Few people enjoy sitting down with a colleague and telling them they are not cutting the mustard. For partners in professional practice, managing fellow partners is often even less appealing, as those colleagues are usually their peers. Yet mishandling of underperforming partner exits are, in our experience, the most significant source of unlawful discrimination complaints by partners.
An LLP member cannot also be an employee of the LLP (Clyde & Co LLP and another v Bates van Winkelhof [2014] UKSC 32). This means (amongst other things) that they do not have unfair dismissal rights or the right to statutory notice. However LLP members are usually workers for discrimination and whistleblowing purposes. As a result, a poorly handled departure could have employment law consequences. Partners in a traditional partnership are protected from unlawful discrimination under the Equality Act 2010.
Partners are often shocked, angry and confused when they are asked to leave and told the reason is their performance. If there has been no warning, it can be hard for them to accept the decision. Often the LLP agreement will give the firm the right to expel the partner or to serve notice of retirement, sometimes with a right of appeal. However, most firms are reluctant to use such powers, seeking instead to agree an amicable exit. The lack of information, warning and communication can create resentment and a sense of unfair treatment. This will inevitably make an amicable exit harder to achieve. It also increases the risk that the anger and resentment in the exiting partner will be channelled into a claim of discrimination and of acting in bad faith against the firm and senior management.
All types of discrimination, and in LLPs allegations of whistleblowing, can arise, but age, sex and disability discrimination are probably the most common forms of discrimination claims we encounter when advising firms and partners who are asked to leave on the grounds of poor performance.
Allegations of sex discrimination are sometimes made when a firm raises concerns about the performance of a partner who has recently returned to work after a period of maternity leave. Taking action on the grounds of performance, or to otherwise treat the partner unfavourably or less favourably in such circumstances (for example with regard to profit allocation or promotion to full equity status), without any evidence that the concerns are genuine and that attempts have been made to improve performance, will expose the firm to potential claims of unlawful discrimination on grounds of pregnancy, maternity leave or sex. Allegations of age discrimination often arise when a firm seeks to retire an underperforming partner, and can be harder to defend if the poor performance has not been documented.
Although most employers have formal performance management policies and procedures to deal with employee underperformance, few have equivalent policies for dealing with partner performance issues.
The importance of managing and documenting partner performance: Fennell v Foot Anstey
In Fennell v Foot Anstey LLP UKEAT/0290/15/DM, the firm faced an age discrimination claim from a partner who was given notice following a restructure of the partnership. The firm moved to a new structure which involved the removal of the limited equity partner (LEP) status which Mr Fennell held, and the introduction of a new grade of equity partner and a new employed legal director status.
It adopted a “multi-factorial approach” to determine which of the existing LEPs would be offered the new equity partner status and which the employed role. Each LEP was assessed individually based on financial performance, partnership criteria, practice area, personal circumstances and most importantly, potential for business development. As part of that process the firm looked at individual billing data for the previous two years, group leader comments, each partner’s last appraisal and 360 degree feedback information.
Prior to the restructure Mr Fennell was put through a formal performance review process as an alternative to removing him from the partnership. He failed to hit the major target set for him and the firm gave him direct feedback to that effect. This was taken into account in the firm’s assessment of him during the restructure and he was ultimately offered the employed legal director role, not the new equity partner role.
He objected to that decision and with no other role on offer, was given notice and retired in July 2014, aged 52.
His claim for age discrimination was rejected by the employment tribunal and the employment appeal tribunal. He claimed that he was being treated less favourably than younger partners on grounds of age, and put forward statistical evidence which tended to show that the prospect of becoming an equity member in the firm did in fact diminish with age.
The EAT was satisfied that the reason he had not been offered the new equity partner status was because of his performance and not his age. The statistical evidence in itself was not considered to be enough to show a clear link between the firm’s treatment of Mr Fennell and his age. The younger LEPs who were given the new equity role, to whom Mr Fennell had compared himself, were not appropriate comparators. This was because there were material performance differences between those partners and Mr Fennell. The tribunal was entitled to find, on the basis of the firm’s evidence, that its decision was based not on Mr Fennell’s age but on its concerns regarding his ability to generate business and its loss of confidence in his ability to take the business forward.
This decision demonstrates the importance of dealing with partner performance issues when they arise. Foot Anstey used a thorough appraisal process, a performance management process with set targets, and objective assessment criteria in the restructuring process. They also documented their decisions, discussions and correspondence. This evidence was critical in their successful defence of Mr Fennell’s claim.
Having a properly documented and consistently applied rigorous partner appraisal and performance management process, with clear expectations, honest feedback and appropriate support, will go a long way to help firms defend allegations of unlawful discrimination (and in the case of LLPs, whistleblowing). LLP and partnership agreements should also set out the grounds and processes for exiting a partner on grounds of performance, and other reasons, to help address any allegations that the firm or senior management have acted in bad faith or in breach of the partnership or LLP agreement terms.
