In the case of Clyde & Co v Bates van Winkelhof the Supreme Court has ruled that a partner who draws a fixed salary from an LLP would be considered a worker for employment law purposes. This is particularly significant in the wake of the wave of auto-enrolment legislation which came in over the course of the last two years. Anyone with ‘worker’ status has a right to be automatically enrolled into a workplace pension scheme. One of the most puzzling aspects of auto-enrolment for most employers, particularly partnerships, has been determining which of their staff qualify as workers for the purposes of auto-enrolment, and which do not. The Supreme Court’s ruling in Clyde & Co v Bates will force many employers to re-evaluate who should be enrolled into their qualifying workplace pension scheme.

Background

Ms Bates was a partner in the firm Clyde & Co but was working for a Tanzanian law firm called Ako Law, with which Clyde & Co was connected. She was remunerated by both a fixed share of profits plus a percentage share which was determined by Clyde & Co each year. In 2010 she was dismissed by Ako Law. She was subsequently suspended and expelled from the partnership of Clyde & Co in early 2011.

Ms Bates alleged 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 and tried to bring whistle blowing and discrimination claims against Clyde & Co in an Employment Tribunal. However, Clyde & Co argued that Ms Bates was not a ‘worker’ and that she could not claim whistle-blowing protection under the Employment Rights Act 1996, which only applies to certain categories of ‘workers’. The question the Supreme Court had to decide was whether Ms Bates was entitled to the rights reserved for ‘workers’ in these cases and in turn, whether the Employment Tribunal had jurisdiction to hear the case.

The Law

Under section 230(3) of the Employment Rights Act 1996 the legal definition of a ‘worker’ is:
“an individual who has entered into or works 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… carried on by the individual.”
Typically, partnerships had been a grey area in terms of worker status. In many partnerships, the partners of the firm are not workers, as they are viewed in law as self employed, not under a contract to perform services for an employer.

The Views of the Courts

The initial Employment Tribunal ruled that Ms Bates was not a worker under section 230, and refused her complaint. However the Employment Appeal Tribunal disagreed, and overturned the decision, finding that Ms Bates was in a subordinate position and fulfilled the characteristics of a worker.

Clyde & Co appealed to the Court of Appeal. The Court of Appeal reversed the decision of the Employment Appeal Tribunal, concluding that Ms Bates was not a worker. The Court looked at what Ms Bates status would have been if Clyde & Co had been a traditional partnership. On judging that Ms Bates would have been a true partner in a traditional partnership, the Court of Appeal concluded that she was neither an employee nor a worker in relation to Clyde & Co.

The Supreme Court has now overturned the decision of the Court of Appeal: It held that Ms Bates was a worker under part (b) of section 230(3). It based this on the analysis that Ms Bates undertook to personally perform certain services for Clyde & Co and Clyde & Co could not be said to be Ms Bates’ client or customer. Also significant was the fact that Ms Bates could not promote her services as a solicitor to anyone other than Clyde & Co. These factors led to a conclusion that Ms Bates was a ‘worker’ as opposed to being self-employed, carrying on her own business.

Impact of the Decision

Prior to the Clyde & Co v Bates case, most LLPs had taken the view that partners did not have to be automatically enrolled in a workplace pension scheme on the basis that the Court of Appeal had previously ruled that they were not ‘workers’. However, with a decisive Supreme Court ruling that partners in an LLP can be considered ‘workers’ under the Employment Rights Act 1996, it follows that partners may also fall inside the scope of auto-enrolment legislation. LLPs will now need to reassess whether partners are ‘workers’ who need to be auto-enrolled or are genuinely self-employed.

As before this decision, assessing a workforce will depend on the facts of each potential employee. However, each assessment must now be considered in the context of Clyde & Co v Bates. This will mean looking beyond whether the partner is contracted or not and looking into the facts of their relationship with the LLP. In particular:

  • Is the partner providing services personally to the LLP?
  • Are they free to market their services to others?
  • Can the LLP be said to be a client or customer of the partner?

Any LLP that has already reached its auto enrolment staging date must take immediate action to review its workforce and take action to enrol any partners that may fall under the legislation in the wake of this ruling. In the event that an LLP which has passed its staging date identifies partners that will fall under the definition of a ‘worker’, it may need to consider backdating contributions in relation to any ‘workers’ who should have previously been enrolled but were not. For partnerships and other employees that are yet to reach their staging date, this case illustrates the importance of carefully reviewing the status of each worker, and taking legal advice on any unclear cases.