The Supreme Court has decided that members of limited liability partnerships (LLPs) can be workers and covered by the UK's whistleblowing protection laws. Workers who suffer a detriment for "blowing the whistle" on wrongdoing can claim unlimited compensation and this case, although concerning a law firm, has consequences for any limited liability partnership (LLP).
What is an LLP?
Traditionally, a partnership is a relationship between two or more people carrying out business together with a view to profit, and are governed by the Partnership Act 1890. In England and Wales, a partnership is not a separate legal entity and the partners generally have unlimited liability. However, the Limited Liability Partnerships Act 2000 established the concept of the LLP, which is a form of corporate body and a separate legal entity from its members (as they are legally known although it is common to continue to use the term "partner" in day to day business, particularly where the LLP's business was formerly run as a traditional partnership). An LLP has no shareholders or directors and, like a partnership, there is a private agreement governing the relationship between its members, who have limited liability and are taxed as partners in a partnership would be.
Krista Bates-van Winkelhof was a solicitor and a member of Clyde & Co LLP, which divided its members into "senior equity members" and "equity members". As an equity member, Ms Bates-van Winkelhof's remuneration included both a fixed minimum and an element of profit-share. She was entitled to vote for the managing partner and the board. Senior equity members had greater voting rights and received a fixed profit-share according to their position in the firm's lockstep remuneration structure.
In 2010, she reported to the LLP that the managing director of a Tanzanian law firm (a joint venture of her firm, and to which she was seconded) had admitted paying bribes (an allegation denied by the LLP throughout the proceedings.) She was promptly dismissed from the Tanzanian firm, suspended by the LLP, and then expelled. She brought claims alleging that she had been dismissed for being a whistleblower and also (as she was pregnant at the time) for sex and pregnancy discrimination.
The Employment Tribunal held that she was not a worker, so could not bring a whistleblowing claim. The Employment Appeal Tribunal disagreed and said she was, but the Court of Appeal overturned that decision. Now the Supreme Court has had the final word and decided that she was a worker, adding that giving individuals in such a position whistleblowing protections was "entirely consistent with the underlying policy of those provisions, which some might think is particularly applicable to businesses and professions operating within the tightly regulated fields of financial and legal services".
What does the case mean for LLPs and their members?
It is good news for corporate social responsibility and, personally, for members of LLPs. Professionals in legal, regulatory or financial sectors may have statutory or contractual obligations to report to a regulator or other third party or to the Serious Organised Crime Agency (SOCA) under anti-money laundering requirements. They may also whistleblow to a third party where it would be in the public interest to do so, even they have no legal obligation requiring them to make a report, and are subject to codes of ethics and guidance that apply to members of professional bodies. However, individuals can be wary of raising concerns – even if obliged to do so – if they are vulnerable to personal reprisals.
Employees and others who, if not actually employees, fall within the definition of worker have always had protection from retaliation for blowing the whistle if they become aware of wrongdoing. Under the Employment Rights Act 1996, workers are protected from dismissal or any other negative treatment (such as demotion or pay cuts) in retaliation, however briefly they have worked for their employer. Compensation for whistleblowing claims is uncapped and, if the worker is highly paid or his or her career will be blighted forever, can run into millions. This protection has now been extended to LLP members occupying senior positions – exactly the kind of individuals that research by Public Concern at Work has discovered are most likely to be dismissed for speaking out.
As Public Concern at Work has noted, "The Supreme Court has sent a strong message that it sees the public interest in protecting lawyers, accountants, doctors and others who operate through LLPs….In the light of recent scandals in banking and other sectors it is important that all professionals are empowered to speak up where they come across any fraud, risk or danger and to be protected when they do so.”
While one might hope "shooting the messenger" has never been considered good business practice, LLPs should now be careful that members, as well as employees, who raise concerns are protected from retaliatory action. Genuine business reasons for any negative decisions taken in respect of LLP members (such as forced retirement, demotion, or reducing profit-share) should be recorded in writing as evidence that it was not because of any alleged whistleblowing.
Many firms already have internal whistleblowing policies or training sessions. These should be updated to include reference to members.
The bigger picture: what being a worker means for LLPs and their members
Whilst the case was about whistleblowing, that's not the end of the story. Being a worker gives other employment protections, which include rights under the Working Time Regulations to minimum holiday and rest breaks, limits on working hours and protection for part-time workers. Workers are also entitled not to have deductions taken from their wages without their authorisation, so any LLP agreements with clawback provisions should be reviewed to check they comply with this.
In addition, workers with qualifying earnings must (unless they opt out) be enrolled automatically into pension schemes. Employers of qualifying workers must pay 1% (rising to 2% in October 2017, and 3% a year later) of qualifying earnings into an occupational pension scheme. It may well be that the profit share or other remuneration given to partners does not fall within the definition of qualifying earnings and if that is the case, automatic enrolment will not apply. However, in any event, the issue will need to be considered, particularly given the significant fines and penalties for non-compliance with the auto enrolment regime.
The judgment does not answer whether partners in traditional partnerships under the Partnership Act 1890 could be workers, and does not necessarily mean that LLP members necessarily have employment related rights or are properly to be treated as Schedule E tax payers. The case means LLP members can be workers, but does not mean that all LLP members are, by definition, workers: in each case it will still be necessary to consider all the facts. The Finance Bill's Salaried Members Rules (which are still before Parliament) mean that many LLPs are reviewing their arrangements at present. Firms may want to review whether structural changes they are making to take account of changes to the tax treatment of partnerships will make it more or less likely that their LLP members will be brought into the category of workers.
And lastly – although an important principle for LLPs in general has now been established, for Ms Bates-van Winkelhof personally, the case is not over. It will now return to the Employment Tribunal to ascertain what actually happened nearly four years ago, and whether her expulsion was punishment for speaking out.