Ruling will influence partnership structures and could open door to litigation
By Sandra Rubin
CALL IT THE LAW of unintended consequences. When Mitch McCormick, a partner for 40 years at Fasken Martineau DuMoulin LLP, fought mandatory retirement as age discrimination, his name became synonymous with whether law firms can enforce partnership agreements requiring partners to step aside at 65.
The Supreme Court of Canada ultimately held they can, at least in BC. But the decision may see McCormick remembered for something else. The ruling says partnerships must treat partners “with the utmost fairness and good faith,” a fiduciary level that leaves firms open to a flood of partner litigation, says Howard Levitt of employment boutique Levitt & Grosman LLP.
“Let's just say you're a partner and you're not well liked by the people on the management team,” says Levitt. “They decide, instead of giving you 20 points again next year, they're going to give you 17. ... This partner's now going to say, ‘Hey, wait a minute. That's not fair.' And if they sue, they'll get production of everybody else's draw, the criteria used to apply points and its application to every partner. I anticipate an onslaught of litigation between partners and the partnership over compensation.
“In fact, this decision is going to open up a whole new area of partnership litigation, and it won't be just about points. More significantly, partners can now challenge their terminations on the basis of the high standard in McCormick of ‘utmost good faith,' and the damages will vastly exceed those for wrongful dismissal. They will be damages for the entire time they might have worked — subject to mitigation, potentially 10 or 20 years.”
In its ruling, the top court said partners like McCormick have too much control over their position to be granted employee protections under human rights statutes. At a time when many large firms are centralizing their decision-making with a tight management group that can include a CEO and COO, that analysis is bound to cause some sober second thought on firm structures, says John Gilmore, co-leader of Bennett Jones LLP's employment group.
“I think law firms will study this decision as they evolve and restructure the administration and management of the partnership,” says Gilmore. “It's something they're going to have to consider when they're thinking about how they make decisions, whether they can give a central committee or even an individual the power to make policy decisions, terminate partners, structure and distribute profits.
“McCormick will definitely be considered when we think about delegating these decisions as opposed to steering them by consensus among the partnership.”
With waves of Baby Boomers hitting retirement age, the decision is an important one. Terrence O'Sullivan, a litigator at Lax O'Sullivan Scott Lisus LLP, who often acts for law firms, does not expect it to be tested anytime soon. “In terms of partnership agreements I have seen or been party to, there seems to be little room for another attack,” he says. “You can theorize about a benevolent-dictator law firm model, and I don't think anyone would suggest that non-equity partners are really partners within the meaning of this case, but beyond those two I see little room for an attack.”
Levitt, who wrote The Law of Dismissal in Canada (Carswell), disagrees and says the case's legacy is yet to be written. “Does it shut the door on the issue of mandatory retirement in law firms? Not at all. The decision is limited to BC because the wording of the BC [Human Rights] act is different than the wording of the Ontario act.
“So it shut the door to partners, in British Columbia, being mandatorily retired, but said nothing of the kind about other provinces. It's a very narrow decision.”
By Sandra Rubin
CALL IT THE LAW of unintended consequences. When Mitch McCormick, a partner for 40 years at Fasken Martineau DuMoulin LLP, fought mandatory retirement as age discrimination, his name became synonymous with whether law firms can enforce partnership agreements requiring partners to step aside at 65.
The Supreme Court of Canada ultimately held they can, at least in BC. But the decision may see McCormick remembered for something else. The ruling says partnerships must treat partners “with the utmost fairness and good faith,” a fiduciary level that leaves firms open to a flood of partner litigation, says Howard Levitt of employment boutique Levitt & Grosman LLP.
“Let's just say you're a partner and you're not well liked by the people on the management team,” says Levitt. “They decide, instead of giving you 20 points again next year, they're going to give you 17. ... This partner's now going to say, ‘Hey, wait a minute. That's not fair.' And if they sue, they'll get production of everybody else's draw, the criteria used to apply points and its application to every partner. I anticipate an onslaught of litigation between partners and the partnership over compensation.
“In fact, this decision is going to open up a whole new area of partnership litigation, and it won't be just about points. More significantly, partners can now challenge their terminations on the basis of the high standard in McCormick of ‘utmost good faith,' and the damages will vastly exceed those for wrongful dismissal. They will be damages for the entire time they might have worked — subject to mitigation, potentially 10 or 20 years.”
In its ruling, the top court said partners like McCormick have too much control over their position to be granted employee protections under human rights statutes. At a time when many large firms are centralizing their decision-making with a tight management group that can include a CEO and COO, that analysis is bound to cause some sober second thought on firm structures, says John Gilmore, co-leader of Bennett Jones LLP's employment group.
“I think law firms will study this decision as they evolve and restructure the administration and management of the partnership,” says Gilmore. “It's something they're going to have to consider when they're thinking about how they make decisions, whether they can give a central committee or even an individual the power to make policy decisions, terminate partners, structure and distribute profits.
“McCormick will definitely be considered when we think about delegating these decisions as opposed to steering them by consensus among the partnership.”
With waves of Baby Boomers hitting retirement age, the decision is an important one. Terrence O'Sullivan, a litigator at Lax O'Sullivan Scott Lisus LLP, who often acts for law firms, does not expect it to be tested anytime soon. “In terms of partnership agreements I have seen or been party to, there seems to be little room for another attack,” he says. “You can theorize about a benevolent-dictator law firm model, and I don't think anyone would suggest that non-equity partners are really partners within the meaning of this case, but beyond those two I see little room for an attack.”
Levitt, who wrote The Law of Dismissal in Canada (Carswell), disagrees and says the case's legacy is yet to be written. “Does it shut the door on the issue of mandatory retirement in law firms? Not at all. The decision is limited to BC because the wording of the BC [Human Rights] act is different than the wording of the Ontario act.
“So it shut the door to partners, in British Columbia, being mandatorily retired, but said nothing of the kind about other provinces. It's a very narrow decision.”
