A Member of a Limited Liability Partnership Can be a “Worker”

Background

The rights conferred on an individual working in the United Kingdom depend on his or her employment status. An individual can be an employee, self-employed or a “worker.” Employees enjoy the greatest number of rights, and those who are self-employed the least, with workers in between the two extremes.

The categorisation of individuals who fall within the hybrid class of worker has been the subject of considerable debate. In the case of Bates van Winklehof v Clyde & Co LLP [2014] UKSC 32, the Supreme Court was asked to decide whether members of a limited liability partnership (LLP) qualified as workers.

In a judgment handed down today, the Supreme Court has confirmed that LLP members who:

• Personally perform services;
• Form an integral part of the LLP’s business;
• Are unable to offer their services to anyone else; and
• In respect of whom the LLP is neither a client nor a customer

are workers, even if they receive a share of the LLP’s profits. These individuals are therefore entitled to the rights and protections that UK legislation affords to workers, including protection against detriment for ”blowing the whistle.”

Issue

The crux of the debate was whether or not an individual who is held out to the world at large as a partner, and who might enjoy a high degree of autonomy in relation to the performance of his or her work, could be a worker.

The Court of Appeal had previously held that status as a partner in an LLP precluded an individual from being a worker. The rationale was that an individual could not, in effect, be his own employer. The two concepts were regarded by the Court of Appeal as mutually exclusive.

The Supreme Court has now held, however, that it is possible to be both. The Supreme Court likened the situation to that of a “controlling shareholder in a company who is also employed as chief executive.”

Dealing with a point that had been central to the Court of Appeal’s decision, the Court also found that “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.”

Practical implications

Whistleblowing

There is, clearly, a strong public policy argument for enabling LLP members to pursue claims if they legitimately suffer a detriment as a result of blowing the whistle. The door is now open for them to do so.

For prospective litigants, such claims hold the attraction of uncapped damages, but it is worth remembering that the ability to pursue whistleblowing claims has recently been reined in. It is now necessary for a prospective claimant to establish that he or she blew the whistle in the public interest.

For their part, LLPs ought to be ready to explain why a member was treated as they were so the LLP can be ready to defend any claim(s) made.

Other “worker” rights

Looking beyond the whistleblowing regime, other rights that apply to workers, and that are now confirmed as ones that apply to qualifying LLP members, include the right

• To a minimum amount of paid annual leave and other limits on working time;
• Not to suffer an unauthorised deduction from wages;
• To be automatically enrolled in a qualifying pension scheme, and to have minimum contributions made into that scheme on their behalf; and
• Not to be less favourably treated on the basis of part-time status.

Most of these are unlikely to change how the majority of LLPs already operate in practice. Nonetheless, all LLPs ought to review their LLP agreements to ensure they properly reflect, and are in compliance with, these rights.

Members should, for example, be asked to opt-out of the limit on working time, if they have not already done so, and provisions for accrual of statutory minimum holiday (and payment in lieu on termination) ought to be put in place. LLP members on maternity, paternity or adoption leave will have the right to accrue, and take, a pro-rata amount of annual leave and arrangements should therefore be made for this to happen.

If the LLP wishes to exercise the right to claw back or withhold the drawings of a member at any point, the LLP agreement ought to be amended to ensure this is properly authorised.

Auto-enrolment

Where this decision is likely to have the greatest practical impact however, is in the context of the new pension auto-enrolment regime that is gradually being rolled out. The vast majority of LLP members are likely to qualify as “eligible jobholders” under this regime, which means the LLP will be obliged to automatically enrol them as soon as the LLP passes its staging date. In addition, the LLP will (unless the member elects to opt-out) be obliged to make minimum “employer” contributions into the pension scheme on behalf of each member and provide certain minimum information to them. LLPs should, therefore, re-visit any analysis they might have undertaken previously for employees in connection with the auto-enrolment regime and consider what, if anything, needs to be done for members.

To Do List for LLPs