Pay attention to the drafting of that members’ agreement, so no members are seen as subordinate
Following the Court of Appeal’s decision in Clyde & Co v van Winkelhof it will be difficult for LLP members to bring whistleblowing claims against their firms.
The case centred on whether members of LLPs were ‘workers’, protected by whistleblowing legislation. The court’s starting point was whether the member would have been a partner had the LLP been a traditional partnership, and whether, under the members’ agreement, they were in a subordinate position.
Although most City law firms are now run in a similar way to corporations, Winkelhof was still seen as having significant rights to participate in the running of the business as she could vote on matters such as the admission of new members. The court did not consider whether she had exercised her voting rights.
In this case Lord Justice Farquharson found that a partner in a traditional partnership cannot be a “worker” for two reasons. First, the parties are in a joint venture which is inconsistent with a hierarchical employment relationship.
Second, in an employment relationship the worker is subordinate to the employer. In a traditional partnership, where people are carrying on business in common with a view to profit, the characteristic of subordination is absent. Partnership is therefore the “antithesis of subordination”.
While it was accepted that contractual arrangements often confer different powers on different groups of partners, the nature of a partnership relationship places it outside the sphere of employment relations. It was therefore held that a member who would otherwise have been a partner can be neither an employee nor a worker, and on that basis the claimant could not pursue her claim.
There are similarities between the way categories of partners were viewed in this case and the way restrictive covenants agreements are interpreted. For example, restrictive covenants are interpreted more onerously against partners than employees as partners are deemed to have equality of bargaining power, despite the fact that in medium to large law firms, new partners have very little power in relation to restrictions in a members’ agreement. In this case, all partners were seen as being equal – salaried, fixed share and full-equity.
In reality, in most professional firms, full-equity partners have the most say about how their business is run.
It is important for firms to ensure their members’ agreements are drafted so members below full equity are not deemed to be in a subordinate position, otherwise there is a risk they may be able to establish that they are workers for the purpose of whistleblowing complaints.
This judgment may lead to a rise in discrimination claims, given the difficulty they will now face in trying to establish that they are workers. Both traditional partners and LLP members are protected by discrimination legislation and compensation is calculated in the same way for successful whistleblowing and discrimination claims.