Sources of Partnership Law and Disputes
It may be a surprise to many, that in the absence of a written agreement between partners, the default position in Ireland in relation to the law of partnership is very much grounded in an antiquated piece of legislation, the Partnership Act 1890 (the “Act”). The Act provides that partners are entitled to an equal share of capital and profits; there is no right to expel a partner. Further, the Act does not restrict a partner from competing with the partnership following their departure. As such, it is vital that partners clearly set out the terms of their agreement by way of a Partnership Deed.
Unlike many other jurisdictions, solicitors are still prohibited from trading as a limited liability company. However, following the introduction of the Legal Services Regulation Act 2015 there is a prospect of some potentially new business structures including Limited Liability Partnerships (“LLPs”). While LLPs remove personal liability of partners, its form will be limited and there is no suggestion of solicitors being entitled to run a business with the full benefits of a limited liability company.
Despite a significant recession, the last four years have seen a return to growth and profitability with the trend hopefully set to continue with Brexit hopefully creating a new impetus for Dublin. As a result, there is an increase in movement of partners between firms and partnership disputes are on the rise. Any partnership dispute will require a detailed analysis of the Partnership Deed, which might contain typical clauses relating to confidential information, garden leave, non-solicitation and non-compete clauses as well as financial arrangements for departing partners. The courts have demonstrated that they will enforce restrictions relating to the non-solicitation of customers, clients and key employees. Traditionally, the courts are less likely to enforce non-compete provisions preventing a departing partner from working for a competitor. The courts are however willing to grant springboard injunctions preventing a departing partner from using confidential information to assist in the development of their new business, etc. Having said that, most Partnership Deeds are subject to arbitration and are rarely litigated in civil courts. Litigation is very high-octane and stressful for all parties involved but despite the initial exchange of legal correspondence and positioning most cases will settle and resolve without judicial interference with both partners keen to maintain their reputations.
Statutory Protection for Partners
The Employment Equality Act 1998 (as amended) prohibits discrimination on 9 grounds including, but not limited to, gender and age, and can result in compensation of up to 2 years’ gross remuneration being awarded. Gender disparities in law firms is topical at the moment garnering both media and political attention globally. In the US, the National Association of Women Lawyers and the NAWL Foundation reported in 2015 that 30 out of the 200 firms researched showed that a ty pical female partner earned 80 percent of what a typical male partner did. Interestingly, there has been a string of recent US law suits filed by female partners against their own firms alleging that they are paid less than male counterparts with comparable or inferior performance and that they weren’t given the same mentoring or promotional opportunities from early in their career. The gender pay gap in Ireland stands at 13.9%, with the average bonus gap being 50% and is significantly higher in the top earners.
The Department of Justice and Equality has invited interested bodies, including the Employment Law Association of Ireland to participate in a public consultation to suggest measures to tackle the systematic gender pay gap that exists in Ireland.
Regarding retirement age, a compulsory retirement age may be set provided the employer has a legitimate aim for doing so and it is proportionate and appropriate. Some of the large law firms have a retirement age of 55 on the basis that this policy allows younger partners to come through. However, while this might be a legitimate aim, it may not be proportionate and is subject to challenge in circumstances where it is not justified to force a partner to retire at 55 if they had only been made an equity partner at age 45-49.
The most significant aspect of a discrimination claim is that it can be used as a negotiating tool and means that, even in the context of a settlement, a payment can potentially be paid tax efficiently as damages.
There are other statutory protections for partners that may be of relevance in the context of such a dispute. Partners enjoy whistleblowing protection under the Protected Disclosures Act 2014, due to the broad definition of “worker”. A protected disclosure is the disclosure of a ‘relevant wrongdoing’. A relevant wrongdoing include a person that has failed, is failing or is likely to fail to comply with any legal obligation (other than an obligation arising from the partnership deed or other contract to perform work or services) or that the health or safety of any individual has been, is being or is likely to be endangered. The 1 disclosure may be made to either the worker’s employer or to a ‘prescribed person’.1
The aforementioned legislation protects the worker from civil suit and prohibits penalisation resulting from making a protected disclosure. Injunctive relief can be sought where a partner is suffering detrimental treatment from the firm as a result of a protected disclosure being made including expelling a partner, reducing their profits or adverse treatment. Where a claim is upheld, significant financial compensation may be awarded of up to five years’ gross remuneration.
If you have a potential dispute relating to partnership law or believe you have been discriminated against and wish to discuss matters, feel free to contact the team at CC Solicitors.
1 The Minister for Public Expenditure and Reform may order prescribed persons to be the appropriate recipient of a protected disclosure. By virtue of S.I. No. 339/2014, prescribed persons include the Data Protection Commissioner, the Registrar of Companies and the Director of Corporate Enforcement. A Disclosure may also be made to a Minister or legal advisor in appropriate circumstances.
The contents of this briefing note are for general purposes only and does not constitute legal advice or give rise to a lawyer/client or professional advisor/client relationship. Specialist employment law advice should be sought in specific circumstances.