The status of a “salaried partner” can be important. This is so not only if a firm is in financial difficulty (as partners but not staff are generally liable for a firm’s debts) but also for employment law purposes (as partners, not being “employees”, do not have many employment law rights such as unfair dismissal rights). With the arrival of LLPs (under the Limited Liability Partnerships Act 2000) new considerations have to be taken into account. A recent case shows that nevertheless the basic principles remain unchanged.
A firm of solicitors, Lester Aldridge, became an LLP in May 2007. Mark Tiffin who had joined in 2001 as an employed “associate” became a “salaried partner” in 2005 and then in 2006 became a “fixed share partner” and then an equity partner. He was henceforth paid monthly “drawings” (not salary), was a signatory on the partnership’s bank accounts, had voting rights and was required to contribute a sum of money into the partnership. He was then no longer considered an employee.
In 2008 Mr Tiffin’s membership of the LLP was terminated. He sought to bring claims in the employment tribunal, including unfair dismissal. This led to consideration by the tribunal of the preliminary legal issue of whether he was an employee, in which case his claims could proceed, or a partner, in which case they could not. The tribunal concluded that he was a partner, not an employee, and so dismissed his claims.
Mr Tiffin appealed against that finding to the EAT – and lost.
The EAT noted the definition of “partner” in the Partnership Act 1890 as “the relation which subsists between persons carrying on business in common with a view of profit”. Albeit there are now different types of partners, the judge noted that for a partnership to exist three conditions must be satisfied – there must be (1) a business which (2) is carried on by two or more persons in common (3) with a view of profit. To determine whether someone was a partner in an LLP one must first determine if he would be a “partner” in a “partnership”; if not, is he an “employee” under common law tests?
The EAT ruled that any limits on Mr Tiffin’s powers were irrelevant, saying: “There is no statutory provision or authority, which states that for a person to be a partner, he or she has to have a certain minimum number or a certain minimum types of rights to vote or to participate in management decisions…”. Furthermore so was the fact that other partners might make more profit than he did: “There is no statutory provision or any decided case which specifies that the share of profits of a person or his or her contribution must reach a certain level before he or she can be regarded as being a partner…”.
The EAT also ruled that the existence of facts which might point to someone being an employee do not prevent the conclusion that he is in law a partner – for example, in this case although Mr Tiffin was under the direction of other partners, this is not uncommon in partnerships and does not mean that that the person concerned must be an employee.
The distinctions can be fine, but the general principle is important. Employees can claim unfair dismissal but partners cannot. It should be noted however that partners in a partnership do have many other employment law related rights, notably the right under what is now the Equality Act 2010 not to be discriminated against.