A Deloitte official defended the firm’s mandatory retirement requirements for partners in a congressional hearing Wednesday.

Testifying before the House Subcommittee on Workforce Protections, Deloitte general counsel William Lloyd discussed the Equal Employment Opportunity Commission’s recent move to penalize the firm for requiring its partners to retire at the age of 62 in accordance with the terms of their partnership agreement.

The EEOC contended that Deloitte is not a true partnership, and therefore, its mandatory retirement age violates the Age Discrimination in Employment Act. The EEOC launched a similar investigation of PricewaterhouseCoopers’ retirement policies, prompting a letter last year from the American Institute of CPAs to the EEOC (see Concern Mounts about Mandatory Retirement Age Policies at Accounting Firms). The action against PwC was eventually dismissed.

Deloitte LLP has 2,870 partners, approximately 4 percent of its 65,000 workforce in the U.S., and they voluntarily entered into a partnership agreement that the EEOC is now challenging, Lloyd noted.

“The EEOC staff has recently challenged the fundamental structure, indeed the very existence, of Deloitte’s business—our decision to organize as a limited liability partnership,” said Lloyd. “For reasons related to state professional regulations, we must conduct our business as a partnership. Deloitte’s partners, each a sophisticated professional, voluntarily entered into a partnership agreeing to retire at age 62. Directors and employees are not subject to this retirement provision. Indeed, I am not a partner, as I chose to become a director when I joined Deloitte, which allowed me to work after age 62. The EEOC’s allegations are relatively simple—that Deloitte is not a true partnership, and therefore, its mandatory retirement age violates the Age Discrimination in Employment Act. However, the impact of the EEOC’s legal theory is decidedly more complicated, and ultimately raises significant economic and policy questions for Deloitte and all limited liability partnerships across the country, which will negatively impact many industries.”

Lloyd pointed out that Deloitte supports the EEOC’s goals of eliminating workplace discrimination and fostering equality of opportunity. “During my nine-year tenure at Deloitte, I have had the pleasure of serving with a woman as our chairman and with a Hispanic CEO,” he said in his prepared testimony. “I now serve with a chairman who was born in India. We have four major businesses. One is led by a woman and another by an African-American man. Most of these people are homegrown—they developed their professional and leadership skills at Deloitte.”

He added that Deloitte has regularly been recognized as a leader in inclusion efforts and in “developing highly successful women and minorities who themselves are leaders in the profession.”

“Although we are strong supporters of the EEOC’s mission, our recent experience with the EEOC suggests that its processes and transparency could use improvement,” said Lloyd. “We need to insure that the EEOC enforces its important mandate in ways that are consistent with what Congress contemplated in the respective statutes that the EEOC is tasked to enforce.  And we need to insure that important decisions about EEOC enforcement policy and allocation of scarce resources are made by the commissioners who are appointed by the President and confirmed by the Senate.” 

“Congress did not grant jurisdiction to the EEOC to act on behalf of owners of businesses, yet that is exactly what the EEOC is doing,” he added. “The EEOC seeks to extend statutory protections to individuals who are owners of this type of organization, all under the theory that at some undetermined point, partnerships grow so large that they cease to be ‘true’ partnerships.”

Lloyd said he is also concerned about the EEOC's extensive delegation of authority to the general counsel to initiate litigation. “I was astounded to learn that the commissioners do not review the overwhelming majority of cases filed by the EEOC,” he said. “After all, Title VII permits only the five-member commission to bring a civil action. While the commissioners ostensibly retain the authority to initiate litigation in cases involving a major expenditure of resources, cases presenting a developing area of the law, or cases presenting a public controversy, in practice, the general counsel determines whether any particular case meets one of these criteria.  In effect, the general counsel decides whether any litigation should be subject to oversight by the commission on whose behalf he litigates. The commissioners are thereby excluded from the very function they were appointed to undertake.  That structure should concern all legislators and taxpayers, and is a concern that could be partially alleviated by enacting the Litigation Oversight Act of 2014.”

The hearing focused on the Litigation Oversight Act along with two other proposed pieces of legislation that would affect the EEOC, the EEOC Transparency and Accountability Act and the Certainty in Enforcement Act.

