Mandatory Retirement and the Partnership Track in Fasken Martineau DuMoulin LLP v BC (Human Rights Tribunal)
Canada’s retirement age is rising. The good news: we are living longer. The bad news: the economic downturn and the new federal old age security eligibility cut offs have forced some of us to stay in the work force. There is a greater expectation that individuals will be working well past 65.
Despite this shift in the workforce, some law firms have in place mandatory retirement. In many cases, leaving the partnership does not stop lawyers from practicing (either for personal or professional reasons), and even setting up their own shop. After 43 years with Stikeman Elliott LLP, Mortimer Freiheit opened a boutique firm, Freiheit Legal Inc. Eugene Meehan, a former partner at McMillan LLP, proactively opened up his own firm, Supreme Advocacy LLP at 59. He pre-empted the ‘talk’ with his former firm about his impending required retirement. Other lawyers simply transition to other firms that do not have the age restrictions, and take with them their clients.
For whatever reason, many firms still have a variation of a mandatory retirement requirement. Fasken Martinea DuMoulin LLP (“Faskens”) is one such firm. Section 9.2 of the firm’s partnership agreement requires that, barring rare exceptions, partners retire from the firm at the age of 65.
The British Court of Appeal heard the case of Fasken Martineau DuMoulin LLP v British Columbia (Human Rights Tribunal), 2012 BCCA 313 on July 19, 2012. It had the opportunity to decide whether a partner in a limited liability partnership is an employee of the partnership for the purpose of claiming the protection of human rights legislation from age discrimination.
John Michael McCormick worked at Faskens in Vancouver his entire legal career. He started in 1970 and made partner in 1979. As a newly minted partner, he had to agree to the firm’s partnership agreement. He turned 65 in 2010 and, subject to an agreement which would be at the discretion of the managing partner allowing him to continue practicing as a non equity partner and serve as counsel (which he did not enter into), he would be forced to retire that year. Shortly before he turned 65, he filed a complaint with the British Columbia Human Rights Tribunal citing age discrimination. The firm responded with an application to dismiss the complaint under ss. 27(1)(a) and (c) of the Human Rights Code, RBSC 1996, c 210 [Code], citing that the Tribunal has no jurisdiction over the complaint.
Faskens argued that McCormick is not an employee of the firm, and there existed no employment relationship that can be subject to a complaint under s. 13 of the Code. The tribunal sided with McCormick, though. It concluded that McCormick was employed by the Firm. On judicial review, the chambers judge agreed, therefore dismissing Faskens’ appeal. The British Columbia Court of Appeal unanimously found that in law, “a partnership is not a separate legal entity from its partners, and a partner cannot be an employee of, or employed by, a partnership of which he is a member” (para 45). Consequently, it is impossible for a partner to be an employee of or be employed by a partnership by which he or she is a member. He is constitutive of the very organization that “employs” him. In order for the Human Rights Tribunal to have jurisdiction over the matter (and thus be able to enforce the Code), there needs to be an employee-employer relationship. Partnerships do not bear such a relationship and therefore are not governed by the Code.
The Code is meant to be given a broad, liberal and purposive interpretation. In other words, can the definition of “employee” include that of “partner”? This seems unlikely. While a law firm does have a management aspect (members are elected for certain terms), where management may exert control over other partners (in line with the partnership agreement), the nature of a firm is still a partnership. The management team may exert control, but does not “employ” the partners. Because of the unique nature of the partnership arrangement, it is not subject to the Code.
Policy Playing Out
Unfortunately for Faskens, they are losing a partner who was brazen enough to bring an action against its own firm. Whether McCormick retires from legal practice, opens his own shop, or moves across the street, Faskens is losing a major player. On top of this loss, firms that continue to rely on a mandatory retirement system may face criticism – criticism that extends beyond the law. It seems unfair to the partner and, in the case of a seasoned lawyer like McCormick, counter-productive for the firms themselves.
That being said, the policy is not without cause. Partners willingly enter into these partnership agreements, usually when they are younger in their careers. A gun was not put to their head. This is a consensual agreement that a practicing lawyer made. As noted earlier, this mandatory retirement requirement is only used at select firms. Additionally, firms are interested in continuity of practice. The hope is that institutional clients will be transitioned from senior to junior partners so that the firms can stay in practice and junior partners can also start building their own books. Junior partners cannot gain this kind of valuable experience, and ultimately ascend in their firms, if senior partners remained on board for decades and decades. The legal profession is quite daunting for young lawyers – articling placements are down, associate hire-backs are quite low and with senior lawyers staying in the profession for longer, the prospects of making partner are dwindling. Though it may seem unjust that these firms may institute these retirement provisions, perhaps it is just a necessary evil for the practice of law.
With the pyramid structure of law firms touting the up or out model (articling student to associate, associate to partner), if there partners are not retiring, than associates cannot be promoted and subsequently articling students cannot be hired back as associates. The traditional model insists that partners draw on their salaries from the profits of the firm (ignoring for the moment the distinction between equity and non equity partnerships). In order to even consider expanding the pool of partners, there would need to be a sufficient growth in the firm’s pool profits such that the remaining partner’s piece of the proverbial pie does not get smaller. Some firms, however, have no interest in growing in size despite any sort of growth in profits. Profitable years simply mean more money in the partners’ pockets. The pyramid system works, and in order to avoid a partnership gap in several years, partners need to leave the firm. New partners can only come in when old partners leave. In order for the pyramid structure to work, partners must leave, either of from their own volition or from these mandatory retirement schemes.
Finally, these firms are not tossing the older partners onto the street. At some firms, senior partners who have exceeded the mandatory retirement age can stay on as non-equity partners or counsel. Or, if they have some more fire in them, they can set up their own or move across the street. Perhaps these senior partners should be reminded of the benefits the policy allowed them early in their career, and they can do the same for the young partners who are working their way up.
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