Employment Status

Since its introduction in 2000 the limited liability partnership (“LLP”) has become a popular corporate vehicle for professional services providers in the UK, especially legal and accountancy firms, many of which have converted from traditional partnerships to LLPs. An LLP combines the flexible structure of a partnership with the advantage of limited liability for its members, which arises from it having separate legal personality.

The UK has different categories of employment status:  Self-employed, employee and worker.  Whilst partners in a traditional partnership have been considered self-employed, LLP members may now be considered to be workers.

Supreme Court decision

A decision of the Supreme Court, given on 21 May 2014, held that a member of an LLP can be a worker, and, whilst workers in the UK have a lower level of statutory protection than employees, they have more statutory rights than partners who are self-employed.

The case involved a solicitor who had brought a claim against the LLP of which she was a member.  The court’s decision that she was a worker was based on the facts that under her LLP members’ agreement she was unable to market her services to anyone other than the LLP and that she was integral part of the LLP’s business, so fitting the statutory definition of a worker. This overturned a decision of the lower Court of Appeal.

The implications for LLPs

Whether an LLP member falls within the statutory definition of a worker will be fact-specific, but if they do they will then be afforded a number of statutory rights that they did not previously have. Some of these will be significant, such as the right not to suffer a detriment for making a protected disclosure under whistleblowing legislation (which was one of the claims in the case referred to above). Others, such as a right to a minimum wage and working time rights, will perhaps be less important given the professional status of most LLP members.

One right though which may cause concern to LLPs and their members is in relation to pensions auto-enrolment. As an LLP member has now been found to be a worker for the purposes of whistle-blowing, he will also have to be assessed for auto-enrolment by his employer, and may be an eligible jobholder under UK pensions legislation, and thus subject to the requirement to be auto-enrolled into a qualifying pension scheme.  Where an LLP has already passed its staging date, members should be assessed and offered membership of an auto-enrolment scheme.   Even if auto-enrolment is offered from 21 May 2014 (the date of the judgment), it may be advisable for the employer to offer backdated membership to the staging date. Where the staging date has not yet been reached, members should be assessed and given information about auto-enrolment and the scheme. In both cases, information should also be provided on how to opt out, and communications to members should be carefully considered to ensure that they do not:

  1. breach the regulations prohibiting inducements to opt out of auto-enrolment; or
  2. create contractual rights or reasonable expectations in respect of continued pension provision (in case later legislation or case law clarifies that members of an LLP are exempt from auto-enrolment).

In addition, auto-enrolment could have adverse tax consequences where an LLP member already has fixed or enhanced protection relating to other pension arrangements.

LLP employers should seek advice on these issues.