One of the bills would ensure that the EEOC could not bring major or controversial litigation without a full up-or-down vote by a majority of the commission. The others would require the EEOC to publicly post information on the agency’s litigation decisions, including each commissioner's vote on the litigation, and report on cases in which the EEOC is sanctioned or ordered to pay fees and costs.

Lloyd pointed out that many of Deloitte’s businesses are highly regulated under state laws that require Deloitte to be structured as a partnership. “Therefore, the EEOC’s recent focus on professional service organizations structured as limited liability partnerships and its emphasis on systemic litigation are very troubling for organizations such as ours,” he noted.

He referred to the action against PwC without referring to the firm by name. “We understand that the EEOC attempted to initiate identical litigation against a peer partnership less than 18 months ago, but after a public controversy, the Commission considered and rejected it,” he said.

Going on to explain what happened with his firm, he added, “For Deloitte, the EEOC began a directed investigation in 2010, meaning that no individual filed a charge with the EEOC alleging discrimination,” he said. “To date, we are not aware of any retired partner who has complained to the EEOC about age discrimination. We recently received a reasonable cause determination from the EEOC finding age discrimination based upon Deloitte’s mandatory retirement age provision for partners. This determination was accompanied by a demand that Deloitte eliminate the retirement provision, offer reinstatement to retired partners to return to Deloitte, and create a fund of an undisclosed amount to compensate those retirees. This determination provides no basis whatsoever for the finding. We are concerned that if conciliation fails, the General Counsel will file a lawsuit under the delegation of authority without consideration and a vote of the Commissioners. This is not only a matter of great public controversy, but, given the powers and rights of Deloitte’s partners, it is also a novel interpretation of law that the Commission itself clearly should consider and approve before any litigation is commenced.”

Lloyd contended that Deloitte is a “true partnership.”

“Partners are admitted based upon a vote of the partners as a whole,” he said. “Our partners share in the profits and losses of the firm. Partners regularly vote on matters presented before the firm, and they elect a new slate of directors each year. Each partner has the ability to bind the partnership. As owners, partners enjoy extraordinary security. Unlike employees at Deloitte, they do not serve at will, and they cannot be “fired.” Partners cannot be removed from the partnership except by a vote of the whole partnership, or except in very narrowly-defined circumstances involving immediate risk to the firm.”

Lloyd argued that there are legitimate reasons why Deloitte's partnership needs a mandatory retirement age for its partners. “In a structure in which involuntary attrition is rare, agreeing to a date certain for retirement maintains the partnership at an optimal size, and provides certainty in succession planning, particularly in the management of client relationships,” he said. “In a highly regulated industry, it ensures a pool of partners with appropriate training and experience to meet regulatory requirements, such as lead audit partner rotations after five years as mandated by Sarbanes-Oxley, thus providing for future continuity and profitability of the organization. And, as noted, state regulators require registered CPA firms to be structured as partnerships.”

Lloyd pointed out that many of Deloitte's partners retire before the age of 62. “The average age for retiring partners is 58,” he added. “These partners are highly compensated before and after retirement. In the fiscal year that just ended, approximately 34 individuals retired under the mandatory-retirement provision. Yet, the EEOC seeks to protect this class of “victims” in lieu of seeking out true victims of discrimination. For every class case of questionable validity that the EEOC brings, it requires that the agency forego many worthy cases of discrimination on behalf of individuals who have fewer resources to pursue grievances and are genuinely in need of regulatory protection.” 

He contended that the EEOC's pursuit of this litigation strategy is a questionable use of limited agency resources, and the specific subject matter does not fit easily within the agency’s priorities. “There are no 'victims' of age discrimination under Deloitte’s partnership agreement,” said Lloyd. “Each individual who becomes a partner voluntarily chooses to do so, and formally agrees to all of the rights and obligations of partnership, including the retirement provision.

"This is the wrong case at the wrong time for the EEOC to pursue, in light of the lack of true victims, agency budgetary constraints, the disruption of settled legal relationships in an important regulated industry, and the necessary tradeoffs that would confront the EEOC by litigating this matter," he added. "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.”

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