In a unanimous decision dated May 22, 2014,1 the Supreme Court of Canada has ended the uncertainty generated by the case of McCormick v Fasken Martineau Dumoulin LLP (Fasken), now well known to Canadian law firms, and affirmed that equity partners are not, in principle, employees for purposes of the British Columbia Human Rights Code (Code).2
Facts and rulings of the courts below
As he approached his 65th birthday, Mr. McCormick, an equity partner for more than 30 years in Fasken, a law firm with 650 lawyers, of whom 260 were equity partners, filed a complaint under section 13 of the Code, alleging that the provision in his firm’s Partnership Agreement requiring equity partners to retire as equity partners and divest themselves of their ownership interest in the partnership at the end of the year in which they turned 65 was discriminatory. Ironically, the provision was added to the Partnership Agreement in 1980 and Mr. McCormick had thus been asked to vote on its adoption.
Before the Human Rights Tribunal, Fasken had argued that the complaint was inadmissible and that the Tribunal did not have jurisdiction over it since Mr. McCormick was not an employee within the meaning of the Code and thus did not benefit from the protection it provided. Given, among other things, that Mr. McCormick was subject to certain direction within the firm, the Tribunal had dismissed Fasken’s application to dismiss, which decision was upheld by the British Columbia Supreme Court.
However, holding that a partnership, by its nature, cannot be a separate legal entity from its partners, and hence that it is impossible for such a partner to be his or her own employee, the British Columbia Court of Appeal reversed the decision of the Supreme Court of British Columbia.
The Supreme Court ruling
In a unanimous decision, the Supreme Court of Canada held that Mr. McCormick was not an employee for purposes of the Code, given the absence of any genuine control exercised by Fasken over Mr. McCormick in significant decisions affecting the workplace.
In the Court’s view, the aim of the Code is to protect vulnerable individuals. Accordingly, determining whether someone is in an employment relationship for purposes of the Code requires in essence an examination of two aspects: control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of a worker. In this regard, the Court affirms: “In other words, the test is who is responsible for determining working conditions and financial benefits and to what extent does a worker have an influential say in those determinations?”
In this case, even though management of the firm was delegated, whether to the board of directors duly elected by the partners, the management and compensation committees or the regional managing partners, the fact remained that Mr. McCormick, as an equity partner, had the ability to influence their decisions, including the right to vote for – and stand for election to – the board. The evidence further showed that Mr. McCormick drew his income from the profits of the partnership in which he shared and was liable for its debts along with the other partners, and that he benefited from the right not to be subject to discipline, the right, upon leaving, to his share of the firm’s capital account, and the protection that he could only be expelled from the partnership by a special resolution of the equity partners and a regional resolution in his region, etc. In short, the Supreme Court considered that Mr. McCormick was in a common enterprise with others for profit and was in a position to exert influence on the decisions affecting that enterprise.
The Supreme Court points out that, contrary to what the Court of Appeal had said, the conclusion cannot be automatically drawn that a partner in a partnership is, by definition, never an employee, and each case has to be examined in light of its own particular circumstances. However, a finding of an employer-employee relationship within the meaning of the Code would, in the Court’s view, be justified only in a situation where the powers, rights and protections normally associated with a partnership were greatly diminished.
In an interesting obiter dictum, the Supreme Court suggests that while a partner may have a remedy under section 22 of the Partnership Act,3 which provides that partners must act with fairness and good faith toward the other members of the firm, absent special circumstances, a policy providing for retirement at 65 is not at odds with that requirement.
Although this ruling by the Supreme Court of Canada has to do with the interpretation of the term “employee” within the meaning of the British Columbia Human Rights Code, the decision, we believe, sets the tone for the interpretation that the courts will now adopt, irrespective of the legislation concerned. While the Supreme Court appears reluctant to affirm that a partner in a partnership can never be an employee, it is important to note that the Court imposes a heavy burden on anyone wishing to assert a contrary position, by limiting the possibility of doing so to cases where the powers, rights and protections that normally form part of a partnership are significantly diminished.