The UK Court of Appeal has today handed down judgment in a case which considers the circumstances in which an individual who enters into a members’ agreement in a limited liability partnership may be considered to be an employee. Jonathan Exten-Wright, employment partner, DLA Piper explains…
Mr Tiffin was a fixed share partner in the law firm Lester Aldridge LLP (the LLP). Prior to the LLP becoming an limited liability partnership, Mr Tiffin had been a salaried partner and then a fixed share partner. When the LLP converted to a limited liability partnership, Mr Tiffin signed the members’ agreement and made a contribution to capital. He received a small share of profits. In 2009, Mr Tiffin parted company with the LLP due to his failure to establish a sufficient client base to provide work for him and his colleagues. Mr Tiffin brought employment tribunal claims for unfair dismissal, breach of contract and statutory redundancy, and sought to establish that he was an employee of the LLP. The LLP claimed that he was not an employee and therefore the employment tribunal had no jurisdiction to hear his claims. The tribunal found that he was a partner and not an employee as, amongst other factors, he entered into a membership agreement, he received a fixed share of equity, he received a small profit , he contributed capital’ he was entitled to share in a winding up’ and he was entitled to attend and vote at management meetings. On appeal to the EAT, Mr Tiffin argued there were factors that pointed towards him being an employee i.e. he was not involved in management, he received too small a profit share and the fact that the LLP purported to dismiss him by reason of redundancy. The EAT agreed with the tribunal and held that Mr Tiffin was a member, not an employee. In its reasoning the EAT commented that there is no minimum threshold that has to be reached in relation to a person’s rights to profit or involvement in management before they can be considered a member. Mr Tiffin appealed to the Court of Appeal. The Court of Appeal dismissed Mr Tiffin’s appeal.
This decision in today’s judgment is a useful reminder that although there is often what may appear to be little material difference between fixed-share and salaried partners, relatively minor differences may be determinative of employment status. In particular there is no minimum level of capital contribution, profit share or involvement in management decisions required before an individual may be classed as a partner. It may be significant, however, that in Mr Tiffin’s case all three of those factors were present; it was not clear from the Court of Appeal’s decision whether profit share alone, or capital contribution alone, or management involvement alone would denote partner status. By contrast, in Williamson & Soden Solicitors v Briars the EAT held that the fact that someone receives a share of the profits will not, of itself, point to partnership status. The solicitor in that case was held to be an employee, despite the fact that he was entitled to one-eighteenth of the profits of the firm, although in that case it was crucial to the decision that not much had changed in the arrangements between Mr Briars and the firm since the time when he had been labelled as an employee. Custodians of LLP members’ agreements would be wise to revisit these and operations in practice, and audit the distinctions between classes of partners/members to assess the risk of future challenge, particularly in an environment where departures may well be on the cards.
