12 December 2006
Law firms are to change due to the impact of the most significant piece of employment law in 30 years, according to research commissioned by City law firm Fox Williams among senior and managing partners of the top 100 law firms in the UK.
The introduction of the new age discrimination act will mean that partner remuneration will become less dependent on experience and more related to partner performance. Partners of all ages could expect formal ejection from the partnership if their performance is not up to scratch.
The new age discrimination act should also result in more partners staying in law firms beyond their 50s unless a law firm can justify having a compulsory retirement age or can demonstrate inadequate performance. Firms which have paid insufficient attention to remuneration systems or retirement may find themselves at the wrong end of age discrimination claims.
The age discrimination act will usher in a harsher, more performance driven culture among these traditional bastions of gentility and will wreak a profound cultural change that will undermine the collegiate nature of partnerships, elevating performance and productivity above the more traditional values of experience and loyalty.
Key findings of research
Two thirds of partners think that their current use of PQE (post qualification experience) for pay reviews is still justified.
On the recruitment front, three out of four law firms concede that there will have to be less emphasis on PQE in future. The age discrimination act may also affect senior lateral hires from other firms. Some considered that, without a guaranteed retirement age, they might be more reluctant to hire older laterals.
The lockstep system, by which partners are rewarded by length of service, is present amongst most law firms. Around half of the law firms questioned have a lockstep period of five years or less while other schemes are much longer.
Surprisingly, 24 out of 25 expect that lockstep will survive this legislation intact. The reason it will remain, say a majority of partners, is because their system is based, in part, upon performance or merit. One firm believed that lockstep was justifiable because it had obtained the partners’ consent and support.
- Retirement and succession planning
The majority of respondents saw the major issue of the age discrimination act as retirement age. The age discrimination act means that the imposition of a compulsory retirement age for partners will need to be justified according to very stringent criteria. The 24 out of 25 firms surveyed who admitted to having a fixed retirement age stated that it was required in order to encourage more young people to join firms.
“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.”
- Managing performance
Now that age alone can no longer be used to justify retirement or remuneration, law firms were almost unanimous in saying that they will have to make sure that they have a formal and rigorous performance appraisal system in place.
Although all but one of the firms surveyed had appraisal arrangements, over 90% of respondents said that they would need to establish a better, more formal system in future.
“We need to be more bureaucratic in how we go about our measurement of partner performance, establishing benchmarks, better documentation.”
Another contentious area that the age discrimination act brings is the potential for unlimited claims against firms by disgruntled partners for breaches of the age discrimination act. This gives partners a powerful weapon that could be used to negotiate better retirement terms. When asked would partners use this weapon? 24 of our 25 interviewees said ‘Yes’.
- Cultural change
18 out of 25 respondents felt strongly that the new law would create unwelcome cultural change for law firms.
“Things will be less cosy. And it might weaken partner loyalty and partnership cohesion.”
The new age discrimination act, which came into force on October 1 2006, is having a major impact on the employment practices of legal firms and on their partnerships. It is the single most important piece of employment law in 30 years.
The Employment Equality (Age) Regulations 2006 make it unlawful to discriminate against employees or partners on the grounds of age. They override any agreements between the parties (including partnership agreements). Both old and young are now able to bring a claim for breach of the new legislation and the compensation that can be awarded is unlimited and could run into millions.
This sobering thought is currently concentrating legal minds, many of whom have yet to take on board these changes. This survey aims to throw light on how law firms of varying sizes are coping with the huge implications of this highly contentious body of law.
The Fox Williams survey covers:
* General awareness of the provisions of the age discrimination act
* Impact of PQE (post qualification experience) on remuneration
* Attraction and retention of talent
* Profit sharing and lockstep
* Retirement and succession planning
* Compulsory retirement age
* Managing performance
* Cultural change
* The US experience
Fox Williams commissioned the Financial Times Research Centre to undertake the research among leading UK legal partnerships. The fieldwork consisted of 25 semi-structured, depth interviews, lasting around 45 minutes with senior or managing partners among the top 100 UK law firms in the UK. The telephone interviews were conducted in October 2006 by consultant-level interviewers, who found a high level of interest among senior lawyers currently grappling with the new laws.
Notes to editors:-
Tina Williams, Senior Partner, Fox Williams LLP, Direct dial: 020 7613 2502
Roshan Khan, Director of Marketing, Fox Williams LLP, Direct dial: 020 7614 2638
For information about how copies of the report can be obtained, please contact Roshan Khan.
About Fox Williams
* Fox Williams is an independent business law firm, serving a diverse client-base ranging from multi-national corporations, PLCs, private companies, financial institutions through to small businesses and individual entrepreneurs.
* The firm's key specialisms include corporate & commercial, employment law, property, dispute resolution, commerce & technology and partnership. It has an outstanding reputation in partnership law and is highly regarded by both The Legal 500 and Chambers UK directories. The 2007 edition of Chambers’ describes the practice as "... a true leader.”
About FT Research Centre
The FT Research Centre is the information and market research arm of the Financial Times Group. We provide a spectrum of information services to executives and knowledge specialists, across all vertical sectors, on an ad hoc or subscription basis. For more information visit the website
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