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Good intentions, but what about practical implications of Swain?

Trials & Tribulations
|Written By Gillian Hnatiw
Good intentions, but what about practical implications of Swain?

Mandatory retirement policies are touchy subjects for most equity partnerships. On the one hand, they can result in partners who built a firm, or at least made it run for many decades, being forced out. On the other hand, they help ensure there is room in the partnership for upcoming legal talent who will sustain and grow the firm’s business for years to come.

My (very unscientific) research on the issue suggests there are mandatory retirement policies in place at many mid- to large- size firms, the majority of which require partners to de-equitize around the age of 65. For sound business reasons, most firms have decided that the future must trump the past.

The members of a firm’s “old guard” can be understandably unhappy about finding themselves forced to retire, or at least de-equitize, before they are ready. Disputes arise. Tough internal conversations take place all the time. Most, I assume, are resolved quietly and (semi) amicably.

Sometimes, however, these disputes bubble to the surface. A few years ago, a mandatory retirement dispute between Fasken Martineau DuMoulin LLP and an equity partner in the firm’s Vancouver office spilled into the public realm when the partner, Mitch McCormick, filed an application with the B.C. Human Rights Tribunal alleging discrimination on the basis of age. The case eventually ended up before the Supreme Court of Canada, which dismissed McCormick’s application on the grounds he was not an “employee” within the meaning of the B.C. code.

At the time, the ruling was widely touted as putting the issue of mandatory retirement to bed. Human rights codes, however, differ from province to province. Many of those who took a closer look at the issue speculated that the case, if brought in Ontario, would have ended differently. A recent decision from the Human Rights Tribunal of Ontario appears to affirm this speculation and to open the door to a challenge of mandatory retirement policies within the province’s partnerships.

The case of Swain v. MBM Intellectual Property Law arises from a dispute between three of the four founding partners of an intellectual property firm formed in 2008. A subsequent breakdown in relationships resulted in the applicant, Swain, being shut out of all management decisions and eventually removed from the partnership. She commenced an application to the tribunal alleging discrimination by the partnership on the basis of gender, family status, and perceived disability.

The respondents sought to have the application dismissed on the basis the ruling in McCormick precluded the application from being protected as an “employee” given her role as an equity partner with the firm. They also submitted that the “right to contract on equal terms,” as provided by s. 3 of the code, relates to only to the formation of contracts and was thus not engaged by the facts.

The tribunal rejected both of these arguments and found that Swain, notwithstanding her status as an equity partner of a small firm, was entitled to invoke the protection of the code.

It also concluded s. 3 applies equally to the formation, duration, and dissolution of contracts.

In reaching its conclusion, the tribunal distinguished McCormick by pointing to a number of differences between the Ontario and B.C. statues. Among the key distinctions, Ontario’s legislation affords unlimited protection to the social area of “contracts.”  Further, in contrast to B.C., it is silent on the definition of the term “employee.”

Relying on these distinctions, the tribunal directed that “partnerships do not create a ‘human rights free zone’” and that the applicant need only plead discrimination in the area of contract in order to invoke the protection of the code.

Although only an interim decision, both parties made lengthy submissions on the application of McCormick and asked the member to rule on the issue. Consequently, the ruling is effectively final vi-s a- vis this case. Whether it will be followed in future cases remains to be seen.

The tribunal’s intentions may be laudable. However, when considered in the context of mandatory retirement, one wonders about the practical implications of the decision.

Firstly, from a business perspective, prohibiting mandatory retirement fetters the ability of partnerships to impose succession plans and safeguard their long-term viability.

Secondly, it may prove apposite to the code’s express aims, which are to achieve substantive equality and eliminate discrimination. Demographics in the legal profession being what they are, the cohort nearing partnership is far more diverse that the cohort nearing retirement. The latter must cede room for the former in order for partnerships to achieve the type of equality envisioned by the code.

Private partnerships in Ontario, legal and otherwise, would be wise to stay tuned as this issue unfolds.

  • Prof.

    Stephen Scott
    Is the firm in existence for its own sake so as to justify policies and rules which ensure that "there is room in the partnership for upcoming legal talent who will sustain and grow the firm’s business for years to come"?

    The competition here seems to be between a form of distributive justice envisaged by the Human Rights legislation and a different form directed so some concept of inter-generational distributive justice envisaged by the author here.

    I think that the partnership is a business enterprise which (subject to statute) is, and in any case ought to be, property of the partners whose interests should be exactly as defined by the partnership agreement. If the law makes that impossible, maybe (regrettably) interests should become subject to definition by share capital.