UK Supreme Court decision "opens door" for certain employment-related claims by members of partnerships, says expert

Out-Law News | 23 May 2014 | 3:28 pm | 3 min. read

Professional services firms that operate as limited liability partnerships (LLPs) could be open to certain employment-related claims from aggrieved former members of the LLP following a recent UK Supreme Court decision, an expert has said.

This week, the Supreme Court ruled that a former fixed-share equity partner of a firm of solicitors was a 'worker' for the purposes of whistleblowing laws. The ruling meant that the former partner, Krista Bates van Winklehof, was entitled to certain legal protections available to workers that 'blow the whistle' on their employers.

Employment law expert Edward Goodwyn of Pinsent Masons, the law firm behind Out-Law.com, said that the decision "effectively opens the door for partners/members to certain employment-related claims that thus far were considered unlikely to be available, particularly the possibility of whistleblowing, part-time working, national minimum wage, pension auto-enrolment and working time rights claims, as well as protections against unlawful deductions from their pay."

"Following this case, LLPs will need to be careful not to retaliate against members who may argue that they blew the whistle and avoid pushing members to compulsory retirement, demotion or downgrading of profit share," he said. "Various policies - whistleblowing, part-time working - may need updating. In addition, there are likely to be more retiring partners and members being asked to sign compromise/settlement agreements going forward."

Legal protections for whistleblowers were introduced in the UK in 1999 as an amendment to the 1996 Employment Rights Act (ERA). The rules protect 'workers' who make 'protected disclosures' of certain types of information, including evidence of illegal activity or damage to the environment, from retribution by their employers such as dismissal or being passed over for promotion.

One of the definitions of 'worker' set by the ERA is an individual who has a contract to do or perform personally work or services for a party to the contract who is not, by virtue of the contract, "a client or customer of any profession or business undertaking carried on by the individual". This designation is not the same as an employee under a contract of employment, and does not confer exactly the same rights. For example, 'workers' do not have the same protections against unfair dismissal as employees.

Bates van Winkelhof, a former fixed shared equity partner of law firm Clyde & Co LLP, claimed that she had been dismissed from the firm for making protected disclosures, as defined by the whistleblowing legislation, about the managing partner of its Tanzanian associate firm after he had admitted to bribery. She had also recently told the firm that she was pregnant. In 2012, the Court of Appeal upheld Bates van Winkelhof's sex discrimination claim but dismissed her whistleblowing claim on the grounds that a member of an LLP was not a 'worker' under the ERA.

Giving the leading judgment for the majority in the Supreme Court, Baroness Hale said that it was "striking ... how much hard work has to be done in order to find that a member of an LLP is not a worker". "It is common ground that the appellant worked 'under a contract personally to perform any work or services'," she said. "It is now common ground that she provided those services 'for' the LLP. It is also now common ground that the LLP was not her 'client or customer'."

"[The ERA] expressly provides that, in the 1996 Act, 'employment' means both the employment of an employee under a contract of employment and the employment of a worker under his contract.  'Employed' is to be construed accordingly. Thus, in order to be able to use the words 'employed' and 'employment' in a wider sense than they would normally carry, so as to cover the employment of [workers] and those for whom they work, parliament expressly enacted an extension to what would otherwise be the natural and ordinary meaning of those words," she said.

"As the case of the controlling shareholder in a company who is also employed as chief executive shows, one can effectively be one's own boss and still be a 'worker'. While subordination may sometimes be an aid to distinguishing workers from other self-employed people, it is not a freestanding and universal characteristic of being a worker," she said.

In conclusion, Baroness Hale that finding Bates van Winklehof to be a 'worker' was "entirely consistent with the underlying policy" of the whistleblowing provisions, "which some might think is particularly applicable to businesses and professions operating within the tightly regulated fields of financial and legal services".