The Supreme Court has held in the case of Bates van Winkelhof v Clyde & Co LLP [2014] UKSC 32 that a member of a limited liability partnership (LLP) was a worker within the definition in the Employment Rights Act 1996 (ERA) and was therefore entitled to bring a whistleblowing complaint against the LLP.  This overturned the decisions of the Employment Appeal Tribunal and the Court of Appeal, which had both held that a member of an LLP did not have worker status, on the basis that a partner in a partnership could not also be in an employer-employee relationship, as this would mean that they were acting as both employer and employee and effectively employing themselves, which was impossible under English law.

This outcome means that other employment and pension rights will also apply to members of LLPs, as set out below.

Background

The ERA, at section 230(3), defines a worker as being an individual who has entered into or works either under:

"(a) a contract of employment; or

(b) any other contract, whether express or implied… oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not…that of a client or customer of any profession or business undertaking carried on by the individual".

While they do not enjoy the full set of rights and protections afforded to employees, people defined as workers under this definition have the following rights:

  • the protection given to whistle-blowers
  • protection under the Data Protection Act
  • the right to be accompanied at a disciplinary or grievance hearing
  • the right to receive the national minimum wage
  • the right not to suffer an unauthorised deduction from wages and
  • rights under the Working Time Regulations (to paid annual leave, rest breaks, the maximum working week etc).

The definition of worker in the ERA is also very similar to the one in the Pensions Act 2008, which gives workers who meet certain age and earnings criteria the right to be auto-enrolled into an occupational pension scheme and receive pension contributions from their employer.

It is a long-standing principle of English law that a partner in a partnership cannot also be an employee of that partnership.This is because partners are in a contractual relationship with one another in a joint venture and a partner would, therefore, have to be employed by himself to be an employee.The principle of employment also requires a hierarchical relationship in which the employee is a subordinate of the employer and it has long been held that this is not the case in a partnership.

Facts

Ms Bates van Winkelhof was an English-qualified solicitor involved in a joint venture project between Shadbolt & Co LLP and a Tanzanian law firm, Ako Law.  Clyde & Co LLP (CCLLP) subsequently took over the venture and Ms Bates van Winkelhof became an equity partner of CCLLP.

In November 2010, Ms Bates van Winkelhof reported to CCLLP that the managing partner of Ako Law had admitted paying bribes to secure work and guarantee the outcome in certain cases in which the firm was acting.  Ms Bates van Winkelhof was subsequently expelled from CCLLP in January 2011 and brought claims in the employment tribunal against CCLLP and one of the equity partners for sex discrimination and under the whistleblowing provisions of the ERA.

CCLLP claimed that the tribunal did not have jurisdiction to hear the whistleblowing allegations, on the grounds that Ms Bates van Winkelhof was not a worker under the ERA and therefore was not entitled to protection.

Employment tribunal decision

The employment tribunal held that Ms Bates van Winkelhof did not meet the definition of worker under part (b) of the wording in section 230(3) of the ERA and was therefore not entitled to protection.

EAT decision

The EAT overturned the tribunal's decision, holding that Ms Bates van Winkelhof met the definition of worker set out in part (b) of section 230(3) of the ERA. .

Court of Appeal decision

The case then went to the Court of Appeal, which overturned the EAT's decision that Ms Bates van Winkelhof was a worker.

The Court held that although, on the face of it, Ms Bates van Winkelhof met all aspects of the definition of worker (as set out in section 230(3)(b)), the LLP Act 2000 impliedly modified the wording of the ERA, with the effect that a partner in an LLP could not be an employee or worker of that LLP, in line with the established principles relating to traditional partnerships.

Ms Bates van Winkelhof appealed to the Supreme Court.

Supreme Court decision

In the Supreme Court Lady Hale, who gave the leading judgment, reversed the decision of the Court of Appeal and held that Ms Bates van Winkelhof was a worker and consequently that she was entitled to whistleblowing protection under the ERA.

Lady Hale considered that the LLP Act did not affect worker status and stated that it was possible for a partner in an LLP to be in a subordinate relationship with their employer, in the same way that the controlling shareholder of a limited liability company could simultaneously be a director employed by the company.

The judgment is clear that each case should be considered on its facts when deciding the employment status of an individual but in this case, where the claimant was in an exclusive professional relationship with the LLP (as she was not free to market her services as a solicitor to others) and was an integral part of its business, it was clear that she fell within the definition of worker and was entitled to the rights and protections applicable to someone of that status.

The Court decided not to consider whether a partner in an LLP or a traditional partnership was capable of having the status of employee and therefore having the further rights associated with it but did suggest that this would be questionable if it were to arise in the future.

Comment

The outcome of this case is very much a departure from the long-held view that partners are incapable of having employment status with a partnership or LLP.

This decision could be very significant for LLPs, such as law firms, accountants, hedge funds and property holding companies, who will have many members with a similar employment status to the claimant in this case.  Such businesses will now need to re-assess their relationships with members to ensure that they are being treated in accordance with their employment rights.

Whereas some rights, such as the right to receive the national minimum wage and paid annual leave, are unlikely to be an issue for most LLPs, the right to be auto-enrolled into a pension scheme and receive employer contributions and the right to protection when making whistleblowing disclosures will be new considerations for many partnerships.  LLPs should consider reviewing their existing whistleblowing policies and extending internal protection to cover partners.  LLPs should also consider whether to auto-enrol partners into a qualifying pension scheme, as the Pensions Regulator has now indicated that LLPs should consider whether their members should be auto-enrolled.  Such an assessment will need to consider whether a member meets the definition of 'worker' set out within the Pensions Act 2008.

The judgment of the Supreme Court also left open the possibility that partners of both an LLP and a traditional partnership could have full employee status in some circumstances.  It will be interesting to see if further cases arise in the future to test this possibility.