Supreme Court of Canada Upholds Mandatory Retirement Clause in Partnership Agreement

May 26th, 2014 by

Supreme Court of Canada Upholds Mandatory Retirement Clause in Partnership AgreementOn May 22, 2014, the Supreme Court of Canada released a key decision involving the scope of the employment relationship and human rights law in Canada. In McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39, the SCC unanimously dismissed an appeal from a decision of the British Columbia Court of Appeal holding that an equity partner of a law firm was not an employee within the meaning of British Columbia’s Human Rights Code (the “Code”).

M was an equity partner for 30 years in the Vancouver office of an international law firm. Not unlike other partnership agreements, this firm’s partnership agreement required its equity partners to retire at age 65. Shortly before reaching the mandatory retirement age, M filed a complaint with the B.C. Human Rights Tribunal arguing that the mandatory retirement provision in the law firm partnership agreement constituted age discrimination in employment, contrary to S. 13(1) of the Code (which is similar to s. 5(1) of the Ontario Human Rights Code). Section 13.(1) of the Code provides that a person must not refuse to employ or refuse to continue to employ a person or discriminate against a person regarding employment or any term or condition of employment because of a number of enumerated grounds, including age.

The SCC considered the issue of whether an equity partner was engaged in an employment relationship for the purposes of the Code and delineated the applicable “control/dependency test”: 1) who is responsible for determining working conditions and financial benefits and 2), to what extent does a worker have an influential say in those determinations. The more the work life of individuals is controlled, the greater their dependency and, consequently, their economic, social and psychological vulnerability in the workplace.

Generally, control over workplace conditions and remuneration is with the partners who form the partnership and as such, partners are typically not employees of the partnership. Rather, the partners are considered collectively as the employer. In applying the control/dependency test and considering M’s ownership, sharing of profits and losses and right to participate in management, the SCC concluded that M was part of the group that controlled the partnership, not a person vulnerable to its control. The SCC held that in the absence of any genuine control over M in the significant decisions affecting the workplace, there cannot, under the Code, be said to be an employment relationship with the law firm.

Notably, the SCC suggested the possibility of a partner in a firm being labelled as an employee under the Code but that such a finding would only be warranted in a situation quite different from this case, one where the powers, rights and protections normally associated with a partnership were greatly diminished.

While McCormick was decided under the provisions of the B.C. human rights legislation, the common law principles applied by the SCC will likely have broad application to human rights and employment law in Ontario. Stay tuned!

The full decision can be found here.

For any employment related questions, please feel free to contact our Employment Law Group at Devry Smith Frank LLP.

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