Canada: An Equity Partner In A Law Firm Is Also An Employee For The Purposes Of Employment Legislation

Last Updated: September 6 2011
Article by Scott E. Foster

Summary: The British Columbia Supreme Court upheld a Human Rights Tribunal decision that decided that an equity partner in a law firm was also an employee for the purposes of employment legislation. In doing so, the Court has paved the way for the partner to bring a complaint for age discrimination in light of the law firm's policy that all partners retire at 65.

Article: An equity partner at Fasken Martineau DuMoulin LLP ("Fasken"), Mr. McCormick, complained to the British Columbia Human Rights Tribunal (the "HRT") that Fasken discriminated against him because of his age by requiring that he retire at age 65. Despite submissions from Fasken that the HRT did not have jurisdiction over the subject matter, the HRT held that it has jurisdiction to hear the complaint because the relationship between Mr. McCormick and Fasken was one of "employment" as that term is defined in s. 1 of the British Columbia Human Rights Code (the "Code").

It is important to note that the HRT did not decide the merits of Mr. McCormick's discrimination complaint, just that it had jurisdiction over the subject matter of the complaint. Fasken subsequently applied to the British Columbia Supreme Court for judicial review of the HRT decision maintaining that the HRT erred in determining that the relationship between the law firm and its equity partners was one of employment such that s. 13 of the Code prohibited discrimination based on age.

The British Columbia Supreme Court held that the HRT correctly determined that it had jurisdiction to embark upon an inquiry into Mr. McCormick's complaint advanced pursuant to s. 13 of the Code and dismissed Fasken's petition. The Court noted that the Code is quasi-constitutional legislation and, due to its special nature, must be given a broad, liberal and purposive interpretation to ensure the attainment of its purposes. The Court concluded that it and the HRT are required to consider the question of jurisdiction over a particular complaint in the context of the remedial purposes of the Code and not from the narrow perspective of partnership law or the law of contract.

After reviewing British Columbia's Partnership Act, the partnership agreement signed between Mr. McCormick and Fasken, and the particular partnership structure at Fasken, the Court concluded that the partnership was a distinct legal person from an individual equity partner (Fasken accepted that the Code applied to non-equity partners). It was therefore possible to accord an equity partner and the partnership separate legal status for the purpose of a complaint under the Code particularly when management of the Fasken partnership was largely designated to partners sitting on executive committees.

The Court addressed the four key criteria applied in an assessment of whether an employment relationship exists: utilization, control, financial burden, and remedial purpose. While acknowledging that there is no doubt that Fasken does not employ Mr. McCormick in a traditional master and servant relationship, the Court noted that the firm utilizes the services of equity partners for their mutual benefit. For example, Mr. McCormick receives a share in the profits of the partnership in return for services he provides to clients that belong to the firm and also from the creation of work product that is owned by the firm. The court also highlighted the significant amount of control exercised by the firm's management over the services that an equity partner provides and the intellectual property he produces. In particular, the partnership agreement authorizes management control over what services the equity partner provides, how he provides those services, who he offers services to, the time he must devote to the business of the firm, what compensation he is entitled to receive, and when he must leave the firm.

Looking at the "financial burden" factor, the Court concluded that this also produces a result more akin to an employment relationship. For example, Mr. McCormick's annual compensation is determined by a compensation committee whose decision is based upon the criteria dictated by the board of Fasken. Many of these criteria involve a subjective judgment that is not easily questioned by an individual partner and other criteria, such as peer review, that are entirely out of the equity partner's control. The Court concluded that because the firm, through its management arm, is both responsible for paying remuneration and determining compensation criteria, the relationship is not just a business relationship.

Lastly, the remedial purpose factor was considered by the Court. That is, do the circumstances of an individual complainant fall within the overarching purposes of the Code and its remedial functions? Pointing too many of the attributes of the relationship between Mr. McCormick and Fasken, the Court noted that many are the same as those found in a traditional employer/employee relationship. For example, Mr. McCormick provides his services to the firm and is remunerated by the firm according to criteria established by the firm; he is subject to controls exercised by the firm over his work life and his work product. The Court concluded that these characteristics of Mr. McCormick's relationship with Fasken lead to a conclusion that the legislature intended the guarantee of basic human rights, as defined by the Code, would apply to his circumstances.

The Court dismissed Fasken's petition and awarded Mr. McCormick his costs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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