BC Supreme Court finds law firm & equity partner in an employer-employee relationship
In Fasken Martineau DuMoulin LLP v. British Columbia (Human Rights Tribunal), 2011 BCSC 713 (Fasken Martineau), the Supreme Court of British Columbia recently upheld the British Columbia Human Rights Tribunal’s (the BCHRT) finding that an equity law firm partner was an “employee” of his law firm for the purposes of the British Columbia Human Rights Code (the Code).
John McCormick (McCormick) filed a complaint against Fasken Martineau DuMoulin LLP (Faskens) with the BCHRT alleging that the firm discriminated against him on a prohibited ground, contrary to s.13 of the Code, by requiring him to retire at the age of 65 (the Complaint). The partnership agreement with McCormick, and every other equity partner at the firm, imposed a mandatory retirement age of 65 and stated that arrangements to allow an equity partner to continue working past 65 would be “the exception rather than the rule”.
Since protections afforded by s.13 of the Code only apply to employment relationships, before accepting jurisdiction to hear the Complaint, the BCHRT had to establish whether or not McCormick was an employee of Faskens for the purposes of the Code. In making this determination, the BCHRT accepted that the concept of employment should be given a broad and liberal approach for human rights purposes. It analyzed the four factors traditionally accepted as indicators of an employment relationship – utilization, control, financial burden and remedial purpose – and concluded that the relationship between McCormick and Faskens was one of “employment”. All four factors favoured treating McCormick as employed by Faskens for the purposes of the Code.
Faskens then applied to the Court for judicial review, arguing that the BCHRT incorrectly concluded that the relationship between McCormick and Faskens was subject to the Code and that the Complaint was within its jurisdiction. The Court affirmed these decisions.
The Court supported the BCHRT’s use of the four factor test to determine whether or not the relationship was one of “employment”. The Court found that despite not being a typical master and servant relationship, Faskens used the services of McCormick for the purposes of enhancing the assets of the firm and exercised a great deal of control over the services he provided and the intellectual property that he produced. Further, the way in which the firm’s management determined and paid his compensation pursuant to criteria set by the firm was more consistent with an employment relationship than a business contract. Finally, the Court addressed what it referred to as the two prongs of the “remedial purpose test”. First, with respect to who is best able to remedy the discrimination, the Court found that the factors of control, utilization and financial burden all pointed towards Faskens and it was therefore the best able entity to remedy the discrimination. Second, with respect to whether the circumstances of the complaint fell within the overarching purposes of the Code, the Court emphasized the quasi-constitutional nature of the Code and the corresponding requirement that it be given a broad, liberal and purposive interpretation in order to ensure that its purposes are attained. It also emphasized that while s.13 is limited to employment relationships, whether or not an employment relationship exists depends on the facts and substance of the relationship, not the label attached to it. In the case of Faskens and McCormick, the Court found that, despite the partnership context, their relationship possessed characteristics sufficiently indicative of a traditional employer/employee relationship and therefore that the protections afforded by the Code were available to McCormick.
As a further argument in this case, Faskens suggested that it was not an entity distinct from its individual equity partners and that the Complaint could not be sustained because it would mean that, as an equity partner, McCormick was effectively suing himself. The Court dismissed this argument. By providing for the arbitration of disputes between a partner and the firm in its partnership agreement, Faskens acknowledged that in some instances individual partners are distinct from the firm. Further, because the board and the managing partners exert a significant amount of control over individual equity partners, and because the identity of the board and managing partners fluctuate over time, McCormick was not actually suing himself. The Court also distinguished limited liability partnerships, such as Faskens, from regular partnerships and limited partnerships and likened a limited liability partnership to a corporate entity, distinct from its individual members.
Finally, the Court emphasized that the human rights protections provided by the Code cannot be contracted out of. Thus, the inclusion of a mandatory retirement age in the partnership agreement did not, and could not, prevent the Code from applying to the relationship between McCormick and Faskens.
This characterization by the Court of the relationship between an equity partner and his law firm as one of “employment” could prove to have important implications for partnerships and law firm partnerships in particular. The decision also further demonstrates how broadly human rights legislation may be read in order to afford individuals protection against discrimination. However, it will be interesting to see how this decision is received in other provinces. This is particularly true in light of the Alberta Court of Appeal’s decision earlier this year of Lockerbie & Hole Industrial Inc. v. Alberta (Human Rights and Citizenship Commission, Director), 2011 ABCA 3 (Lockerbie), which was not cited in the written decision of Fasken Martineau. In that decision, the Alberta Court of Appeal ruled that the concept of an “employer” does not extend to the owner of an industrial site who receives the benefit of an individual’s services, therefore, essentially accepting a narrowed interpretation of the definition of “employer”. This narrowed interpretation of “employer” was more recently followed by the Alberta Court of Queen’s Bench in 375850 Alberta Ltd. v. Noel, 2011 ABQB 218.
Faskens has appealed the Supreme Court of British Columbia’s ruling.