EAD Solicitors LLP and others v Abrams UKEAT/0054/15

Why care?

Section 13(1) of the Equality Act 2010 defines direct discrimination as occurring where “because of a protected characteristic”, a person (A) treats another (B) less favourably than A treats or would treat others. This wording means that B does not have to have the protected characteristic.

The partners of a limited liability partnership can be individuals or corporate bodies. The Equality Act states that an LLP (A) must not discriminate against a member (B) by expelling B or causing B any other detriment (section 45, EqA 2010).

In this case, the Employment Appeal Tribunal had to decide whether an individual’s service limited company could bring a claim for its expulsion from an LLP because the individual had reached the LLP’s retirement age.

The case

Garry Abrams was a member of a limited liability partnership, EAD Solicitors LLP. The LLPagreement stated that members had to retire at 62. For tax reasons, as he approached retirement, he set up a limited company (Garry Abrams Ltd) of which he was the sole director and principal shareholder. This took his place as a member of the LLP and took the profit share that Mr Abrams would have received as a member, in return for which it undertook to supply the services of an appropriate fee-earner to the LLP. Although it was expected that this would be Mr Abrams himself, there was no requirement that it should be him. He was not an employee or a worker of the company and neither did he have any contractual relationship with the LLP.

However, when Mr Abrams reached 62, he was told that he could no longer supply his services to the LLP, and his company could no longer be a member. Mr Abrams brought an age discrimination claim, with his company as the second claimant.

An employment judge in the Liverpool employment tribunal held that the limited company was able to bring a claim that it had suffered discrimination under the Equality Act 2010.

The LLP appealed to the EAT, which (Langstaff J) upheld the decision of the employment judge.

Since the Equality Act does not require that the claimant hold the protected characteristic, it is irrelevant whether or not the claimant is capable of holding any protected characteristic at all. All that is required is that the claimant has suffered discrimination because of or related to a protected characteristic.

The Equality Act itself does not define “person”. The Interpretation Act 1978 says that, without a contrary intention, “person” means an individual or a body of persons corporate or unincorporate. The EAT did not think there could be any contrary intention and noted that by contrast, section 27 (victimisation) of the same Act does expressly say that only individuals can bring a claim.

In section 13(1) “person” is used for both A and B. Since A can be a body corporate, there is no reason why B could not be as well.

The EAT did not make its decision on the basis of EU law, although EU law arguments had been raised. However, it noted that the LLP had argued that EU law did not require corporate bodies to be protected. The EAT said that was the case, but such protection was “entirely consistent” with EU law. Recital 16 of the EU Race Directive (2000/43/EC) explicitly states that “where appropriate and in accordance with their national traditions and practice”, Member States should provide “protection for legal persons where they suffer discrimination on the grounds of the racial or ethnic origin of their members”.

What to take away

This is an important decision. Companies should not think that an employee becoming a consultant through a personal service company removes the risk of discrimination claims: even before this case, contract workers or individuals who provide services through a personal service company should be protected by section 41 of the Equality Act in any case, which says that a principal cannot discriminate against a contract worker, whether that individual is employed by another person or supplied by another person in furtherance of a contract to which the principal is a party.

A company can be a member of an LLP, a partnership or a trade association, and is therefore protected from discrimination by these bodies. However, many employment cases will require the claimant to be employed, to be an apprentice or to carry out work personally – a company, although a distinct legal person, can only act through its individual officers and employees.

However, the Equality Act covers not only employment but also discrimination in the provision of goods, services or facilities, and the disposal of premises. On the basis of this case, any body, corporate or not, could bring a claim if it suffers any detriment because of the protected characteristics of others, for example, refusing to give loans, to provide services, or to refuse to let premises to certain groups.

If making decisions to contract with, or terminate relations with, companies, it is sensible to keep notes (just as HR would do when recruiting or terminating employees) to show the reasoning behind the decision and to protect against any risk of a discrimination claim.

The effect upon insolvency situations?

When a company is placed into an insolvency process the insolvency practitioners will, amongst other things, be required to rank the claims of creditors of the insolvent company over which they have been appointed and to distribute the cash realisations made from those assets among the insolvent company’s creditors. Creditors are placed into different classes and which are paid out from the asset realisations in a descending order of priority. Claims which are higher in the ranking are paid first before the insolvency practitioner moves down to the next class. For example, holders of fixed charges will be considered first in the ranking.

Employees whose employment is terminated following the insolvency benefit from an element of preferential claim which guarantees them a minimum payment from their employer paid out as a third ranking claim. The sum will dependant on factors such as salary and length of service. Furthermore some claims, such as for discrimination, sit against the insolvency practitioner personally meaning that any award would be paid out in full from the deeper pockets of the insolvency practitioner’s firm. Any claims which do not attract a higher ranking will be treated as unsecured claims meaning that those creditors will often receive a payment out of the remaining pot of funds after higher ranked claims have been paid out. This can in many cases be the equivalent to a few pence for each pound of their claim’s value.

Where, as will normally be the case, a creditor company will have only an unsecured claim against the company in administration, one can see that it would be in their interests to rely on this case to argue that the reason for the termination of their contract with the company was, in fact, discriminatory and, therefore sat against the insolvency practitioner personally rather than against the company as an unsecured claim. Whilst we are not aware that this argument has been tested before, it will make it increasingly important for an insolvency practitioner to make clear notes when terminating contracts with third party companies as to the reason for the termination especially when they are required to select between different companies’ contracts.