McCormick worrisome for partnerships

Jim Middlemiss
The legal industry faces one of its biggest challenges in decades. It’s not external competition or even competition among firms. Rather, the Supreme Court of Canada is the culprit and depending on how it rules in McCormick v. Fasken Martineau Dumoulin LLP, it could lead to major upheaval in the way law firms manage their succession plans.

That’s because the case — scheduled to be heard in December — could turn the law of partnerships in Canada on its head, impacting partnership agreements across the country. It’s not only the legal industry that has an interest in the case; every other profession that relies on the partnership model could be affected.

For those who haven’t been following it, Vancouver-based equity partner John Michael McCormick sued Faskens under B.C. human rights law because the partnership agreement required him to retire at 65, which is common among law firms. A mandatory retirement clause is important because it moves people out and allows the next generation to reap rewards of their hard work.

McCormick worked at Faskens for 40 years, since he was an articling student. He became an equity partner in 1979 as the firm built itself into one of Canada’s legal powerhouses, which surely gave him ample time to build a handsome retirement account.

According to court filings Faskens has about 650 lawyers globally, including 260 equity partners, 60 of them in Vancouver. Under the partnership agreement, McCormick was required to retire on Jan. 31, 2011. At 62, McCormick was required to prepare a practice transition plan, a provision he had voted for as a partner. Agreements for working past 65 were at the discretion of the firm managing partner and were the “exception rather than the rule,” according to the partnership agreement. Despite conversations, no agreement was reached concerning McCormick’s continuing role in the firm.

In December 2009, McCormick, who previously sat on the firm’s executive committee, complained to the B.C. Human Rights Tribunal that the partnership agreement discriminated against him based on age. Faskens responded by seeking to dismiss the complaint on the grounds the tribunal had no jurisdiction. The firm argued McCormick was not an employee — rather an owner — and no employment relationship existed that could be the subject of a complaint under s. 13 of the B.C. Human Rights Code.

McCormick argued Faskens and its management exerted control over most aspects of his working life and human rights legislation required a broad and liberal interpretation. The tribunal dismissed Faskens’ application. On judicial review, the B.C. Supreme Court sided with the tribunal. “Mr. McCormick was an equity partner with very little control over his work life, his remuneration, and his work product. . . . An individual partner is always subject to the wishes of the majority and the control exercised by the managing partners and the executive board. It is by these means that the firm represents a relationship with Mr. McCormick that is more reflective of an employer/employee relationship, favouring an overall finding that Mr. McCormick is ‘employed’ by Fasken for the purposes of the Code.”

The B.C. Court of Appeal, however, disagreed, calling it a “considerable over-reading” of the code. The appeal court ruled while a firm’s management may exercise aspects of control over the partners, similar to a corporation, “that does not change the relationship from one of partners running a business to one of employment by one group of partners over an individual partner.”

Let’s hope the Supreme Court of Canada sees it the same way. Human rights tribunals are becoming too intrusive in the business world. Ruling otherwise would open a hornet’s nest. What other employment legislation would suddenly apply to partnerships? Are partners subject to worker’s compensation payments or unemployment insurance? What about tax laws and the treatment of partnership income? Do partnerships suddenly become unraveled and years of planning laid waste and open to attack from who knows what angle?

Most partnership agreements have some sort of arbitration clause in place to protect a partner from disputes. There are also fiduciary duties partners owe to each other that should keep bad conduct in check. They don’t need human rights tribunals muscling in on their private ownership affairs and playing Big Brother.

McCormick enjoyed a long, successful, and, no doubt, lucrative career at Faskens. He did it thanks to partners before him who retired, creating opportunity for him. He owed it to upcoming lawyers to step aside gracefully and let younger lawyers have the opportunity to shine, not whine to a human rights tribunal and try to upend partnership law so he could continue to work.

It’s interesting to note that in 2008-09 and 2009-10, McCormick unsuccessfully appealed his compensation allotment. Sounds like partnership sour grapes to me; now the whole legal profession is being asked to pay the price.

Jim Middlemiss blogs at WebNewsManagement.com. You can follow him on Twitter @JimMiddlemiss.

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