Professional services firms that have mandatory retirement policies and provisions that require partners to divest their ownership shares solely on the basis of age are discriminatory and in breach of the Quebec Charter of human rights and freedoms held Quebec Superior Court in a ruling that has the legal community buzzing over its implications.
In a case that pitted a Montreal municipal and labour and employment law firm against its founder, the decision by Quebec Superior Court Justice Stéphane Lacoste is expected to have wider repercussions than the thorny issue of mandatory retirement, according to legal observers. Following the decision in DHC Avocats inc. c. Dufresne, 2022 QCCS 58, typical arrangements made by professional services firms in succession planning such as “unpartnering” or changing the status of their senior partners while still allowing them to work in the firm may be called into question, added legal experts.Read More
“Any clauses relating to compulsory retirement or departure will be deemed to be absolutely null and void,” said Vincent de l’Étoile, a Montreal litigator with Langlois Lawyers LLP, adding that his law firm does not have a mandatory retirement policy. “There is no ambiguity, no nuance whatsoever. The judge concluded that such clauses are discriminatory. But what’s also at stake from this decision is that other types of clauses such as the loss of partner status but that nevertheless allow the person to work within the firm may be by extension also be illegal.”
According to Louis Coallier, a Montreal litigator with DHC Avocats who unsuccessfully plead the case, the judge erred in law and “had a view of the facts” that can be construed as being afflicted by “tunnel vision” or “distorting lens.” As noted by the Supreme Court in Salomon v. Matte‑Thompson, 2019 SCC 14, the notion of distorted lens is a metaphor the Quebec Court of Appeal has used several times when overturning findings made by trial judges considered to be “tainted to some extent by a general misperception.”
“It is a terse judgment, without nuance,” said Coallier, who said that the law firm intends to file a leave to appeal before the Quebec Court of Appeal. “All partnership or shareholder agreements of large firms in Quebec that provide for the retirement or change of status of partners at a certain age have become illegal. Do we have to keep Claude Dufresne as a partner until 101 years old?”
Claude Dufresne, a labour lawyer, founded Dufresne, Hébert, Comeau in the mid-1990s, and was its managing partner until 2015. Following a recommendation made by its accountant, the law firm became incorporated for fiscal reasons in December 2013 following a shareholder agreement between the shareholders and the new incorporated law firm. The former members of the partnership also incorporated individual corporations, which were legal persons. The agreement included a mandatory retirement clause that would kick in when a lawyer turned 67, unless a majority of the board of directors “did not require his removal from the business.” The accord also stipulated that lawyers who will retire must divest their shares of the legal corporation. But even though the firm was incorporated, Quebec Superior Court Justice Stéphane Lacoste found that the lawyers, while shareholders, “continued to behave as if they were partners” and that there was no “real concern about the corporate structure except for financial matters.”
In 2018, when Dufresne turned 67, he had a change of heart. He no longer wanted to lose his status as partner and shareholder, nor did he want to see his income drop. After failing to convince the law firm’s board to keep him onboard as a shareholder and partner, he joined the Montreal law firm Loranger Marcoux. DHC sued Dufresne and his joint stock company, alleging that he breached his duty of loyalty and the shareholder agreement. Dufresne counter-sued, seeking his portion of the shares that DHC refused to pay him. Dufresne also sought damages for discrimination, bad faith and abuse in connection with his forced departure from DHC, maintaining that the mandatory retirement policy infringed the Quebec Charter.
Justice Lacoste rejected DHC’s contention that Dufresne violated his duty of loyalty. Last year the Quebec Court of Appeal held in Sahlaoui c. 2330-2029 Québec inc., 2021 QCCA 1310 that an employee still in the service of an employer may in certain circumstances prepare to leave for a competitor without breaching his duty of loyalty. Justice Lacoste found that these principles also apply to lawyers, but also “with the necessary adaptations,” to shareholders and partners of a law firm. “Their employers or partners naturally assume the risk that a lawyer will leave his or her job or his or her firm or corporation and that the clientele he or she serves will follow or simply leave his or her firm to go elsewhere,” found Justice Lacoste.
That is an “interesting finding” as Sahlaoui referred to an employee, but the legal relationship between a shareholder and a company or between a partner and a company is not necessarily one of employment, noted Antoine Gagnon, a labour and employment lawyer with Le Corre Lawyers LLP. “The decision seems to broaden the scope of the (Appeal Court’s) judgment to some extent, since a shareholder or partner will not always be considered to be in the service of an employer and an employment contract will not always be at the heart of the dispute,” said Gagnon.
