The Court of Appeal has handed down its decision regarding the lawfulness of a mandatory retirement age in partnerships. The decision is equally important to members in limited liability partnerships ("LLPs") as the exemption which currently allows retirement of employees at 65 is not applicable to partnerships and LLPs.

In Seldon v Clarkson Wright & Jakes the Court of Appeal decided that the inclusion and enforcement of a clause in a partnership deed which requires partners to retire at a certain age was lawful under the Employment Equality (Age) Regulations 2006, if it was consistent with the social and employment objectives of those Regulations and a proportionate means of achieving those legitimate aims.

Facts

Mr Seldon, a former partner in Clarkson Wright & Jakes (the "Firm"), brought a claim against the Firm in the Employment Tribunal for direct age discrimination after he was forced to retire at the age of 65. The Firm's partnership deed contained a mandatory retirement age clause which the Firm enforced against Mr Seldon.

The Employment Tribunal held that the Firm had established that the clause had three legitimate aims.

  • ensuring associates were given the opportunity of partnership after a reasonable period;
  • facilitating the planning of the partnership and workforce by having a realistic long term expectation as to when vacancies would arise; and
  • limiting the need to expel partners by performance management, thus contributing to the congenial and supportive culture in the Firm.

The Employment Tribunal found that Mr Seldon had suffered less favourable treatment due to his age, but that this treatment was justified as a proportionate means of achieving certain legitimate aims. As reported in the previous partnership e-bulletin, the Employment Appeal Tribunal generally upheld that decision (save for the 3rd aim) and Mr Seldon appealed to the Court of Appeal on numerous grounds. The Secretary of State for Business, Innovation and Skills intervened in the Court of Appeal hearing. The relevant English and European legal framework on age discrimination consists of the Employment Equality (Age) Regulations 2006 (the "Regulations") and Council Directive 2000/78/EC (the "Directive").

Decision

The Court of Appeal dismissed Mr Seldon's appeal, finding that the decision by the Firm to include a mandatory retirement age in its partnership deed and enforce it was lawful.

The Court of Appeal found unanimously that the Regulations were valid under the Directive and that the Directive permitted Member States to derogate from the principle of equal treatment in respect of direct age discrimination by permitting justification. This power of derogation is directed at the Member States implementing the Directive. Provided the necessary criteria are met, Regulation 3 permits firms to justify both direct and indirect age discrimination in relation to its partners. A firm does not need to satisfy the test required in Article 6 of the Directive, but must show that its actions are consistent with the social or employment policy of the United Kingdom which justified the Regulations. It was held that the Firm's action to force Mr Seldon to retire at 65 in accordance with the mandatory retirement age provision was consistent with the social and employment objectives of the Regulations and was therefore lawful.

Comment

This decision will give partnerships and LLPs comfort that mandatory retirement ages can be lawful. However, a number of important points arise from the Seldon case, which should be borne in mind when agreeing or enforcing a mandatory retirement age clause in the context of a partnership or LLP agreement:

  • It is not relevant whether, at the time of agreeing the mandatory retirement age clause, the firm expressly specified the legitimate aims on which it later sought to rely. It would nevertheless seem prudent for a partnership or LLP seeking to include a retirement clause in its agreement to consider the aims it is seeking to achieve and to record those aims;
  • A retirement age other than 65 may be justified provided that it is a proportionate means of achieving the legitimate aims in question. The fact that a range of ages could be justified does not undermine the chosen age provided there is evidence to support this. Whilst 65 is the default retirement age for employees, the government has plans to abolish this from October 2011;
  • The fact that the mandatory retirement age was agreed by parties of equal bargaining power was held to be a legitimate consideration. However, less weight may be given to this factor in large multi-national partnerships or LLPs;
  • Other arguably less discriminatory clauses may not achieve a firm's objectives and in such circumstances, a mandatory retirement age is a proportionate means of achieving the legitimate aim; and
  • The ability to remove underperforming partners from a partnership or LLP is not inconsistent with the firm being able to rely on a mandatory retirement age.

If a partnership or LLP wishes to include or review a mandatory retirement age provision in its agreement, it must consider carefully whether the provision is a proportionate means of achieving a legitimate aim which is consistent with the social and employment objectives of the Regulations. This will be the case whether the mandatory retirement age is 65 or otherwise.

(Seldon v. Clarkson Wright & Jakes) [2010] EWCA Civ 889.