Partners Beware: Mandatory Retirement Is Okay

The Supreme Court of Canada recently held that a partnership’s mandatory retirement policy was not arbitrarily discriminative, as a partner is not an employee.

The case also provides additional guidance on what constitutes an employee–employer relationship for tax purposes.

In deciding whether someone is in an employment relationship, the Court examines how the “two synergetic aspects function in [the] employment relationship: control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of a worker.” The responsibility for determining working conditions and financial benefits is a large factor. Dependency and psychological vulnerability are key issues to be weighed as well.

The finding in McCormick v. Fasken Martineau DuMoulin LLP (2014) SCC 39, was largely as a result of the private agreement that was made between the partners at the law firm. The appellant, McCormick, became an equity partner at a large Vancouver law firm in 1979. As an equity partner, McCormick had an ownership interest in the firm.

Not long after McCormick became a partner, he voted with the other equity partners to adopt a provision in their Partnership Agreement that required equity partners to retire as such and divest their ownership shares at the end of the year in which they turned 65. There were some provisions in the agreement that would allow lawyers to continue after age 65 in different capacities, but these were exceptions to the general rule.

The Court in McCormick held that the appellant was not discriminated against when his firm upheld the internal agreement. Interestingly, the Court did not close the door completely on the applicability of the B.C. Human Rights Code (the Code) to partnerships, stating at paragraph 46 that its decision "is not to say that a partner in a firm can never be an employee under the Code, but such a finding would only be justified in a situation quite different from this case, one where the powers, rights and protections normally associated with a partnership were greatly diminished."

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.