By J. Geoffrey Howard

The recent decision of the B.C. Supreme Court in Fasken Martineau Dumoulin LLP v. McCormick has confirmed that even full equity partners in major consulting firms are protected by human rights legislation.  In a surprise result for these firms and their legal counsel, the court upheld a Human Rights Tribunal decision ruling that even the firm “owners”, the equity partners, can be deemed to be “employees” of the firm for human rights purposes and thus protected from any form of discrimination banned by the Human Rights Code.  With mandatory retirement no longer permitted under legislation across Canada, partnerships may no longer be able enforce their mandatory retirement policies.  Although likely to be appealed, the decision may well be upheld and serves as a wake up call to all employers, but particularly partnerships, about the wide application given human rights legislation.

Traditionally, legal, accounting, design, management  and some other consultancies have carried on business in the form of partnerships rather than corporations. As the larger ones grew to the point where the number of partners numbered in the hundreds with revenues comparable to those of major corporations, they have tended to develop corporate style management controls over partner work and pay.  While most firms equity partners, like those at Faskens, continue to vote on major matters, elect their managers for temporary periods of office, contribute to firm capital and share in profits rather than receive a fixed salary or bonus, they are also subject to firm policies and oversight by firm management.  In fact, the trend in larger partnerships has been towards a more “corporate” model under which managers, some of whom may not even be partners, or small groups of partners with management roles have wide powers to direct partners in their work and set their pay.

Many firms have mandatory retirement policies to encourage and, if necessary, force partners as early as their late 50s to age 65 to leave the partnership or step down to a lesser non-equity partner status.  In some of the “Big 4” accounting firms and international law firms, the retirement age can be as low as the upper 50s.  These policies were based on the view that older partners tend to be highly paid, yet less motivated and less productive, so that it is in the firm’s interest to have them transition out of equity partner status and to transition their clients and work to younger partners or employees.  At the time these policies were written, Canadian human rights legislation permitted mandatory retirement of employees, so mandatory retirement was permissible even for employees.

Both the legal and demographic landscape has changed in the past 10 years.  Human rights legislation across Canada has been amended to remove the exemption for mandatory retirement (and other adverse treatment) at age 65.  Over the same period, a series of decisions have seen Human Rights Tribunals stretch the scope of the protection of their statute to cover workers who would normally not be considered “employees” e.g. contractors, volunteers.  Meanwhile, the huge baby boomer cohort of partners is living longer, healthier lives and is more interested in working into their 60s.  Demographic data indicates the average Canadian worker retires around age 62 and the vast majority before age 65. However, equity partners in the professional firms are among those most likely to want to continue working longer.  While many will welcome a scaled down work commitment, a minority want to stay on at the pinnacle as an equity partner.

McCormick was one of those baby boomers.  He spent his entire career as a lawyer with Faskens and its predecessor firms.  When asked to step down on attaining age 65, he refused and filed a Human Rights Tribunal.  He argued that although an equity partner, with rights to vote on major matters, elect managers, and participate in profits and an investment in firm capital, he should still be treated as an “employee” under the broad language of the Human Rights Code.

The court rejected arguments made by Faskens that, as a partner and owner, McCormick along with other partners “was the firm” so could not claim discrimination by himself against himself.  The court found that there were contexts in which the law recognizes a partner and the partnership as separate entities and this was one of them.  The Court approved a multi-factored test for “employment” status under the wide definition in the Human Rights Code which considered various aspects of the relative power, control and dependency of the partner vis-à-vis the partnership.  The court agreed that the partnership’s control over McCormick’s work and pay justified applying the Code.  This preliminary decision will, if upheld, be effectively dispositive of the complaint, since there is little chance the firm’s mandatory retirement policy will be upheld if the Code applies.

Even if McCormick is successfully appealed (and it may well end up at the Supreme Court of Canada), partnerships operating in Ontario need to be aware of a little-invoked ban on discrimination in contracting in Ontario’s Human Rights Code. This presumably includes contracting with one’s partners and may lead to the same result for mandatory retirement provisions in partnership agreements in Ontario, typically the site of the largest offices of the major partnership businesses.

McCormick should serve as a wake-up call for all employers.  For non-partnership employers, it is reminder that the scope of employer obligations to ensure a discrimination free workplace is very broad and extends beyond just employees formally on the payroll.  For partnerships, particularly those with more formal policies and controls over partners as especially those with partners in Ontario, it is time to review partnership agreements and policy provisions for possible human rights violations.  Not only mandatory retirement policies but policies on partner selection, compensation and accommodation of maternity and disability leaves may come under human rights scrutiny.  In many cases, a full assessment of the need for existing policies in the face of shifting demographics and economics, along with the legal considerations above, may support a decision to amend these policies.

Geoffrey Howard is a partner in Gowlings’ Vancouver office specializing in the areas of employment and labour law, and civil litigation. He is the leader of the Employment and Labour Group for the Vancouver office. Geoffrey has extensive experience in representing both employers and employees in all aspects of the employment relationship. His litigation experience covers a wide spectrum of corporate/commercial matters, including construction and construction surety, product liability, insurance and debtor/creditor litigation, shareholders disputes and estate litigation.