LLP members are "workers": what this means for whistleblowers

by Rachel Farr, Taylor Wessing

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23 May 2014

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THE SUPREME COURT has decided that members of limited liability partnerships (LLPs) can be workers, and therefore covered by the UK's whistleblowing protection laws. Workers who suffer for "blowing the whistle" on wrongdoing can claim unlimited compensation and this case, although concerning a law firm, has consequences for any LLP, including accountancy firms.

The case

Krista Bates-van Winkelhof was a solicitor and a member of an LLP, which divided its members into "senior equity members" and "equity members". As an equity member, her remuneration included both a fixed minimum and an element of profit-share, and she was entitled to vote for the managing partner and the board. Senior equity members had greater voting rights, and received a fixed profit-share according to their position in the firm's lockstep remuneration structure.

In 2010, Bates van Winkelhof reported to Clyde & Co that the managing director of a Tanzanian law firm (a joint venture of her firm, and to which she was seconded) had admitted paying bribes (an allegation denied by Clyde & Co throughout the proceedings). She was promptly dismissed from the Tanzanian firm, suspended by Clyde & Co, and then expelled from the partnership. She brought claims alleging that she had been dismissed for being a whistleblower and also (as she was pregnant at the time) for sex and pregnancy discrimination.

The Employment Tribunal held that she was not a worker, so could not bring a whistleblowing claim. The Employment Appeal Tribunal disagreed, but the Court of Appeal overturned that decision. Still with me? Now the Supreme Court has had the final word and decided that she was a worker, adding that giving individuals in such a position whistleblowing protections was "entirely consistent with the underlying policy of those provisions, which some might think is particularly applicable to businesses and professions operating within the tightly regulated fields of financial and legal services".

What does the case mean for LLPs and their members?

It's good news for corporate social responsibility and, on an individual level, for LLP members. Like many strictly-regulated professions, accountants in business or practice may have statutory or contractual obligations to report to a regulator or other third party, or even to SOCA under anti-money laundering requirements. They may also whistle-blow to a third party where it would be in the public interest to do so (although there's no legal obligation), and are subject to codes of ethics and guidance that apply to members of professional bodies. ICAEW members, for example, have their own guidance and have ethics advisers available to offer help.

However, individuals can be wary of raising concerns - even if obliged to do so - if they are vulnerable to personal reprisals.

Employees and others who - if not actually employees - fall within the definition of worker have always had protection from retaliation for blowing the whistle if they become aware of wrongdoing. Workers too, under the Employment Rights Act 1996, are protected from dismissal or any other negative treatment (e.g. demotion) in retaliation, however briefly they have worked for their employer. Compensation for whistleblowing claims is uncapped and, if the worker is highly paid or his or her career will be blighted forever, can run into millions.

This protection has now been extended to LLP members occupying senior positions - exactly the kind of individuals that research by Public Concern at Work, who said the Supreme Court's decision showed it saw the "public interest in protecting lawyers [and] accountants", has discovered are most likely to be dismissed for speaking out.

While the case was about whistleblowing, that's not the end of the story. Being a worker gives other employment protections, including rights under the Working Time Regulations to minimum holiday and rest breaks, as well as limits on working hours. Workers are also entitled not to have deductions taken from their wages without their authorisation, so any LLP agreements with clawback provisions should be reviewed to check they comply with this.

In addition, workers must (unless they opt out) be enrolled automatically into pension schemes. Employers of qualifying workers must pay 1% (rising to 2% in October 2017, and 3% a year later) of qualifying earnings into an occupational pension scheme.

Unanswered questions

The judgment does not answer whether partners in traditional partnerships under the Partnership Act 1890 could be workers, and does not mean that LLP members necessarily have employment related rights or are to be treated as Schedule E tax payers. The case means LLP members can be workers, but does not mean that all LLP members are workers by definition: in each case it will still be necessary to consider all the facts.

The Finance Bill's Salaried Members Rules (which are still before Parliament) mean that many LLPs are reviewing their arrangements. Firms may want to review whether structural changes they are making, to take account of changes to the tax treatment of partnerships, will make it more or less likely that their LLP members will now be workers.

And lastly - although an important principle for LLPs in general has now been established, for Ms Bates-van Winkelhof the case is not over. It will now return to the Employment Tribunal to ascertain what actually happened nearly four years ago, and whether her expulsion was punishment for speaking out.

Rachel Farr is a professional support lawyer in the employment practice at international law firm Taylor Wessing

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