Clydes whistle-blowing case – the legal reaction

Today’s Supreme Court whistleblowing decision not only paves the way for partner-level whistle-blowing claims to be levelled at firms for the first time but poses further questions on the employment status of partners, employment lawyers say.

The Supreme Court ruled this morning that LLP members are protected by whistle-blowing legislation paving the way for the first whistle-blowing case against a law firm (21 May 2013).

The decision means that former Clydes partner Krista Bates van Winkelhof can pursue a whistle-blowing case against the firm alongside her pregnancy, sex discrimination employment case. 

Leading employment lawyers have hailed the decision as a victory for common sense. 

Serle Court barrister John Machell QC, who led a team acting pro bono on behalf of the intervener, Public Concern at Work said: “The Supreme Court’s decision provides much needed clarity on the question whether an LLP member can be a “worker”, and so entitled to various statutory protections, including under the whistleblowing legislation, but leaves open for future cases the questions whether and in what circumstances an LLP member can be an employee and whether a partner in an ordinary partnership can be a worker or an employee of it.”

CM Murray managing partner Clare Murray, who also appeared for Public Concern at Work said: “The bottom line though for LLPs is don’t victimise LLP members who blow the whistle, update your policies and training to ensure your people know they mustn’t do this either, and make sure you have a papertrail which shows your genuine business reasons (unrelated to any whistleblowing) when you exit an LLP member, demote them or reduce their profitshare.”

Ashurst partner Caroline Carter commented: “This is a highly significant decision. The LLP structure has been particularly popular in finance, accounting and legal services. The Supreme Court’s decision that LLP members can be workers may have repercussions about how these businesses wish to structure and manage their memberships. Whistleblowing claims are uncapped and can be brought in a large number of circumstances, so we would expect such claims to be raised by sizeable numbers of disgruntled LLP members as they exit (or are removed from) LLP arrangements.”

Kingsley Napley  employment partner  Michelle Chance said: “This is good news for both LLPs  and LLP members. LLP members have access to financial documentation and management information that most employees would not see, and are therefore more likely to be aware of wrongdoing than more junior members of staff. LLPs should encourage a culture of compliance and transparency in which members are valued for doing the right thing and bringing wrongdoing to their firm’s attention, so that it can be dealt with early on and stamped out”. 

Referring to the recent clarification in the definition of employee for tax purposes Chance continued: “HMRC’s recent challenge to the employment/self-employed status of fixed share equity partners, they will now be taxed as employees rather than self-employed, unless they fail one of the 3 conditions imposed by HMRC.  Those LLP members who are now being taxed as employees, will therefore be relieved to know that they can now benefit from more of the statutory employment protections that employees enjoy.”

Addleshaw Goddard managing associate Annabel Mackay said the ruling enables LLP members “the right to speak up without fear of reprisals”.

She continued: “LLPs need to make sure that they have a proper whistle blowing process in place for members to raise concerns. The effectiveness of any policy should be monitored closely. What is important is to create a culture where subjecting a whistleblower to any detriment will have serious consequences”.

She warned that without a proper policy in place, LLPs may face claims for uncapped damages by whistleblowers, which brings with it both reputational and financial costs.

Weightmans employment partner Phil Allen said: “Many may welcome the judgment as a move towards greater transparency in the corporate world, as LLP members will be protected from reprisals if they ‘speak up’ about professional malpractice.

Allen agrees that is may open the door for other types of claim. “On a practical level this decision may create uncertainty for businesses. Members being workers raises the possibility of wider rights. As they are to be defined as ‘workers’ LLP members may be entitled to receive paid annual leave or to be auto-enrolled in a pension scheme – a potential administrative nightmare.

”Many lawyers will be surprised and alarmed at this ruling. Due to the typical lack of subordination or hierarchy in the relationship of LLP members/partners, the prevailing view had previously been that LLP membership and worker status were effectively inconsistent. We now know that LLP members can bring claims if they allege they have been subjected to a detriment because they spoke out.  Contracts, LLP agreements and other key documents may need to be overhauled.”

Stewarts Law employment partner Richard Nicolle said: “This judgment would appear consistent with the underlying spirit and intention of the UK’s whistle-blowing legislation.  It had appeared a significant inconsistency that a partner making a disclosure in good faith of legal wrongdoing would not have equivalent protection to an employee and this has now been rectified.”

Linklaters employment partner Nicola Rabson agrees saying: “This is a sensible decision that is consistent with the trend to ensure those who raise concerns are protected against retaliation.”

The case will now be remitted to the Employment Tribunal to consider whether Bates Van Winkelhof was unfairly dismissed as a result of her whistleblowing allegations.