Whistleblowers: LLP Members are not ‘workers’

29 OCTOBER 2012

A recent Court of Appeal decision has resolved the issue as to whether a member of a limited liability partnership ("LLP") can be classed as a ‘worker’ as defined in Section 230 of the Employment Rights Act 1996 (“ERA”).

In Bates van Winkelhof v Clyde & Co [2012] EWCA Civ 1207, the claimant was an English-qualified solicitor and was employed by the respondent firm of solicitors.  The firm was registered under the Limited Liability Partnership Act 2000 as an LLP, and offered the claimant membership of the LLP as an equity member, with the promise of her being proposed for senior membership upon her achieving certain results. In becoming a member, the claimant signed a deed of adherence which required, inter alia, that she should devote her full time and attention to the business and would not be engaged or interested in any other business or profession. 

The claimant spent most of her working time in Tanzania on behalf of the LLP, where she was primarily employed to develop links between the LLP and a Tanzanian firm, Ako Law.  In November 2010 the claimant ‘blew the whistle’ on the managing partner of Ako Law by reporting that he had allegedly been involved in money laundering and incidents of bribery.  She was dismissed by Ako Law two days after making the report and suspended by the respondent LLP the following day.  She was made the subject of an investigation, following which she was expelled as a member of the LLP. 

The claimant duly brought a claim against the respondent pursuant to Section 47B of the ERA alleging that she had suffered a number of detriments, not least her expulsion from membership of the LLP, as a result of the protected disclosures she had made in relation to the managing partner of Ako Law.  The respondent sought to argue as a preliminary point that the claimant was not a worker as defined by Section 230(3) of the ERA and was not therefore entitled to bring any claim under Section 47B.  Section 230(3) provides:

“In this Act “worker”... means an individual who has entered into or works under...

(a) a contract of employment, or

(b) any other contract, whether by 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.”

It is apparent from the above that all employees engaged under a contract of employment are workers (s.230(3)(a) above), but that not all workers are employees – those who would fall under s.230(3)(b) above (“limb (b) workers”) would not be classed as employees, and not therefore benefit from certain additional rights that are only enjoyed by employees, including the right to bring a claim under Section 47B.  Section 4(4) of the Limited Liability Partnerships Act 2000 gives rise to the complexities of this issue where LLPs are concerned.  It provides:

“A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.”

The word “employed” in the above section is not restricted to an employee as defined in s.230(3)(a) of the ERA, but also includes a limb (b) worker as set out above.  In other words, as the Court of Appeal concluded, if the claimant could have been deemed to be a limb (b) worker if she had been a partner of the firm pursuant to the Partnership Act 1890, she would equally be a limb (b) worker by virtue of her status as a member of the LLP; if she would not have been a limb (b) worker under the 1890 Act, she cannot have acquired that status by virtue of being a member of the LLP. 

The claimant would clearly on the facts of the case have been a partner if there had been a partnership under the 1890 Act, as she was plainly, as the court held, pursuing a business for profit in common with others.  The central question for the Court of Appeal was therefore “whether partners of partnerships formed under the 1890 Act could be limb (b) workers” (para.50 of the judgment).  The Court relied on what it called “clear authority for the proposition that a partner in an 1890 Act partnership cannot be a worker” (Ellis v Joseph Ellis & Co [1905] 1 KB 324 and Cowell v Wuilter Goodison Co [1989] IRLR 392).  In part the Court relied on the following points:

  • The partnership was not a separate legal entity;
  • The parties were in a relationship with each other, accordingly each partner has to be employed by himself;
  • To be an employee therefore a partner would have to be both workman and employer, a legal impossibility;
  • The concept of employment presupposed the worker being subordinate to the employer – in a joint venture between partners that characteristic is absent.

It was therefore held (overturning the ruling of the Employment Appeal Tribunal below) that a partner in an 1890 Act partnership could be neither an employee under s.230(3)(a) ERA or a limb (b) worker under s.230(3)(b).  As such, a member of an LLP could be neither an employee nor a limb (b) worker. It followed that the claimant could not validly pursue her whistle-blowing claim and it she was not permitted to take the matter any further. She had also brought a claim based on discrimination pursuant to Section 45 of the Equality Act 2010 and related provisions, which was not dependent upon her establishing that she was a worker – this claim was allowed to continue.

The decision will be a welcome one for all LLPs, in that they will now benefit from far greater clarity as to the employment rights (or lack of them) of their members. LLPs will however need to ensure that the terms of their members’ agreements are carefully drafted, so as to avoid any potential for dispute as to whether someone is or is not a member, and as such is or is not a worker according to the legislation outlined above. 

Phillip Morris