Posted: 25/06/2014
Every now and then, the Supreme Court hands down a succinct judgment which both clarifies the law and demonstrates how their Lordships have attained their lofty position. The question of whether a member of an LLP can be a "worker" has been open for several years, involving numerous excursions into employment law, the Limited Liability Partnerships Act and the law of partnership. At last, clarity has been provided by Lady Hale in a 14 page Judgment in Clyde & Co LLP v Bates van Winkelhof [2014] UKSC 32.
The concept of a "worker" in employment law took prominence following the introduction of the Working Time Regulations in 1998. The definition has been argued over in the courts and tribunals ever since. In short, an employee is someone closely linked to a firm and who is required personally to carry out that firm's instructions. In return the firm is obliged to provide the employee with work. Conversely, a self-employed contractor is independent of a firm and only carries out work for it on the basis of a client relationship. Workers fall between these two definitions. They are self-employed and less subject to the control of the firm but nevertheless are in a personal contract with that firm to carry out work. Crucially, they are not in business on their own account and they are not able to market their services to clients in general.
Previous cases had considered whether an individual claiming to be a worker was integrated into the firm's operations and what the dominant purpose of the contract was. In Bates the Court of Appeal analysed the law of partnership with a comparison between a partnership and an LLP. Ultimately, it held that a member of an LLP could not be a worker because there was not the required subordinate relationship between that person and the LLP.
In the Supreme Court, Lady Hale identified the core issue. She referred back to the purpose of the Working Time Regulations as set out in Byrne Bros (Formwork) Ltd v Baird [2002] ICR 667. Where an individual is not sufficiently independent from a firm so as to look after their own interests, a degree of protection is needed. Indeed, Lady Hale noted that “the immediately striking thing about this case is how much hard work has to be done in order to find that a member of an LLP is not a worker.” To be fair to the Employment Appeal Tribunal, Lady Hale’s judgment closely follows the straightforward guidance given by Judge Peter Clark.
However, while Clark J had been influenced by the fact that the appellant was, in essence, a fixed share, as opposed to full equity partner, Lady Hale looked at the question regardless of whether the member was fixed share or full equity. She dispensed with a lengthy debate on partnership law, focussing instead on the definition of a worker in section 230(3) Employment Rights Act 1996. A worker "undertakes to do or perform personally any work or services for another party…whose status is not…that of a client or customer of any professional business undertaking carried out by the individual".
Where a person is, in effect, bound to one organisation for their income, they are not able to offer their services to anyone else as a client or customer and, as such, are workers. It is this simple. It is not necessary to add the "mystery ingredient" of subordination. A member of a LLP law firm is someone who cannot provide their services as a solicitor elsewhere. They are workers.
Ms Bates van Winkelhof was a whistleblower and there has been much legal commentary on what this means for LLPs and the need to ensure that whistleblowing policies and procedures fully apply to their members. Such protection is, of course, a logical result of the purpose of the Public Interest Disclosure Act 1998.
In LLPs which deal in legal, financial or compliance matters, it is the members who will often have the closest access to sensitive issues. It makes no sense to deprive such people of whistleblower protection. There has also been speculation as to whether pension auto-enrolment will apply to members, although the definitions under employment law and auto-enrolment legislation are somewhat different.
Finally, LLPs should review their remuneration provisions to ensure that members, even on a fixed share, are receiving no more than drawings of profit. Otherwise, even if there is insufficient profit in the LLP to pay the members, they will now, as workers, have a claim for unlawful deduction of wages.
Perhaps the most interesting aspect of the Supreme Court's judgment was the emphasis on the need to protect individuals who are reliant upon one organisation for their remuneration. To this extent, is there any difference between a member of an LLP and a partner in a traditional partnership?
An intervener, Public Concern at Work, asked for a ruling on the status of partners in a traditional partnership. Lady Hale said it was not necessary to do so because it did not form part of the appeal. Lord Clarke agreed it raised issues of complexity and difficulty and hoped that a future case would determine it. If the test really is as simple as an individual requiring protection owing to their inability to market their professional services elsewhere, then perhaps we should watch this space.
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