KPMG and Ernst & Young have engaged in the long-standing and widespread practice of retiring partners as young as 58 years old in what legal experts have warned is a clear case of unlawful age discrimination.
The firms’ partnership agreements, seen by The Australian Financial Review, include clauses that either mandate or “expect” partners to retire at 58 or 60 unless the CEO makes an exception.
Lawyers said the clauses, which are understood to be commonplace among the more than 1000 partners at the two firms, appear to breach discrimination law and could leave the firms vulnerable to court orders for unlimited compensation.
Specific retirement ages have traditionally been used in partnerships as a way of making room for newer partners.
At rival Deloitte, partners are expected to retire at 62 while PwC denied it had any specified retirement age. The Financial Review has been told that PwC partners understand they will have to step down from as young as 55 years old.
EY’s agreement says “a partner shall retire on his normal retirement date”, which it defines as 60 years old. The firm did not respond to questions about its partnership contracts.
In KPMG’s agreement, a clause headlined “Voluntary Age Retirement” outlines that “the firm expects a partner to retire on the earlier of the June 30 or December 31 next following the partner attaining 58 years of age”.
In the two years before the partner reaches 58, the CEO assesses the partner’s performance and will “discuss with the partner his or her ongoing contribution to the partnership”.
A KPMG spokeswoman confirmed “we regularly have conversations with our partners around the age of 58 in relation to their careers at the firm”.
“These conversations relate to performance, client needs and provide a catalyst to support partners who wish to transition to other careers.
“Partners voluntarily retire from the partnership at different ages and we do have partners who are older than 58 – including around 20 partners currently.”The Financial Review understands that PwC expects partners to retire at 55, while those at Deloitte say the firm’s age requirement is 62.
PwC managing partner for people, partnership and culture Helen Fazzino strongly denied that was the case.
“PwC partners choose to retire from the firm at a diverse range of ages and there is absolutely no expectation, mandatory or otherwise, that partners should retire at a certain age,” Ms Fazzino said.A Deloitte spokesman said the firm “works closely with all partners on their individual career transitions, with many partners continuing to work with the firm well after their retirement as partners”.
Age clauses ‘unenforceable’
Legal experts said they were astonished to see the retirement clauses. The Age Discrimination Act prohibits companies treating people differently based on age, and its reach extends to partnerships of more than six partners.
Andrew Jewell, a principal at employment law firm McDonald Murholme, said if a partner refused to retire at the expected age and was sacked they would win a discrimination case.
“I have a very, very strong view that that is an inherently discriminatory clause and completely unenforceable,” Mr Jewell said.
Carol Andrades, consultant to Ryan Carlisle Thomas and an expert in discrimination law, said it did not matter if a firm phrased retirement ages as an expectation rather than a requirement since it would still be treating someone differently based on their age.
“A contract that subjects a partner to an age-triggered, specially-tailored performance management would also violate the age discrimination act because it would be subjecting to detriment.”
The age clauses have been used to make room for younger partners, said Andrew Jackson, an executive search consultant and partner at Maven Partners, who specialises in executive search for professional service firms.
“It stems from creating new opportunities to partners coming through,” he said. “They are effectively saying, ‘you’ve had your time in the sun, it’s now time to create opportunities for younger partners’. The presumption is you’ve made good cash, you’ve worked hard and it’s now time to sail off into the sunset.”
He said that while individual partners may not want to retire, the expectation is built into the role from when they sign on as partners.
“[Those who don’t want to retire] have a lot that they feel they can contribute,” Mr Jackson said. “They have a client relationship they want to keep going. These are intelligent people who have been busy for the majority of their career and they don’t want to sit at home.”
Reference: KPMG, EY partner retirement ages are ‘unlawful discrimination’ , The Financial Review, Tuesday 1st May 2018.