also be possible to justify the lockstep objectively on the grounds that it remunerates on the basis of firm-wide rather than individual performance, therefore promoting a more mutually-supportive relationship between partners, which in turn may help secure the long-term future of the partnership.

It is predicted that age discrimination will rapidly become a major source of discrimination claims in the workplace, as has already been the case in the US and Ireland. In Ireland, age discrimination now makes up 19 per cent of all employment cases. In the UK, research suggests that only those aged between 35 and 40 are free from age discrimination in the workplace, creating very wide scope for claims under the new Regulations. Compensation for a successful age discrimination claim is uncapped - clearly an incentive for employees and partners alike to take advantage of the protection provided by the new Regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.