A fixed deal for fixed share partners
The concept of partnership has been transformed in the post-Legal Services Act world, says Michelle Chance in response to today’s Appeal Court ruling in Tiffin v Lester Aldridge LLP
Michelle Chance
LLPs can breathe a sigh of relief today, safe in the knowledge that the Court of Appeal’s decision in Tiffin v Lester Aldridge LLP has clarified the employment status of fixed share equity partners.
Tiffin tried to argue that despite being a fixed share equity partner, the reality was that he was an employee of the firm. However, the court made short shrift of that, meaning fixed share partners will not be able to have their cake and eat it too.
As a result of today’s ruling, fixed share partners will now find it nigh on impossible to bring statutory employment claims for unfair dismissal, wrongful dismissal or a statutory redundancy payment (other than for discrimination that applies equally to partners too), if they make a capital contribution to their firm, share in the profits of the LLP, have a say in the firm’s management and will share in the LLP’s surplus assets on a winding up (even if only to a very limited degree).
This is the right decision in my view. Fixed share partners cannot take the tax, status and other benefits of being a partner on the one hand, yet at the same time claim to be an employee in order to sue their firm if the relationship between them sours.
The commercial interests of fixed share partners and equity partners are materially different. Equity partners inject a higher level of capital into their firms and can legitimately expect to receive a higher profit share than their fixed share counterparts by way of return, much like the way shareholders receive dividend levels dependent on the number of shares they own. Higher risk leads to greater reward.
As owners of the business, equity partners should and do have a greater voice in its management. However, the character of interests that both classes of partner had in Lester Aldridge was substantially the same. Both classes of partner contributed capital, shared in the LLP’s profits, had a say in the firm’s management and had the prospect of sharing in the LLP’s assets on a winding up.
Parties’ intentions at the time of entering into an LLP members agreement regarding the type of business relationship into which they understand themselves to be entering and whether the agreement is intended to govern the relationship between them, will be key to resolving similar disputes in the future. Prior to issuing his Employment Tribunal claim, Tiffin never asserted to his firm that he was an employee, or that the members agreement was a sham.
Previous case law, which was upheld in Tiffin’s appeal, has established that a person can still be a partner, even if they have no right to share in the firm’s profits, haven’t made a capital contribution and don’t have voting rights.
Today’s decision is great news for law firms, particularly given the march of alternative business structures. Law firms will be run more like corporate entities when accepting outside capital and non-lawyers play a key role in law firm management structures.
The concept of partnership is being redefined and transformed by the new legal landscape and the opportunities that the Legal Services Act affords. Law firms can now move forward with these exciting new possibilities, safe in the knowledge that fixed share partners will not be able to bring statutory employment claims against them, just because their involvement in management decisions is limited or even non-existent.
Michelle Chance is a partner at Kingsley Napley
Readers' comments (1)
Martin Tiffin | 3-Feb-2012 3:47 pm
Some people have been asking whether i would be prepared to take this to the SC. If you fund me then i would. If I was to go to the SC this would be my approach
1. ss4(4) legal nonsense
2. hypothetical assumption contrary to autoclenz
3. ss1(5) Partnership law does not apply
4. definition of a LLP different to that of a partnership. No “in common”
5. CA in Zahid. Only essential ingredient of a partnership is the ability to bind one another. No such ability in a LLP hence reason for absence of “ in common” in the definition.
6. Parliament did not intend to circumvent empolyment based case law/ common law tests
7. Because s4(4) badly drafted courts should carry out both tests to check that come to same result. there is no control test when you consider whether a person falls within the statutory defintion of partner/partnership.
8. Court to be alive to tokens of so called partnership status drafted into agreements to avoid NI and employment protection.
9. Mutually exclusive concept based on the old definition of employee in the 1989 Tupe Regs. ERA 1996 definition wider.
10. LJ Pill's judgement in one of my earlier applications( 1 April 2011)
My prediction for 2012 is that the mutually exclusive concept will be dead with in 2 years!
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