The Supreme Court has ruled that a fixed salary partner who was a member of a limited liability partnership (LLP) was a ‘worker’ for employment law purposes. This means that many members in LLPs (commonly referred to as partners) may now be entitled to benefit from the legal rights and protections associated with worker status, including the right to be automatically enrolled.
This decision has significant implications for LLPs, which will now have to make an assessment of whether they think their members are ‘workers’ in light of the Supreme Court’s decision. If some or all members are workers, and meet the other eligibility criteria for automatic enrolment, LLPs will need to make arrangements for such members to be automatically enrolled into a qualifying workplace pension plan. They will also need to review the other employment law rights and protections to which the relevant members are entitled.
Last week’s decision of the Supreme Court in the case of Clyde & Co v Bates van Winkelhof is the first to address the employment status of a member within an LLP.
Ms Bates van Winkelhof (Ms B) was a member of Clyde & Co., working overseas for Ako Law, a firm with whom Clyde & Co was connected in Tanzania. She was remunerated by both a fixed share of profit and an additional percentage share to be determined by the firm each year. On 25 November 2010 she was dismissed by Ako Law. She was subsequently suspended by Clyde & Co on 26 November and, following an investigation, was expelled from the partnership on 13 January 2011.
Ms B brought whistle-blowing and discrimination complaints against Clyde & Co, alleging that her expulsion from the partnership resulted from the fact she had reported alleged criminal activity on the part of the managing partner of Ako Law.
The merits of those arguments are yet to be considered because, in a pre-hearing review before the Employment Tribunal, Clyde & Co argued that the Tribunal did not have jurisdiction to hear Ms B's whistle-blowing claim as she was not a ‘worker’ and therefore fell outside the whistle-blowing protection afforded by Employment Rights Act 1996, which applies only to specified categories of worker. It also raised a territorial issue.
The legal definition of a ‘worker’ for these purposes is contained in section 230(3) of the Employment Rights Act 1996. It provides that a worker means:
“an individual who has entered into or works/worked under:
(a) a contract of employment; or
(b) any other contract…. whereby the individual undertakes to 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.”
The Employment Tribunal agreed with Clyde & Co, that Ms B did not fall within either category of section 230(3) and could not, therefore, be said to be a worker, precluding her whistle-blowing complaint. The Employment Appeal Tribunal (EAT) overturned this decision on appeal, finding that Ms B was indeed a worker and, as such, was entitled to pursue her whistle-blowing claim. The EAT looked particularly at her exclusivity with the partnership and the fact that, while a member of the LLP, she was nonetheless in a subordinate position.
However, on a subsequent appeal the Court of Appeal reversed the decision of the EAT, concluding that Ms B was not a worker. It found the employment status of an LLP member depends upon what their status would have been if the LLP had been a traditional partnership and, if (on the facts) the individual would have been a (true) partner in the notional traditional partnership, he/she can be neither an employee nor a worker in relation to the LLP.
The Supreme Court’s decision
Overturning the conclusions of the Court of Appeal, the Supreme Court held that Ms B was a worker for the purposes of limb (b) of section 230(3) of the Employment Rights Act on the basis that she undertook to personally perform certain works or services for Clyde & Co and Clyde & Co could not be said to be her client or customer. The Court also considered the fact that Ms B could not market her services as a solicitor to anyone other than the LLP and that she was an integral part of Clyde & Co’s business as being significant factors in determining that she was a ‘worker’ as opposed to being self-employed and carrying on her own business.
Prior to this judgment, LLP’s had taken the view that members did not have to be automatically enrolled on the basis that the Court of Appeal had previously ruled that members were not ‘workers’, and so fall outside the scope of the auto-enrolment legislation. However, all LLP’s will now need to review the status of their members for pension purposes and assess whether each member is a ‘worker’ or is genuinely self-employed.
The status of an LLP member will depend upon the particular facts in each case. However, the following factors will be relevant in making this assessment:
- Has the member contracted to perform work personally for the LLP?
- Is the member free to provide their services to any party other than the LLP?
- Can the LLP be said to be a client or customer of the member?
- Is the member integral to the LLP’s business?
If an LLP member is found to be a worker and they meet the other eligibility criteria for auto-enrolment purposes, the LLP will need to make arrangements for them to be automatically enrolled into a qualifying pension scheme. Firms that have passed their staging date will need to take immediate action and also consider the need to backdate contributions with effect from their staging date. Firms that have not yet reached their staging date will need to ensure that they treat any members that are workers as being in scope for auto-enrolment purposes from that date. In cases of doubt, LLP’s should form a reasonable judgment as to the employment law status of a member for auto-enrolment purposes.
LLP members who are considered to be workers will also qualify for other statutory rights linked to worker status, such as under the Working Time Regulations and protections regarding whistle-blowing and part-time working. Therefore, LLPs will also need to identify the employment rights and protections which relevant members are entitled to and take any necessary remedial action.
Traditional partnerships should also consider the potential implications of this decision for the employment law status of their partners.
The legislation creating LLPs makes clear that LLP members are not ‘employees’ for legal purposes. However, what has not been clear - until now - is whether such members could have the legal status of ‘workers’.
The fact that the Supreme Court has confirmed that a member of an LLP can be a ‘worker’ is clearly of significance to all LLPs and they need to take immediate action to address the implications of this decision.