The Court of Appeal recently ruled that a former fixed-share partner of a law firm was not an employee.
In Tiffin v Lester Aldridge LLP, Mr Tiffin was dismissed in February 2009 after failing to establish a sufficient client base to provide work for both himself and his colleagues. He brought employment tribunal claims for unfair dismissal, breach of contract and statutory redundancy, seeking to establish that he was an employee of the LLP.
Up until his dismissal Mr Tiffin had been a fixed-share partner in Lester Aldridge LLP. Prior to the partnership becoming an LLP he was a salaried partner.
The Employment Tribunal (ET) found that he was a partner within the meaning of section 1 of the Partnership Act 1890 and not an employee within the meaning of section 230(1) of the Employment Rights Act 1996. The Employment Appeal Tribunal further upheld the ET's decision prompting Mr Tiffin to appeal to the Court of Appeal.
Mr Tiffin had entered into a membership agreement with the other partners which entitled him to:
- receive a small profit share; and
- attend management meetings; and
- limited voting rights in relation to a small number of matters; and
- a proportion of the profits on dissolution of the partnership albeit the amount was twenty five times less than that of a full equity partner.
The agreement also required him to contribute £5,000 capital to the partnership.
It was pointed out that Mr Tiffin was under the direction and control of more senior partners.
The term “partner” covers a number of situations such as salaried partner, fixed-share/fixed-equity partner of full equity partner. Section 1 of the Partnership Act 1890 defines partnership as “the relation which subsists between persons carrying on a business in common with a view of profit.” Section 2(3) of the Act suggests that although the sharing of profits is initial evidence of a person being a partner, it is not decisive. Furthermore, case law provides that a share in the profits is not a prerequisite to them being a partner and that a number of factors need to be considered when determining the employment status of partners and a hypothetical approach is required.
Section 4(4) of the Limited Liability Partnership Act 2000 states that a member of a limited liability partnership will not be an employee unless, by virtue of common law, they would be regarded as an employee.
Although it was necessary to consider all the circumstances, the court said that the starting point for determining whether or not someone is a partner is likely to be the members' agreement. In examining the Lester Aldridge agreement the real distinction to be drawn was not between the equity partners and the fixed-share partners but between those two groups and the salaried partners.
The nature of the interests of the equity partners and fixed-share partners were essentially the same, albeit that the relative stakes of the separate parties were different:
- Both were required to contribute capital.
- Both shared in the profits of the business.
- Both were entitled to a share in surplus assets on a winding up.
- Both had a voice in the management of the affairs of the partnership.
These four factors could not be said to apply to salaried partners.
Mr Tiffin argued that he did not have a “real voice” in the management of the firm but this did not stand up as he had been entitled to vote on 22 out of a possible 52 resolutions. When it comes to management decisions of partnerships, employees are not normally involved in such.
The appellant also sought to argue that he did not have a “material” interest in the share of the profits. Although his stake was not as material and significant as that of the equity partners, nevertheless it could not be disregarded.
The Court of Appeal dismissed Mr Tiffin's appeal.
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