In some ways, the decision paints Dufresne as a hybrid between a salaried employee, partner and shareholder, pointed out de l’Étoile. That Dufresne was a shareholder had no impact on the legal basis of the claim even though in the pleadings Dufresne was granted a remedy based on the value of his shares, noted de l’Étoile.
“The practical implications are that the status of practising as a corporation would not de facto necessarily change the relationship you have with your firm in the management of conflict or litigation matters,” said de l’Étoile. “You are likely to still be considered a partner despite the fact that you are operating through a corporation. A partner is closer to a shareholder but a shareholder in normal circumstances has very limited rights which are linked to his shareholding only. A partner generally has more extensive rights than a more human relationship with the company. A normal shareholder cannot be dismissed unlike an employee or partner.”
Coallier of DHC believes that Justice Lacoste applied the principle of “alter ego,” a finding that “practically made” Dufresne an employee even though he was a shareholder.
“You cannot raise the alter ego principle if you are the one who benefits from it,” maintained Coallier. “You chose to incorporate. If an employee is forced to incorporate in order to circumvent labour law, the corporate veil will certainly be lifted because the corporate veil is being used to contravene a rule of public order in labour relations even if he wasn’t forced to do it in the first place. Dufresne did it for tax reasons.
“And secondly, even if the corporate veil is lifted, Dufresne remains a professional partner. He is not an employee. So either way the judge should not have applied the alter ego theory to Claude Dufresne. He should not benefit from it.”
DHC also argued that a mandatory retirement policy was imperative to be able to attract and maintain new blood, critical for its financial viability. In 2014, the SCC, in a unanimous decision, held that law firms can enforce partnership agreements requiring partners to step aside at 65, at least in British Columbia. The SCC held that under the B.C. Human Rights Code there was no employment relationship between McCormick, a partner with Fasken at the time, and the partnership.
But Justice Lacoste dismissed DHC’s contentions. Justice Lacoste found that s. 13 of the Quebec Charter applies to clauses found in legal acts other than employment contracts, which are themselves covered by its sections 16 to 19. Justice Lacoste held that the DHC shareholder agreement is a legal instrument within the meaning of s. 13 of the Quebec Charter. The clause expressly stipulates a condition imposing the removal of a natural person from business solely on the basis of his or her age, noted Justice Lacoste. “It is not necessary to look any further for the reason for the discrimination,” added Justice Lacoste.
According to Sophie Tremblay, co-founder and the chief operating officer of Montreal law firm Novalex, the decision underlines the broad reach of the Quebec Charter. “The Quebec Charter applies to all contracts, all legal acts,” said Tremblay, adding that her firm does not have a mandatory retirement policy. “No matter what the nature of the contract, of the act, one must be very careful not to include provisions that are contrary to the Charter otherwise these clauses will be null and void.”
But as Justice Lacoste points out s. 13 of the Quebec Charter does not apply in a vacuum. In order to infer that there is a “clause involving discrimination”, it must be concluded that the clause is contrary to s. 10 of the Charter, whose rights and freedoms are set out in sections 1 to 9 of the Quebec Charter. However Dufresne did not plead the specific application of these rights. “The fact remains that the Court considers that Dufresne’s situation as a partner-shareholder is covered” by s. 6 of the Quebec Charter, which stipulates that every person has a right to the peaceful enjoyment and free disposition of his property.
“The judge acted on his own motion,” pointed out de l’Étoile. “Dufresne alleged that the clause was discriminatory but did not say in relation to what, and yet the judge took it upon himself to conduct the analysis. It is peculiar that the judge did so in this context without any specific request or argument being made to him.”
Justice Lacoste also dismissed DHC’s contention that Dufresne could not complain about discrimination as he himself freely consented to the inclusion of the clause in the shareholder agreement. “DHC’s argument would imply adding a condition that the legislator has chosen not to include,” said Justice Lacoste in the 34-page ruling. “Rather, the legislator wants such clauses not to be included in legal acts. This prohibition cannot be waived.”
Justice Lacoste ordered DHC to pay the full value of his shares for a total of $136,146. He also ordered the law firm to pay $5,000 in moral damages and a further $100,000 in material damages.
“How can one justify the damages,” said Coallier. “He started to work as a partner in another firm he chose. There are four paragraphs that say it is illegal, without nuance, without analysis and there is a paragraph that condemns us to $100,000 in damages without nuance, without analysis in the absence of evidence presented by Claude Dufresne. There are pieces missing from the judgment.”
Counsel for Dufresne declined to comment.
This story was originally published in The Lawyer’s Daily.