Jonathan Cohen QC acted for the Appellant, instructed by CM Murray LLP.
Factual Background
The Claimant had been an equity partner in the Respondent LLP. Clause 29 of the Membership Agreement of the LLP made provision in relation to retirement of members (both equity and other partners) who reached the age of 60.
Clause 29 of the Membership Agreement
Clause 29 provided:
29.2 Subject to clause 29.4, each Member shall in any event retire on the Accounts Date next following his 60th birthday (the Normal Retirement Date).
…
29.4 Subject to the approval of the Partnership Committee, the Managing Partner may extend the Normal Retirement Date of an individual Member in circumstances where that Member indicates he wishes to continue as a Member or if the Managing Partner asks the Member to continue as a Member. The Managing Partner may only agree to such an extension where he objectively considers that there is a valid business case for so doing, having reference to the on-going contribution to the LLP Business by the Member concerned and the matters set out at clause 29.5. Any agreed extension shall be for a specific period of time, the conclusion of which will represent the Member’s Normal Retirement Date and shall be on such terms as to remuneration and otherwise the Managing Partner may determine. The Managing Partner may alternatively agree that any retired Member may be employed by the LLP on such terms as the Managing Partner shall determine.”
Prior to his 60th birthday, the Claimant sought to extend his retirement from the Equity Partnership. The Managing Partner chose not to exercise his discretion under clause 29.4 of the Membership Agreement to extend the Normal Retirement Date. Instead, he recommended to the Partnership Committee that the Claimant be permitted to remain a member of the LLP as a Partner for two years after his retirement date. The Partnership Committee accepted that recommendation.
On 13 October 2017, the Claimant and the LLP entered into a Deed, referred to as a ‘‘De-Equitization Agreement,’’ setting out the terms upon which the Claimant would remain a member after 30 April 2018 (his retirement date under Clause 29.2 of the Membership Agreement). The deed provided that after 30 April 2018 he would cease to be an Equity Partner under the Membership Agreement and would become a normal Partner. As a consequence of the De-Equitization Agreement he would lose any right to distribution of capital profits. Further, he would remain an ordinary Partner for two years.
Employment Tribunal Proceedings
The Claimant subsequently brought a claim for direct age discrimination under sections 13 and 45 of the Equality Act 2010 against the Respondent LLP, the Managing Partner of the LLP and members of the LLP’s Partnership Committee, on the basis that clause 29 of the Membership Agreement involved the application of a mandatory retirement age and thus direct age discrimination. Further on the basis that the de-equitization, which took effect on 30 April 2018, was also direct age discrimination.
At first instance an issue arose as to whether the claim had been issued in time. The Tribunal determined that the Respondents’ acts complained of amounted to ‘‘conduct extending over a period’’ of time within the meaning of section 123(3)(a) EqA 2010 and thus that the claim had been issued in time. The Respondents appealed to the EAT and the EAT held that there had been no ‘‘conduct extending over a period’’ of time beyond 30 April 2018, and that the claim was therefore outside of time. The Claimant appealed to the Court of Appeal.
The decision of the Court of Appeal
In a unanimous Judgment delivered by Lord Bean, the Court of Appeal held that the exercise of clause 29.2 by the Partnership Committee was a ‘‘one off decision’’ which took effect as of 30 April 2018 as opposed to ‘‘conduct extending over a period,’’ for the purposes of section 123(3)(a) Equality Act 2010.
In reaching that conclusion, the Court of Appeal reasoned that:
- Following the decision of the House of Lords in Barclays Bank v Kapur [1991] 2. A.C 355, the critical distinction is between a ‘‘one off decision’’ and a ‘‘continuing act or continuing state of affairs.’’[1]
- Accepted the Respondents submission that Clause 29.2 could only be applied once to any individual. In the Claimant’s case it was applied on 30 April 2018 following de-equitisation, following which it was no longer in action.[2]
- The specific act of which the Claimant complained was the act of de-equitisation, which was a demotion.[3]
- There was no logical reason why a demotion should be treated differently to a dismissal, which is a ‘‘one-off act’’ with continuing consequences, rather than ‘‘conduct extending over a period,’’ even though the dismissed employee may suffer loss of pay and pension for the rest of his life.[4]
- Rejected the Appellant’s submission that the very existence of clause 29.2 is a discriminatory act which continues for as long as the parties remain in any contractual relationship. The Court of Appeal held it was artificial to divorce clause 29.2 from 29.4 and to ignore the evidence that some equity partners were allowed to continue in post beyond the age of 60. Following Rovenska v General Medical Council [1998] ICR 85, there is a distinction when analysing whether the conduct complained of is an ‘‘act extending over a period,’’ between a rule, policy or practice which inevitably leads to the rejection of the Claimant and one which involves in practice the exercise of discretion.[5]
- Cases like Aimes v Inner London Education Authority [1997] 2 All E.R. 100 and Sougrin v Haringey Health Authority [1992] ICR 650 involved ‘‘one off acts’’ and not policies. This was in contrast to absolute rule cases like Calder v James Finlay Corp [1989] I.R.L.R. 55 andBarclays Bank v Kapur [1991] 2. A.C 355.[6]
- Obiter expressed that a policy ramification of holding that clauses like 29.2 were continuing acts would be to encourage greater ruthlessness by partnerships and LLPs in making sure that a retirement age clause is put into effect so as to terminate the relationship altogether rather than allowing the former Equity Partner to continue in the lesser status of salaried Partner, as to do the latter would leave the partnership exposed to a discrimination claim for as long as any contractual relationship existed between the parties.[7]
The ramifications of Parr
The Court of Appeal’s decision has significant ramifications for Equity partners seeking to bring Equality Act claims in the Employment Tribunal, following a discretionary decision to demote them from or not maintain them in Equity Partnership. Where such a decision is accompanied by an offer to the partner to remain involved with the firm or LLP in a different capacity (e.g. as employee or as a non-equity partner) it is apparent that time limits will be running despite that continued involvement. Equity Partners demoted to salaried Partner or consultancy status will therefore have to weigh up very quickly the financial losses potentially attributable to loss of Equity Partner status, as against the immediate benefits of release of any capital sum invested in the LLP and the promise of some further income. Where the scales are tipped in favour of protecting the former, following Parr Equity Partners should act promptly in bringing proceedings within the primary limitation period, or else will be required to satisfy the ‘‘just and equitable’’ provisions of section 123(1)(b) Equality Act 2010.
The decision in Parr nevertheless leaves room for future litigation where the terms of the Membership Agreement provide for the application of discretion on a continual basis, for example, a clause giving members the discretion to extend Equity Partnership beyond mandatory retirement age on a defined periodical basis. When drafting Membership Agreements Partnership specialists should be mindful that this approach could tip the agreement into ‘‘continuing acts’’ territory, fettering the partnership’s flexibility to retain talent by foreshadowing the policy consequences spelt out at paragraph [46] of the Judgment in Parr.
[1] [38].
[2] [41] and [45].
[3] [42].
[4] [42].
[5] [43].
[6] [43].
[7] [46].
