Mandatory Retirement in Professional Services Firms

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On May 22, 2014, the Supreme Court of Canada released its decision in McCormick v Fasken Martineau DuMoulin LLP. The Court found that John McCormick, an equity partner in Faskens, was not an employee for the purposes of the British Columbia’s Human Rights Code and that his mandatory retirement at age 65 was not contrary to the Code.

Faskens’ partnership agreement, like many professional services firms’ partnership agreements, provided for mandatory retirement of all equity partners when they turned 65. In 2009, when McCormick was 64, he commenced a claim against Faskens alleging that the mandatory retirement provisions of the partnership agreement discriminated against him on the basis of age and, as such, infringed his human rights under the Code.

Faskens argued that McCormick, as an equity partner, was not in an employment relationship and therefore not protected by the Code. The B.C. Human Rights Tribunal disagreed. In its view, McCormick was utilized, controlled and compensated like an employee. The B.C. Supreme Court agreed. The B.C. Court of Appeal allowed the appeal, holding that because a partnership is not a separate legal entity from its partners, it is not possible for a partner to be “employed” by a partnership.

The Supreme Court of Canada, in a unanimous decision, also dismissed the appeal, but for different reasons. In its view, partners may be employees of a partnership, but the outcome depends on two “synergetic aspects” of the employment relationship: “control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of a worker”. In other words, “who is responsible for determining working conditions and financial benefits and to what extent does a worker have an influential say in those determinations?” Though the Court did not reject the Tribunal’s use of the utilization, control and compensation factors, it viewed those factors as aspects of the control/dependency test.

In McCormick’s case, the Court held that he was “more as someone in control of, rather than subject to, decisions about workplace conditions” given his ownership, sharing of profits and losses and his right to participate in management. Though McCormick was subject to certain administrative rules, that fact did not persuade the Court that he was dependent on the firm. In its view, as a partner, he had a say in the firm’s policies, including its mandatory retirement policy, and benefitted from those policies. As such, he was not in an employment relationship that would make Faskens subject to the Code.

In passing, the Court noted that the statutory duty of utmost fairness and good faith on partners might provide recourse to McCormick for alleged discrimination but it did not have to decide that issue.

This case comes in the same week as the United Kingdom Supreme Court’s decision in Clyde & Co LLP v Winklehof. In that case, the appellant was an equity partner in Clyde & Co LLP. She claimed protection under the United Kingdom’s statutory “whistle-blower” protection for “workers” after reporting financial improprieties in the firm’s Tanzania associate firm. Although the U.K. statute which defines a worker as employment under contract is not applicable to Canadian employers, the decision is a timely reminder that the determination of a partner’s employment status may differ depending on the specific factual circumstances or applicable legislation.

The McCormick decision will likely be treated as a victory for partnerships, but the outcome is more complex than that. In rejecting the B.C. Court of Appeal’s bright line test in favour of a more nuanced control/dependency test, the Court is requiring each case to be determined on its facts, and keeping the door open to discrimination claims by partners who have less say in working conditions and are more financially dependent on the firm.

 

Topics:  Canada, Equity Investors, Partnership Agreements, Partnerships, Professional Services Companies, Retirement

Published In: Business Organization Updates, Civil Procedure Updates, Civil Rights Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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