When a worker makes a protected disclosure or “blows the whistle” the Employment Rights Act (ERA) protects that worker from being dismissed or subject to any detriment as a result of having made a protected disclosure. This protection does not apply to members of limited liability partnerships (LLPs) following the decision of the Court of Appeal in Clyde & Co LLP and Another v Bates van Winkelhof, where it was held that a member of an LLP is not a “worker” for the purposes of whistleblowing or other statutory employment protections.
Ms Bates van Winkelhof (Ms B) was an equity partner of Clyde & Co LLP (the Firm) who had been seconded to a Tanzanian law firm, Ako Law. In November 2010, Ms B reported that the managing director of Ako Law had been involved in money laundering and admitted paying bribes to secure work and affect the outcome of cases. Ms B was subsequently dismissed by Ako Law and then expelled as a member of the partnership.
Ms B brought a complaint pursuant to section 47B of the ERA alleging that she had suffered a detriment (being expelled from the partnership) as a result of having made a protected disclosure concerning the managing partner of Ako Law. In the alternative, she claimed that her expulsion from the Firm was pregnancy related because she had recently informed the Firm that she was pregnant.
The Meaning of Worker
The Court of Appeal considered the preliminary issue of whether a member of an LLP could be a “worker” within the definition set out in section 230 of the ERA. Aside from protection as a whistle blower, worker status would give members access to certain additional rights, including paid holiday and restrictions on working time. As such, the Court’s decision was of serious concern to all LLPs.
The EAT had found that Ms B was a worker because she had agreed to devote the whole of her working time to the Firm’s business and because she was in a subordinate position to the LLP. The Court of Appeal overturned the this decision. It held that where someone is a partner of a traditional partnership, or member of an LLP, they cannot be a worker. The element of subordination is missing which is an essential requirement of worker status.
In coming to its decision, the Court looked at section 4(4) of the Limited Liability Partnership Act 2000, which states:
“A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.”
The Court concluded that interpretation of this section required an examination of whether partners under the Partnership Act 1890 could be workers. It determined that while a partnership under the 1890 Act is not a separate legal entity (unlike LLPs) the essential nature of the relationship was the same:
- the partners are all in a contractual relationship with each other in a joint venture, and accordingly, each partner has to be self-employed - he or she would be both employer and worker, which is a legal impossibility; and
- the relationship of service and control inherent in the concepts of employee and worker was not present - it was inconsistent with a hierarchical subordinate relationship of employer and employee.
Since a partner in an unincorporated partnership under the 1890 Act was not a worker within the meaning of section 230 of the ERA, it followed that a member of an LLP was not one either. As a result, Ms B was not a worker and did not have jurisdiction to pursue her whistleblowing claim.
Why Does This Matter?
For LLPs, the Court of Appeal’s ruling has provided much needed clarification on the employment rights of members. A partner does not become a “worker” simply because the partnership has been incorporated into an LLP. Accordingly, partners will not enjoy the rights afforded to workers in various employment statutes, including protection as a whistleblower, paid annual leave and restrictions on working time, simply by virtue of their membership.
The Courts will, however, consider the members’ agreement in determining whether individuals are genuinely members (and therefore partners or workers/employees), so it is important to draft the terms of this agreement clearly to avoid any ambiguity.
It should also be noted that the Court of Appeal allowed Ms B to continue with her discrimination claim. While partners do not qualify for worker status (and the consequent protections), they have similar rights to employees not to suffer unlawful discrimination under the Equality Act 2010.