Canada: Equity Partners Not Protected By Human Rights Code: Supreme Court Of Canada

In a decision much-anticipated by law, accounting and other professional services firms, the Supreme Court of Canada ruled in McCormick v. Fasken Martineau DuMoulin that partners generally do not fall within the protections provided to "employees" under human rights legislation.

McCormick was an age discrimination complaint brought by an equity partner of Faskens, who argued that the firm's mandatory retirement policy discriminated against him. Like most human right legislation, the B.C. Human Rights Code only protects individuals from discrimination in defined contexts, including "employment". Faskens moved to dismiss on the basis that McCormick was not an "employee" under B.C.'s Human Rights Code.

The B.C. Human Rights Tribunal ruled that McCormick was an employee, particularly in light of the control the partnership had over his working conditions and remuneration. The B.C. Court of Appeal overturned this decision, ruling that a partnership is not a separate legal entity from its partners and, therefore, a partner could never be "employed" by his or her partnership.

The Supreme Court of Canada upheld the conclusion that McCormick was not an employee, and therefore could not bring a human rights complaint. However, the Court ruled that whether or not a partner is an employee for human rights purposes depends on: (1) the control exercised by an individual over working conditions and remuneration; and (2) the corresponding dependency on the part of the individual. The Court left open the possibility some types of partners could be employees in certain, limited circumstances.

Abella J., for the Court, reviewed the distinction between employees and non-employees in a number of Canadian and international legal regimes. In her view, the common theme for what makes an individual an "employee" is that they are subject and subordinate to someone else's decision-making over workplace conditions and remuneration. She observed that it was rare for partners to be employees for human rights purposes in other jurisdictions, except by express inclusion in the statute.

In Abella J.'s view, one of the distinctive features of partnership is a right to participate meaningfully in the decision-making process that determines working conditions and remuneration, which enables partners to protect their own interests in a way employees cannot. She also considered the relative security of tenure created by the high threshold for expelling a partner and freedom from discipline typical of many partnerships as contrasting with an employer's traditional power to discipline and terminate an employee. McCormick was also held not to be an employee because he had an ownership stake in Faskens, shared in profits/losses, and had the right to participate in management (i.e. voting rights and the right to stand for election to firm management). Indeed, he had the right to vote on most major partnership decisions, including the decision to implement the mandatory retirement policy he later sought to challenge.

The Court's fact-specific ruling leaves open the possibility that partners with lesser ownership rights and security, such as increasingly common "non-equity" partners, may be covered by human rights legislation. The Court also left open the possibility that other forms of discriminatory conduct to a partner based on characteristics such as age, sex and race protected by human rights legislation could be a breach the duty of good faith partners owe each other.

While partnerships in most provinces can rely on McCormick to continue with mandatory retirement policies for equity partners , in Ontario, partnerships still have to consider whether the Ontario Human Rights Code's unique prohibition on discrimination in "contracts" could be an alternative ground for challenging a mandatory retirement policy in a partnership agreement.

That said, in obiter, Abella J. provided an indication of the Court's apprehension toward partners bringing age discrimination claims to challenge a system of mandatory retirement that they previously benefitted from. Abella J. noted that McCormick financially benefitted from the retirement of other partners for some 30 years before he decided that the policy was discriminatory, and also noted that, as an equity partner, he was just as responsible for any alleged discrimination as were the other partners.

The Court also noted the ameliorative impact of the "regenerative turnover of partnership shares" as evidence that mandatory retirement policies were consistent with the good faith that partners owe to each other, and were not a form of arbitrary disadvantage. In this respect, Abella J.'s decision harkens to concerns expressed in other mandatory retirement cases over individuals challenging seniority, benefit or retirement systems that they benefitted from during their younger years. It also reflects the prevailing view that age-based claims are more nuanced and cannot be assessed through the traditional lens of invidious discrimination and historical disadvantage. The unfairness of an individual challenging mandatory retirement policies without regard to the benefits they receive as a result of those systems was not lost on the court.

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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