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B.C. Court Confirms that Law Firm Partners are “Employees” Under Human Rights Legislation

UPDATE:  July 2012:   Court of Appeal overturns the Tribunal and B.C. Supreme Court, and rules that the partnership cannot be legally distinguished from the partners so that a partnership cannot employ a partner.   Here is the decision of the BCCA.  Onward and upward to the Supreme Court of Canada…

I explain the background and lower court/tribunal decisions in this post from June 2011.

The B.C. Supreme Court has upheld the Human Rights’ Tribunal ruling that partners at the law firm Fasken Martineau are “employees” for the purposes of the Human Rights Act.    I explained the background to this case back when the Human Rights Tribunal issued its decision.

Here is a Globe and Mail story reporting on the court decision released earlier this month.  Recall that the issue is whether a law firm partner is an “employee” under the B.C. Human Rights Code.  That issue arises because a senior partner of the firm to step aside as an equity partner when he turned 65, as required by the firm’s partnership agreement.   Instead, he challenged the mandatory retirement provisions in that agreement by filing an age discrimination complaint under the Code.  This case is about Fasken Martineau, but most other major law firms have some form of mandatory retirement system, so the case will impact other Canadian law firms.

The law firm argued that there is no “firm” separate from the individual partners.  Therefore, since McCormick was himself a partner, he could not be an employment relationship with “the partnership”;  he cannot bring a complaint against himself.  The Tribunal and the Court reject that argument.  The Court referred to both the Partnership Agreement and statute.  The Agreement includes a number of sections that make clear that there is a “firm” that is a distinct entity from the individual partners.  The judge also notes that the particular form of partnership adopted by Fasken–and most other law firms, for that matter– is a Limited Liability Partnership (LLP), and an LLP, as defined in the Partnership Act, “significantly erodes the common law concept of partnership as merely a collective of partners without a separate identity.”  The judge finds that a LLP is closer to a typical corporation than a pure partnership to the extent that it creates a distinct legal status for the firm separate from partners, which supports the interpretation that an LLP is distinct from the partners that comprise it.

The judge finds that there is a distinction between the management of the firm (the executive board) and the “rank and file partners” such that the latter can bring a human rights complaint against the former. A key finding in this case is the degree of control that the management committees excerpt over the regular partners.  The Court:

The fact that the Fasken equity partners are in business together for their mutual profit is not incompatible with a finding that they are also in an employment relationship, broadly defined, because of the significant amount of control exercised by the firm’s management over the services that an equity partner provides and the intellectual property he produces. Fasken does not dispute the wide variety and extensive nature of the control its board and managing partners exercise over Mr. McCormick’s work life, as described at para. 119 of the McCormick 2010 BCHRT decision. While in other partnerships the contract governing their relationship may not repose in a small group the power to manage the business of the firm, and the authority to exercise employment-like controls over the actions of the partners and their work product, Fasken’s partnership agreement clearly contemplates the kind of control that is traditionally present in an employer/employee relationship. In particular, the partnership agreement authorizes management control over what services the equity partner provides, how he provides those services, who he offers services to, the time he must devote to the business of the firm, what compensation he is entitled to receive, and when he must leave the firm.

Mr. McCormick’s annual compensation is determined by a compensation committee whose decision is based upon the criteria dictated by the board. Many of these criteria involve a subjective judgment that is not easily questioned by an individual partner and other criteria, such as peer review, that are entirely out of the equity partner’s control. The fact that the firm, through its management arm, is both responsible for paying remuneration and determining compensation criteria supports a conclusion that the relationship is not just a business relationship.

A variety of “tests” are applied in  cases where the question of employee status is at issue, however, at the end of the day, the central question always come down whether the person looks more like an employee or an independent entrepreneur in business for them self. Here the partner looks much more like an employee than an independent business because of the extent of control the firm’s management has over him.

Note that so far all that has been argued is whether the Code applies.  The Tribunal has not yet turned its mind to whether the lawyer was discriminated against.  Here’s an exercise for my employment law students:   Read section 13 of the B.C. Code, which prohibits discrimination in employment on the basis of age.

If the Code applies, can you think of any way that the following clauses in the Fasken partnership agreement (cited in the Tribunal decision) do not violate the ban on age discrimination in the Code?

Each Equity Partner shall retire as an Equity Partner at the end of the Year in which the Partner reaches the age of 65…

Agreements for working past age 65 are at the discretion of the firm Managing Partner and will be the exception rather than the rule.

To exceptions to age discrimination apply in Section 13.  The first is when age is tied to “a bona fide scheme based on seniority”.  Even if that section applied to forced retirement, it wouldn’t apply here since there is no seniority system at Fasken (or any other law firm I know of).  Seniority systems are mostly found in unionized workplaces.

The other exception applies when “age” is tied to a “bona fide occupational requirement“.    Would that apply here?  Do you think that being younger than 65 is a bona fide occupational requirement of practicing law?

[Hint:  mandatory retirement for federally appointed judges in Canada is 75 years old.]

Are there other defences open to Faskens’?



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