January 21 2007 - Research conducted on behalf of City law firm Fox Williams by the Financial Times Research Centre considers the impact on senior and managing partners in leading UK law firms of the Age Discrimination Act which came into force on October 1, 2006. The new regulations make it unlawful to discriminate on grounds of age and override any pre-existing agreements. Claims for compensation can result in unlimited awards.
In what is described as 'profound cultural change' for many law firms, remuneration will be linked to performance and productivity rather than the traditional emphasis on experience and loyalty. More partners may continue working beyond their 50s unless stringent criteria for a compulsory retirement age can be met or inadequate performance demonstrated.
Key findings include:
Two thirds of respondents thought their current use of post qualification experience for pay reviews was still justified. However, three quarters conceded that there will have to be less emphasis on this in future. Some acknowledged that they might be more reluctant to hire older senior laterals in the absence of a guaranteed retirement age.
Most of the 25 firms surveyed operate a lockstep system rewarding partners by length of service. The researchers found it surprising that all but one expected this to continue despite the new Act. The majority suggested their current system is based partly on performance or merit. One firm justified lockstep because it had the approval of partners.
The majority of respondents thought the new legislation's greatest impact would result from the difficulty of justifying a compulsory retirement age for partners. Firms surveyed who currently have a fixed retirement age (24 out of 25) stated it was needed to encourage recruitment of more young people.
One respondent commented:
"The only way to retain a healthy business is for partners to retire at a reasonable age so that young people will want to join. We want them scratching at the door."
All but one of the firms surveyed had appraisal arrangements in place, but over 90 per cent said that these would need to be made more formal and rigorous.
"We need to be more bureaucratic in how we go about our measurement of partner performance, establishing benchmarks, better documentation."
The researchers suggest that the potential for unlimited compensation claims for breaches of the Act gives partners a powerful negotiating weapon. They found that 24 out of 25 respondents thought this would be used to secure enhanced retirement terms.
18 out of 25 respondents felt strongly that the Age Discrimination Act will result in unwelcome cultural change for law firms.
"Things will be less cosy. And it might weaken partner loyalty and partnership cohesion."