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AICPA defies federal crackdown on partnership retirement policies

The American Institute of Certified Public Accountants (AICPA) has called on the Equal Employment Opportunity Commission (EEOC) to stop what it considers to be "unwarranted and unnecessary" investigations of accounting partnerships regarding the mandatory age provisions of partners.

In a letter sent to the anti-discrimination federal agency, AICPA chief executive Barry Melancon expressed concerns over the EEOC's interpretation whereby partners of accounting firms could be considered de facto employees in certain cases for the purpose of Age Discrimination in Employment Act (ADEA).

A spokesperson for the EEOC told The Accountant that the federal agency cannot comment on ongoing administrative processes dealing with charges of workplace discrimination.

It only can do so when the EEOC files a lawsuit against the employer - which is usually the last resort according to the spokesperson.

"We can confirm that we received the letter and are reviewing it, therefore we have no comment at this time," the spokesperson said.

Despite the fact the federal agency was unable to comment on these investigations, in July 2013 the EEOC's Legal Counsel issued an informal discussion letter where it offered its views on this matter in response to an inquiry from the public.

"It is well stablished that in some instances individuals who have the job title of "partner" may qualify as employees for purposes of the EEO laws, including the ADEA," the agency's Legal Counsel wrote.

For the EEOC the key question is to determine the nature of the working relationship, notably if the partner acts independently and participates in managing the organisation.

According to the EEOC, that is known as the "common-law touchtone of control" which was adopted by the Supreme Court in the case Clackamas Gastroenterology Associates v. Wells when trying to decide whether a shareholder-director of a medical clinic was actually an employee.

In such a case, the Supreme Court noted that "there are partnerships that include hundreds of members, some of whom may well qualify as employees because control is concentrated in a small number of managing partners."

The Supreme Court listed six factors, known as the six-factor control test, which should be taken into account to determine the nature of the working relationship:

  1. Can the organisation hire or fire the individual or does is set the rules of the individual's work?
  2. Does the organisation supervise the individual's work, and to what extent does so?
  3. Does the individual report to someone higher in the organisation?
  4. Is the individual able to influence the organisation, and to what extent does so?
  5. Did the parties intend that the individual be an employee, as expressed in written agreements or contracts?
  6. Does the individual share in the profits, losses, and liabilities of the corporation?

Disruptive approach
A spokesperson for the AICPA told The Accountant that EEOC's attempts to expand the scope of the law in order to consider partners as employees is inappropriate and could be disruptive for the profession.

"Disruptive because retirement policy provisions facilitate the orderly transition of a firm's client from senior to junior partners," the spokesperson explained.

The spokesperson continued: "The knowledge that partners will retire at age 60 or so is appealing to individuals who join a firm and are trying to gauge their potential to rise through the ranks. And, needless to say, individuals who become partners willingly sign agreements that spell out a firm's retirement."

With regard to the six-factor control test, the spokesperson said the partners of AICPA member firms do have such control and called on the EEOC to halt any such investigations, and direct instead its resources to serious discrimination practices.

Asked which accounting firms are under the scrutiny of the EEOC, the spokesperson said: "I'm not at liberty to identify firms under investigation."

The spokesperson added that it's in the power of Congress, not the EEOC, to expand the ADEA, in reference to the bills that are being considered to improve the legal framework of the federal agency.

White male partners
Earlier this year a number of legislative proposals aimed at increasing the transparency and accountability of the EEOC were introduced in the US Congress.

On 17 September, Deloitte general counsel William Lloyd gave testimony before the congressional Subcommittee on Workforce Protections, where the bills were referred for consideration.

At the hearing Lloyd raised the issue that the EEOC staff had recently challenged Deloitte's business structure (i.e. a limited liability partnership), where each partner voluntarily agrees to retire at age 62.

"The EEOC's allegations are relatively simple - that Deloitte is not a true partnership, and therefore, its mandatory retirement age violates the ADEA."

Lloyd argued that the EEOC seeks to extend statutory protections to partners, who are owners of the organisation, based on the theory that partnerships grow so large that they cease to be true partnerships.

Lloyd continued explaining that the average age for retiring partners is 58 and they are highly compensated before and after retirement.

In the last fiscal year 34 of them retired at age 62 under the mandatory retirement provision. Yet, as Lloyd noted, the EEOC seeks to protect this sort of "victims" instead of protecting true victims of discrimination.

"Ironically, Deloitte's retiring partners are overwhelmingly white males, while the newly admitted partners over the past decade have been significantly more diverse. Eliminating the retirement age would ultimately limit the partnerships available to an increasingly female and minority talent pool," Lloyd said.

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