In what has proved a long-running issue, resulting in conflicting decisions on appeal, the Supreme Court has today ruled that partners in an limited liability partnership or “LLP”are workers and accordingly attract legal protections associated with worker status.
This decision is significant, not only in terms of its employment implications for LLPs, but in the wider contexts of employment status and whistle-blowing in light of the legal clarification the SC has provided. It will also be interesting to see whether this high-profile debate about status will influence the Government’s thoughts on extending whistle-blowing protection to a wider category of persons.
Today’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 partner within an LLP.
Ms Bates van Winkelhof (Mrs 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. 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.
Mrs 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.
As it transpires, the merits of those arguments are yet to be considered. In a pre-hearing review before the employment tribunal, Clyde & Co argued that the tribunal did not have jurisdiction to hear Mrs B's whistle-blowing claim as she was not a worker and therefore fell outside the protection afforded by Employment Rights Act 1996 s47B, which applies only to specified categories of worker. It also raised a territorial issue.
As an LLP partner, Mrs B’s engagement and employment status were governed by the LLP Act 2000 which appears to make clear at section 4(4) that she was not be regarded for any purpose as employed by the LLP “unless, if she and the other members were partners in the partnership, she would be regarded for that purpose as employed by the partnership”. This clarifies she was not to be regarded as an “employee” but not necessarily whether she might be regarded as a worker.
The legal definition of a “worker” is provided by s 230(3) ERA 1996 and applies to–
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 Mrs B did not fall within either category of s230 and could not, therefore, be said to be a worker, precluding a whistle-blowing complaint. It nonetheless permitted the discrimination claim to proceed on the basis that it had territorial jurisdiction in that regard.
On appeal, over-turning the ET decision on status, the employment appeal tribunal found that Mrs 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, she was nonetheless in a subordinate position. It upheld the ET decision on territorial jurisdiction.
In summary, the Court of Appeal reversed the decision of the EAT, concluding that Mrs B did not have locus standi to pursue a whistle-blowing claim. It found the employment status of an LLP member depends what their status would have been if the LLP had been a traditional (ie 1890 Act) 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 worker in relation to the LLP. An interesting line of thought promoted by the Court of Appeal in reaching its decision, was that the status of worker implies a subordinate position to the other party to the contract. This is not something explicitly set out in the statutory definition of worker.
Today’s decision by the Supreme Court –questions answered
Overturning the conclusions of the CA, the SC confirmed that LLPs, as an entirely new concept, are a separate legal personality even though they hold the name “partnership”.
It has also ended speculation as to the meaning of section 4(4) LLP Act 2000, by finding that all this provision is in fact stating is that, whatever the position would be were LLP members to be partners in a traditional partnership, then the position is the same in an LLP.
On that question, the SC considered section 4(4) LLP Act 2000 and the meaning of “employed”. It applied a limited interpretation in finding s4(4) applies only to those working under a contract of service (ie an employment contact), not more widely. This section did not therefore exclude others working within an LLP who are not employees. Finding that the terms of Mrs Bs contact with the LLP fell within limb b of s230 ERA, in that she undertook personally to perform certain works or services for it and her status was not by virtue of the contract that of client or customer, the SC concluded she was a worker with s230 ERA. Importantly, she was not obliged by reason of s4(4) to establish she would have been deemed a partner in the traditional sense in order to fall within s230.
In light of these conclusions, the SC found it was unnecessary to consider the CA observations regarding workers being in subordinate positions. Rejecting any suggestion that s4(4) LLP Act 2000 had impliedly modified s230 ERA, the SC nonetheless confirmed that, whilst subordination may sometimes be an aid to distinguishing workers from other self-employed people, it is not free standing and universal characteristic of being a worker.
The legislation creating LLPs (the LLP ACT 2000) makes clear that LLP members are not “employees” for legal purposes. However, what has not been clear -until now- is whether such members might have the legal status of “workers”.
The fact that the SC has finally resolved this issue and confirmed worker status for LLP will clearly be of significance to all LLPs, providing clarification of the status of their members and the fact that they are subject to statutory rights, such as under the Working Time Regulations and protections regarding whistle-blowing, part-time working.
This decision will please those currently campaigning for greater whistle-blowing protection pending publication of the Government’s response to a Call for Evidence, which has been delayed from Easter. The limited categories of person to whom whistle-blowing protection is afforded, is a particular issue of contention. Many worker representatives are of the view that the list should be extended to include LLP partners and others, individuals they see as likely to be in positions of knowledge and/or authority and therefore potentially at risk of retribution, if they “blow the whistle”. The fact that this case now recognises LLP partners in the eyes of the law, means they will fall within the protected categories of workers for whistle-blowing, without necessitating further change of the statutory provisions.