Developing new leaders—and giving them the roles and responsibility necessary to keep them happy and help the firm move forward— is critical to every accounting firm. However, the flip side of giving opportunities to the next generation is that such opportunities have to be either created anew or taken from older members. (For ease of reference, we use the terms “partner” and “member” interchangeably in this article to refer to partners, members, shareholders, and other, similar classifications, and we use the term “partnership agreement” to refer to the operating agreement of your business, regardless of whether it is a partnership, an LLC, or other structure.) Age-based mandatory retirement programs have long been used as a clear-cut way to move older partners on and give younger ones greater opportunities, but these policies can open the door to age discrimination claims. If your firm wants to transition responsibility from one generation to the next, it’s critical that you do so in a way that doesn’t violate age discrimination laws.

The federal Age Discrimination in Employment Act (ADEA) protects individuals aged 40 and over from adverse action relating to their employment; there are similar provisions in state and local law, although the rules may differ. Many assume that partners of professional services firms aren’t protected by age discrimination laws, but unfortunately it’s not that simple. There are some partners who would be deemed to be “employers” and fall outside the ADEA’s protection (we will refer to these partners as “owners”), but there are others—including some who have equity in the firm—who could be considered “employees” covered by the ADEA. The key is understanding not only which partners qualify as owners, but also how to build a viable succession plan that doesn’t run afoul of the ADEA.

Originally published at the CPA PRACTICE MANAGEMENT FORUM.