The Supreme Court Gives Leave to Appeal against Mandatory Retirement for Law Firm Partners

Last year, TheCourt reported on a British Columbia Court of Appeal (BCCA) ruling, Fasken Martineau DuMoulin LLP v. British Columbia (Human Rights Tribunal), (2012 BCCA 313). John McCormick, a partner of the firm in Vancouver, had gone to the Human Rights Tribunal to complain about mandatory retirement at age 65.   He won there, and in the lower court, but the BCCA ruled in favour of the firm.  The Supreme Court of Canada (SCC) has now given leave for McCormick to appeal against that decision.  If the SCC ultimately rules in McCormick’s favour, it might also open large professional partnerships to claims for other types of discrimination, such as sex or race.

The fact that the SCC has agreed to hear the appeal suggests that it may be willing to  consider a change in one of the fundamental common law principles regarding partnerships.   The orthodox legal viewpoint is that a partner of a firm is not an employee, and the unanimous BCCA panel strongly affirmed this viewpoint.   It was the BC Human Rights Tribunal and the lower court judge who tried to be innovative.  There was nothing surprising or unexpected about the BCCA decision, and the SCC could have let that stand as the precedent if it wanted to preserve the status quo.  

Partners are Not Employees

Provincial human rights legislation prohibits discrimination on the grounds of age in employment, but McCormick was a partner, and a long history of jurisprudence holds that partners are not employees.   As stated by the BCCA:

“Mr. McCormick is a member of the collective body against whom he complains.  The members of the partnership do not employ each other; they work together in a business in which they jointly determine their working conditions, remuneration, and all other aspects of the operation of the business.”  (para. 30)

The BCCA trotted out the hoary old classics that are found in textbooks on business associations:  Ellis v. Joseph Ellis & Co., [1905] 1 K.B. 324 (E.W.C.A.); Re Thorne and New Brunswick Workmen’s Compensation Board (1962), 33 D.L.R. (2d) 167 (N.B.S.C., App. Div.).   Both of these cases involved situations where a partner was injured or killed on the job, and denied workman’s compensation on the grounds that he was not an employee.

It is interesting to speculate on what grounds the SCC might distinguish the past cases if it chooses to do so.

The position taken by the Human Rights Tribunal and the lower court is that in the context of human rights issues, the definition of employment needs to be given an expansive interpretation.  In employment law, it is in fact not unusual for the same person to be considered an employee for one purpose (such as a right to engage in collective bargaining) but not for a different purpose (such as a right to minimum wage legislation).

The lower court noted that McCormick’s situation hardly fits the classic description of partnership that applied in the early cases.   Those were small partnerships (only two in the case of Thorne) where each partner could reasonably be considered an entrepreneur.   By contrast, at Faskens, McCormick was one of 260 members of a limited liability partnership.   The limited liability partnership is a recent innovation that bears little resemblance to a classic partnership.  McCormick did not bear any personal liability for the general debts or torts of the firm as in a classic partnership.  The BCCA’s statement that the partners “jointly determine” all aspects of the business is questionable.  In such large firms, there is usually an inner core of managing partners who dominate decision making.

McCormick signed a contract with the firm that included a provision for retirement at 65.   Such a contract might be considered contrary to public policy if it violates human rights, and possibly unconscionable due to unequal bargaining power.  In a smaller partnership, the members negotiate as equals to set the terms, and if they choose to have such a provision, it might be defensible.   One finds smaller firms, such as Lenczner Slaght, where the founding partners are well past 65, and still active in the firm.  In a firm such as Faskens, McCormick would have been confronted with a “take it or leave it” offer, and no opportunity to negotiate about the standard provisions of the partnership agreement.

It should also be noted that legislation that prohibits age discrimination does not prevent an employer from demoting or dismissing for cause an employee whose work performance has deteriorated.   It merely prohibits automatically removing the person based on the calendar, without regard to performance.   It does impose a burden of proof on the employer, and it is this bothersome task that they seek to avoid through automatic mandatory retirement.  One has to wonder whether it is a rational and cost effective decision for larger law firms to cast off people in this way rather than face up to a proper analysis, however unpleasant it might be.

Previous Cases on Age Discrimination

The SCC’s previous decision on mandatory retirement was in McKinney v. University of Guelph  ([1990] 3 S.C.R. 229).  The Court held that a provision of the Human Rights Code that permitted mandatory retirement at age 65 violated the Charter’s protection against discrimination.  However, they accepted it as a reasonable limitation on rights under Section 1, on what were essentially economic policy grounds.   Since then, most provincial governments have abolished mandatory retirement, which is why there are now some eminent scholars teaching at Osgoode Hall Law School and other institutions past the age of 65.  

The issue came up again in a case in which two Air Canada pilots sought to overturn mandatory retirement (which came for them at age 60).  The lower court sided with them, suggesting that the decision in McKinney has been overtaken by societal changes.  The judge noted that the majority in McKinney had stated that the Section 1 analysis was open for review as new evidence emerged.  However, the Court of Appeal overruled her, in Air Canada Pilots Association v. Kelly (2012 FCA 209), stating that McKinney remains a binding precedent, and no lower court has a right to circumvent it by such arguments:

“To the extent that, in McKinney, the Supreme Court held the door open to revisit the issue of mandatory retirement at a later date, it was holding the door open for itself and not for others.” (para. 46)

Interestingly, the SCC refused leave to appeal in the Air Canada decision earlier this year, which makes one wonder why it would differentiate McCormick’s appeal.   However, the issues are quite different.   In the Air Canada case, mandatory retirement was defended based on a complex analysis that would not apply elsewhere.  In McCormick’s case, the Human Rights Code itself no longer permits mandatory retirement, which renders McKinney largely irrelevant.   The question is whether the Human Rights Code should apply to him in his role as a member of a limited liability partnership.   As such, it is an aspect of a broader issue that is gaining greater prominence, of the extent to which various kinds of protective legislation should apply to people who are in non-standard working relationships.