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Equity partners can be forced to retire, SCC rules

|Written By David Dias

Mandatory retirement provisions within partnership agreements do not violate labour laws or human rights, the Supreme Court of Canada ruled today in McCormick v. Fasken Martineau DuMoulin.

Paul Boniferro says the decision speaks to the need for law firms to be innovative in finding roles for long-term partners who still want to contribute.

The highly anticipated ruling stems from a human rights complaint by then 64-year-old Vancouver lawyer Mitch McCormick, who wanted to continue working as an equity partner at Faskens. The firm’s partnership agreement required him to divest his stake in the firm when he turned 65.

McCormick argued before the B.C. Human Rights Tribunal that the retirement provision in Faskens’ partnership agreement constituted age discrimination.

Faskens moved for a dismissal, insisting McCormick, as an equity partner, was not entitled to protections afforded employees under the province’s Human Rights Code.

The tribunal ruled otherwise. It concluded McCormick was indeed engaged in an “employment relationship” and as such could not be forced to retire. A subsequent application by Faskens for judicial review at the B.C. Superior Court was denied. The B.C. Court of Appeal, however, granted leave and struck down the tribunal’s decision.

Today the SCC — in a unanimous ruling written by Justice Rosalie Abella — upheld the BCCA’s decision, reiterating the tribunal had no jurisdiction in the case.

According to the ruling, the determining factor in deciding whether someone working for a partnership is an employee or not are the dual concepts of “control” and “dependency.”

As the ruling states: “The more the work life of individuals is controlled, the greater their dependency and, consequently, their economic, social and psychological vulnerability in the workplace. . . . Control and dependency are a function not only of whether the worker receives immediate direction from, or is affected by the decisions of others, but also whether he or she has the ability to influence decisions that critically affect his or her working life.”

While McCormick was required to take direction from management, the court says this, on its own, does not meet the threshold for an employment relationship. It goes on to list the numerous ways in which McCormick could influence his role in a way impossible for a regular employee.

McCormick could vote for the firm’s board or even stand for election; he could inspect the firm’s accounts; he was free from dismissal or discipline and could only be expelled via special resolution; and, of course, he was entitled to his partnership stake upon leaving the firm.

Indeed, the decision states McCormick benefited from the mandatory retirement of his peers for decades before challenging the provision: “As an equity partner, and based on his ownership, sharing of profits and losses, and the right to participate in management, M was part of the group that controlled the partnership, not a person vulnerable to its control, and, for over 30 years, benefited financially from the retirement of other partners. In no material way was M structurally or substantively ever in a subordinate relationship with the other equity partners.”

“We are satisfied with the decision, which reinforces our understanding of the law in British Columbia surrounding the terms of partnership agreements. This is an isolated issue that is unprecedented at Fasken Martineau,” said William Westeringh, Fasken’s Vancouver managing partner, in a statement responding to the ruling.

McCormick’s counsel, Murray Tevlin, responded to the ruling via e-mail.

Tevlin points out, while his client’s circumstances did not qualify as an employment relationship, the SCC differed from the appeal court in leaving open the possibility an equity partner lacking sufficient control could be engaged in an employment relationship.

“The SCC found that the BCCA was wrong in focusing solely on the form of the partnership relationship, as opposed to its substance, causing the BCCA to conclude that a partner could never be granted the protection of Human Rights legislation,” Tevlin writes.

“The SCC determined that in some cases, a partner might have Human Rights protection. However the relationship of control and dependency, in this case, did not meet that threshold.”

Paul Boniferro, a labour lawyer and senior manager at McCarthy Tétrault LLP, says McCarthy’s own partnership agreement was never in doubt, but he’s pleased with the ruling nonetheless.

More importantly, Boniferro says the court’s decision speaks to the need for law firms to be innovative in finding roles for long-term partners who want to continue to contribute.

“It’s not just a matter of a partnership agreement or whether a human rights code exempts partnership agreements from coverage. The more important and pressing issue for firms to deal with, I think, is how to deal with its aging population.”

Boniferro says the ruling will settle for some time the festering debate over whether the “corporatization” of law firms — which now include management teams, boards of directors, and in some cases international divisions — has diminished the role of the partner.

“Ultimately,” he says, “the court found that one’s control over their practice, their clients, and the people they work with leads to the same conclusion, which is ‘No, you’re not an employee, you are a partner, a part owner, and you do have that control.’”

Asked whether this ruling is bound to be revisited, as firms get larger and larger, with multiple hierarchical partnership tiers, Boniferro says it’s quite likely.

“If law firms continue to evolve and change, then — just like 20 years ago nobody would have ever expected a challenge under this type of arrangement — in the next 10 to 20 years, yeah, I think somebody will look at it again.”

By then, however, Boniferro hopes firms will be ahead of the issue, with new policies that aim to keep valuable talent in place.

“These are partners who have been there for a very, very long time, and to have them walk across the street and work at another firm — you know, you've lost a huge investment in client relationships and in training, skills, and development, and the wisdom and institutional knowledge that that particular partner would have in your firm.”

Update 3:40 pm.: comment from Faskens


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