Employment lawyers often have to struggle with deciding the legal status of an individual. It is often of fundamental importance because only employees can claim unfair dismissal. Workers, which are a different category have narrower rights, mainly to do with not being discriminated against. Finally, there is a third category, that of independent contractor, who have very limited rights. However, sometimes telling the difference in practice between the different types can be difficult and there have been many cases and tests devised over the years on how to distinguish between them.
A “Worker” is defined at s.230(3) of the Employment Rights Act 1996 thus
In this Act “worker” (except in the phrases “shop worker” and “betting worker”) means an individual who has entered into or works under (or, where the employment has ceased, worked under)—
(a) a contract of employment, or
(b) any other contract, whether 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;
and any reference to a worker’s contract shall be construed accordingly.
In the recent case of Clyde & Co LLP v Bates Van Winkelhof [2012[ EWCA Civ 1207 it was subsection (b) of the above definition that was under discussion. In that case Ms Van Winkelhof was a Member of an LLP and she had brought a claim against it for whistleblowing and sex discrimination.
The issue arose as to whether she could, as a Member, bring a whistleblowing claim on the basis that she was a worker within the meaning of s.230(3)(b) above. She alleged that she had been expelled from the LLP as a Member and thus suffered detriment. If she was deemed to be a worker within the meaning of that section she could bring a claim for whistleblowing. If she was not a worker then she had no entitlement to bring a claim. It was never contended that she was an employee.
The Employment Tribunal rejected her claim, the EAT held that she was a Member and, finally, the case reached the Court of Appeal.
The Court of Appeal then took a careful look at the caselaw and at her position. It held that in her role as a member she took an active part in the running of the business, saw the accounts, could attend partnership meetings when budgets were set and could vote for or against new members. The CA considered that she was not in a subordinate position at all and thus could not be a worker.
However, the CA then looked at another issue, which concerned s. 4(4) of the Limited Liability Partnership Act 2000 which states
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
Somewhat surprisingly this issue hadn’t been considered in the previous hearings. The distinction between a traditional partnership, governed by the 1890 Partnership Act and the Limited Liability Partnership Act 2000 is that the latter does provide for the partnership to have a separate legal identity to its members, which is not possible with an 1890 Act partnership. Hence the need for s4(4).
Lord Justice Elias gave the lead Judgment and found in favour of Clyde & Co. His reasoning was that a member of an LLP could not be a workerof the LLP for two reasons. The first is that a partnership has no separate legal identity to the people who comprise it, therefore a partner claiming to be an employee would be “both workman and employer which is a legal impossibility”.
The second reason LJ Elias described as being more “sociological”: an employer-worker relationship requires a degree of subordination by the worker to the direction of the employer
“Where the relationship is one of partners in a joint venture, that characteristic is absent. Each partner is agent for the other and is bound by the acts of the other and each partner is both severally and jointly liable for the liabilities of the partners. There is lacking the relationship of service and control which is inherent in both concepts of employee and limb (b) worker. The partnership concept is the antithesis of subordination.”
He concluded that
“a member of an LLP who, if it had not been registered as an LLP would have been a partner in an 1890 Act partnership, can be neither an employee nor a limb (b) worker within the meaning of Section 230 of the Employment Rights Act 1996. It follows that the claimant cannot pursue her whistle blowing claim.”
That will provide some relief for LLPs, but the main lesson must be to ensure that the LLP Membership agreement/Deed of Adherence is carefully drafted so as to make it clear the individual will not be acquiring employment or workers rights. In the case of Van Winkelhof she was still entitled to pursue her claim for sex discrimination.