A Victory for Common Sense (& Freshfields)

From the TimesOnline (UK):

"Peter Bloxham, the former head of restructuring at Freshfields Bruckhaus Deringer, has lost his landmark £4.5 million age discrimination claim against the elite City law firm."

This was a long-awaited and closely watched decision, and Bloxham appears to have lost rather resoundingly:  Not only was the Tribunal unanimous in its ruling, it went out of its way to say that Freshfields' policies laid out in its revised pension plan—which Bloxham was challenging as discriminatory—"not merely met" but "comfortably passed" the crucial test of whether they were (under the statute in question) "a proportionate means of achieving a legitimate aim."

I'll explain the slightly recondite circumstances of Bloxham's claim, and the UK law in question, but the key takeaway is that this is a refreshing and extremely welcome injection of common sense into an area of law hitherto quite uncertain. 

Here's the background: 

Under Freshfields' previous pension plan, partners with 20 years as such became entitled to a lifetime annuity equal to 10 points on the firm's lockstep.  Importantly, this liability was "unfunded," meaning it was borne by partners still at the firm.  Although theoretically open-ended, the liability was capped at 10% of total profits, a cap which projections said would be reached by 2018.

Now, a 10% haircut on total profits is material in anyone's eyes, and would increasingly be seen as an albatross by aspiring partners as the burden became heavier.  This is precisely the type of issue that should occupy the attention of senior firm management.

So, in 2006 Freshfields revised its pension plan to reduce future pensions for partners who were then younger than 55—as was Bloxham.  (Those 55 or over by April 30, 2006 were entitled to a full pension for life under the terms of the previous plan.)   Bloxham could choose either to retire at once with 80% of a full pension, for life, or remain past age 55 at which point he'd only be entitled to a much less generous pension for 25 years. 

He claimed that the amended plan essentially "forced" him to retire and furthermore that he had not been offered a lucrative consultancy package as an alternative to leaving.  Freshfields' defense was that: (a) no one was "forcing" him to retire or to do anything else; (b) he had so vehemently scoffed at the consultancy package that making a formal offer of it would be a nullity; and (c) most importantly, the steps taken to revise the pension plan's impact on future earnings were measured and reasonable.

Prior to the new age discrimination rules taking effect in October 2006, the UK had no laws specifically addressing age discrimination.  The  fascinating aspect of the new law—unlike, sad to say, US age discrimination law—is that age discrimination is permitted (technically, it's a defense to a charge of discrimination) so long as the discriminatory policy in question was "a proportionate means of achieving a legitimate aim."

The contours of what precisely that key phrase means are, of course, scarcely self-evident, and this is the first ruling on the question in a matter involving partnerships.   More important for Freshfields even than its vindication in the Bloxham matter is that there are commonly believed to be a large number of otherwise similarly-affected partners waiting in the wings, ready to sue, had Bloxham prevailed.  (Bloxham has the right to appeal, and many expect he shall.)

Here's some of the reaction to the decision courtesy of Legal Week:

"Commenting on the ruling, Ronnie Fox, employment specialist at boutique firm Fox, said: 'There will be a lot of relieved senior partners around. This is an extensive case to judge, and people will be looking at it for guidance of a general nature as it is the first real test of the regulations.'

"Farrer & Co. employment partner William Dawson said: 'That he was treated differently on the grounds of age was not the issue -- the question was whether they could justify it.  This is a great result for Freshfields, and it is the result I was hoping for. If they had come out with a different result it would have created difficulties for the profession and for all partnerships.'

[...]

"In a statement, Freshfields' joint senior partner, Guy Morton, said: 'It is a pity that this misguided claim was ever brought to the tribunal. We are pleased that the tribunal has recognised that both the reforms to our partner pension scheme and the procedures through which they were adopted were fair.'"

My own reaction?  As noted, an eminently welcome breath of common sense and fresh air into the hothouse environment of age discrimination litigation. 

Understand, of course, that discrimination of any form is devoutly to be eschewed—and that there's on the whole not much more of interest to say on the matter.  (I'm reminded of "silent" Calvin Coolidge who, when asked his views of sin on leaving church one Sunday, replied in total:  "I'm agin it.")

The trouble with anti-discrimination as a principle is that it's a knife that can cut far far too broadly.  Obviously, we "discriminate" all the time for perfectly laudable purposes when we extend job offers to students high in their graduating classes and not to those further down, when we promote high-performing associates to partner and not their disappointing brethren, and, for that matter, when we pick Olympic team members or create best-selling authors.

The UK law comes with the recognition that not all discrimination is per se condemnable or unjustifiable, an insight stunning in its simplicity and dismaying in its lack of statutory US counterpart.  While "a proportionate means of achieving a legitimate aim" may not qualify as lapidary prose, we all have an intuitive grasp of what it's driving at.

And, just as the Constitution is famously not a suicide pact, so anti-discrimination laws must not become destroyers of enterprise value or shackles upon managerial judgment and discretion.