Worker or partner... what's the difference?

Can a partner (or a member of an LLP) be a worker? This was the question for the Court of Appeal in the recent case of Clyde & Co LLP v Bates Van Winkelhof [2012] EWCA Civ 1207 (26 September 2012).

One of the most vexed areas of employment law practice is the critical question of employment status. This latest in a line of authorities is particularly relevant for law firm partnerships, LLPs and the partner members of them. In short, the Court of Appeal held that an equity partner of the LLP (albeit on a fixed profit share) was not a “worker” within the meaning of the relevant law.

“Worker”: a unique status

Ms Bates Van Winkelhof was headhunted by Clyde & Co to develop opportunities in Tanzania. She was offered membership of the LLP as an equity member with the prospect of moving to senior equity. Her remuneration was fixed share but calculated by reference to profit. Her relationship with Clyde & Co ended by expulsion. This followed an allegation that she had reported the alleged wrongdoing of the managing partner of a law firm with which Clyde & Co was in a joint venture in Tanzania. Ms Bates Van Winkelhof brought two claims – one for detriment on grounds of what is known as “whistleblowing”, alleging that this was the unlawful reason for her expulsion; and the other for sex discrimination.

The claimant’s eligibility to claim under the whistleblowing provisions depended on her being found to be a “worker” at law.

Section 230(3) of the Employment Rights Act 1996 provides: “In this Act ‘worker’… means an individual who has entered into or works under (or, where the employment has ceased, worked under) –

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”.

The concept of a “worker” is therefore wider than the definition of “employee”. The highest protection of the law is offered to employees who can, for instance, claim unfair dismissal. In this case, it was not argued that Ms Bates Van Winkelhof was an employee, but rather that she was a “worker”.

In addition to the right not to suffer a detriment for whistleblowing, “worker” status provides additional protection to part-time workers; under the Working Time Regulations 1998 for working hours and rest breaks; and the right to receive the national minimum wage (although this is unlikely to be relevant for law firm partners). More recently, the definition of “worker” has also been used for the new pension scheme auto-enrolment provisions.

Legal impossibility

The Court of Appeal decided that members of LLPs, who would have been partners if they were in an unlimited partnership, could not be considered to be “workers”. Although a large city law firm such as the respondent is commonly now run in a similar way to a large company, Ms Bates Van Winkelhof was still seen as having significant rights to participate in the running of the business as a member/partner. She had the right to vote on certain matters such as the admission of new members to the LLP.

The court held that a partner in a traditional partnership could not be a “worker” for two reasons. First, since a traditional partnership is not a separate legal entity, the parties are in a relationship with each other and, accordingly, each partner would have to be employed by herself or himself. The court held that to regard a partner as both a “workman and employer is a legal impossibility”. The court saw no difference in an LLP model where the member of the LLP would otherwise have been a partner in the traditional partnership.

Secondly, the court held that the concept of employment presupposes a hierarchical relationship where the worker is subordinate to the employer. This is missing in a traditional partnership model, where partners are carrying on business in common with a view to profit. The characteristic of subordination is therefore absent. In a sense, the partnership concept is the antithesis of subordination.

This judgment follows another recent case, Tiffin v Leicester Aldridge LLP [2012] EWCA Civ 35; [2012] ICR 647, in which the Court of Appeal had held that fixed share partners in an LLP are not “employees”. The test of employment status is more stringent given the additional protection afforded to employees.

Termination test

So, as employment and worker status cases largely turn on their individual facts, can we discern any particular principles for law firms and partners? While the Court of Appeal was not prepared to find that the partner in this case was a “worker”, it might have been possible on a different set of facts. For instance, if, say, a fixed share partner had minimal involvement in the running of the firm, or their remuneration bore no relation to the profitability of the firm, the court might have been persuaded that the broader concept of “worker” status applied. The legal impossibility that the court identified might not apply where the member concerned would not have been viewed as a partner of an unlimited partnership; and where there was evidence of subordination in practice.

Firms should review their partnership and LLP members’ agreements to assess what protection different categories of member (whether salaried, fixed share, fixed equity or full equity) may have as employees or workers. It is important to understand what rights partners may have when departing from a firm. The court had no hesitation in holding that the partner in this case was a “partner” in the legal sense (or at least a “member” of an LLP). That was the easy part. The question of worker/employment status requires closer attention to the concept of “subordination”.

Finally, it should be noted that Ms Bates Van Winkelhof is still free to pursue her claim of sex discrimination, as firms must remember that the right to claim discrimination under the Equality Act 2010 applies equally to partners as it does to employees.