Steven Flynn, Counsel for Garry Abrams Limited in this case, reports for Addleshaw Goddard LLP on a decision that is likely to have significant implications for companies, associations, LLPs, charities and Local Authorities. A judge has decided in the case of EAD Solicitors v Abrams that corporate entitles can bring claims for discrimination under the Equality Act 2010.
EAD Solicitors LLP (EAD) is a limited liability partnership. Prior to 30th November 2011, Mr Garry Abrams was a member of EAD. On 30th November 2011, Mr Abrams retired as a member of EAD and was by replaced by Garry Abrams Limited (GAL).
GAL is a limited company that was established by Mr Abrams on the advice of his accountants. In what is an increasingly common method of operating for professional firms, Mr Abrams established GAL to benefit from the advantageous tax scheme applicable to limited companies. The scheme allows individuals to manage the payment of dividends from the limited company in the most tax effective way; often involving the gradual paying out of retained sums over the course of the individual’s retirement. The same is recognised by HMRC as an acceptable method of operating.
GAL was admitted as a member of EAD on the basis that it would provide a solicitor to participate in management decisions and to generate fee income. Whilst it had been envisaged by all parties to the agreement that Mr Abrams would continue to be the solicitor provided, this was not a contractual requirement. GAL could supply any suitably qualified and experienced solicitor to fulfil this role.
During 2013 EAD made it known to Mr Abrams that it expected him to cease working at the end of the financial year in which he turned 62, that being 2014. At the end of the 2014 LLP Year, EAD stopped paying GAL its profit share. GAL brought a claim before the Employment Tribunal seeking payment of its profit share. GAL alleged that all ‘members’ are entitled to a share of the profits and that to deny GAL the same because Mr Abrams had reached the age of 62 was unlawful direct discrimination. EAD deny discriminating against GAL and sought a preliminary hearing to have the claim struck out on the basis that a company cannot bring claim for discrimination
Legal basis for claim
Section 13 of the Equality Act 2010 provides that: ‘A person (A) discriminates against another (B) of, because of a protected characteristic, A treats B less favourably that A treats or would treat others.’
‘A person’ in reference to (A), has always been known to include corporate bodies. Most claims before the Courts and Tribunals are against corporate bodies. GAL argued that if ‘A person’ in relation to (A) can include a corporate body, then why should ‘another [person]’ in relation to (B) be read any differently.
GAL’s claim was for direct discrimination (by association) pursuant to section 13 Equality Act 2010. For such a cause of action, GAL did not need to possess the protected characteristic relied upon. Direct discrimination would have occurred if EAD was found to have treated GAL less favourably because of Mr Garry Abrams’ age (subject to the defence of justification).
Langstaff P, sitting as President of the Employment Appeal Tribunal, held that companies can bring claims for discrimination and that, depending on the right infringed, such claims can be brought in the Employment Tribunal and the County Court. In rejecting EAD’s argument that a company cannot bring a claim because it cannot have a protected characteristic, Langstaff P said that it does not matter that a limited company or other corporate entity does not possess the protected characteristic in question. He observed that: “the Equality Act does not deal with individuals on the basis of their protected characteristics but identifies discrimination as being detrimental treatment caused by the protected characteristic or related to it. Detrimental treatment can be given to any person, whether that person is natural or legal. There is no reason to restrict the class of those who can suffer a detriment if what is being complained of, and that which the statute seeks to avoid, is a detriment being suffered because of an individual’s protected characteristic.”
Consequences of decision
A narrow reading of the judgment highlights the possibility that professional firms may be the subject of discrimination claims in circumstances where they seek to retire those former partners/members who have sought to benefit from the advantageous tax scheme that Mr Abrams adopted. However, the decision is likely to have much wider consequences.
The Equality Act 2010 makes it unlawful to discriminate in the supply of goods and services. The decision in Abrams means that it would be unlawful to refuse to supply goods and services to a company because of a protected characteristic. Take, for example, a limited company that is refused banking services because of the race of its directors. Such a refusal would amount to direct discrimination. Similarly, a refusal to provide services to a bar because it was frequented by homosexuals would likewise amount to unlawful discrimination. What was previously viewed as an unconscionable business decision would now give rise to an actionable claim before the County Court.
In relation to the disposal of premises, Abrams confirms that a company, LLP, charity, educational establishment, or other non-natural person may pursue a claim in the County Court if it is the victim of detrimental treatment based on the protected characteristics of individuals associated with it. A commercial landlord who refuses to lease premises to a company because of the nationality of its managing director would be committing an act of direct discrimination.
The most significant impact of the decision in Abrams is likely to be the unenforceability of commercial contractual terms. Section 142 provides that a term is unenforceable against a person in so far as it constitutes, promotes or provides for treatment of that or another person that is of a description prohibited by the Act. Terms of a commercial agreement between two corporate entities will not be enforceable so far as they offend this principle. By way of example, a term that requires a company to only employ Asian people or to purchase its products from an American based company could be viewed as promoting discriminatory treatment.
The decision in Abrams may also impact on the arrangement of group companies. In ordinary circumstances, financial liability for an act of discrimination would not pass from one company to another. However, section 111 provides that ‘A person (A) must not instruct another (B) to do in relation to a third person (C) anything which contravenes’ certain parts of the Act. If company A instructed company B to sack C because of C’s disability, then C would be able to pursue a claim against A as well as B. On the basis of Abrams, section 111 can be read so as to allow the employee to pursue a group company.
Prior to the decision in EAD Solicitors v Abrams accepted wisdom was that the Equality Act 2010 only applied to natural persons. Langstaff P has corrected this misconception. Companies and other legal entitles can now pursue claims for discrimination in circumstances where they suffer detriment because of a protected characteristic. This is a ground-breaking decision which is likely to have significant for companies, associations, LLPs, charities and Local Authorities. Such entities will now need to consider whether their practices and polices comply with the provisions of the Equality Act 2010. They will also be able to challenge what were previously seen as unconscionable business decisions made on discriminatory grounds. This decision is likely to lead to a significant amount of litigation over the next few years.