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Emily_Dorotheou_phFactual Background

In February 2010, the appellant became an equity member of the respondent LLP where she received an annual share of profits. On 23 and 24 November 2010 she reported an incident to the respondent’s money laundering officers, which the appellant claimed were “protected disclosures” under the Employment Rights Act 1996, s 43A. The appellant attended a meeting with the respondent’s representatives, to discuss the allegations, and was expelled from the respondent on 13 January 2011. The issue for the Supreme Court was whether a member of a limited liability partnership is a “worker” within the meaning of s 230(3) of the 1996 Act, and so protected by the Public Interest Disclosure Act 1998 when bringing a whistleblowing claim.

Appellate history

At first instance, the employment tribunal found that the appellant was not a “worker” under the 1996 Act because she was receiving a share of the profits in relation to her work. The Employment Appeal Tribunal allowed the appellant’s appeal, deciding that she was a “worker” as she could not offer her services to anyone else, was in a subordinate position and the LLP was not her client.

The appellant appealed to the Court of Appeal which, for entirely new reasons, found that the appellant was not a “worker”. The Court of Appeal placed emphasis on s 4(4) of the Limited Liabilities Partnerships Act 2000, which states that:

“A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.”

The appellant brought a further appeal to the Supreme Court. The case was heard by Lord Neuberger, Lady Hale, Lord Clarke, Lord Wilson and Lord Carnwath. There was concern that, should the Supreme Court decide that LLP members fall outside of the definition of “worker”, it would deter the reporting of wrongdoing. Due to this public policy issue, the UK whistleblowing charity Public Concern and Work also made submissions as intervener in the appeal.

The Supreme Court decision

The Supreme Court unanimously decided that the appellant was a “worker” under the 1996 Act and was therefore entitled to the whistleblower protections. Lady Hale, giving the leading judgment, firmly stated that “the immediately striking thing about this case is how much hard work has to be done in order to find that a member of an LLP is not a worker within the meaning of section 230(3)(b) of the 1996 Act.”

Further to the Court of Appeal’s judgment, the Supreme Court interpreted s 4(4) of the 2000 Act to mean that whatever the position for LLP members, were they to be partners in a traditional partnership, that would remain their position under the LLP. “Employed by” under s 4(4) should cover a person employed under a contract of service but should not cover those who “undertake to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual” i.e. “limb (b) workers” of s 230(3)(b) of the 1996 Act. Therefore s 4(4) should not be construed such that a member can only be a worker under s 230(3)(b) if he would have also been a worker in a traditional partnership.

Lady Hale stated that employment law distinguishes between traditional employees and individuals who are self-employed but enter into contracts to perform work or services for others; and within this second class, there is a further distinction between those who carry on a profession or business undertaking on their own account and enter into contracts with clients, and those who provide services as part of a profession or business undertaking carried on by someone else.

Lady Hale noted that the phrase “employed by” should take its ordinary and natural meaning, as Parliament would have expressly extended its definition and remit to include “workers”, within s 4(4) of the 2000 Act, if it had so wished. However in order to extend the remit of s 4(4), Parliament would have had to decide on whether partners could be “workers” under s 230(3) of the 1996 Act. Therefore the narrow effect of s 4(4) of the 2000 Act means that members of an LLP can be “workers” for the purpose of s 230(3) without also needing to be “workers” in a traditional partnership under s 4(4).

On this point Lord Clarke disagreed, finding that s 4(4) of the 2000 Act does extend to include “workers”. His reasoning was that s 230(5) of the 1996 Act extended the ordinary meaning of “employment” to include “workers” by stating that:

“In this Act, “employment”…..

(b) in relation to a worker, means employment under his contract;

and “employed” shall be construed accordingly””

As such the appellant, who is deemed a “worker” under s 230(3)(b) of the 1996 Act, is seen to be “employed” under s 230(5) and so must be “regarded for any purpose as employed” under s 4(4) of the 2000 Act. Therefore, the appellant would be a “worker” for the purposes of s 4(4).

However the majority of the Supreme Court decided that the appellant was a “worker” under s 230(3) as she could not market her services as a solicitor to anyone other than the respondent and was an integral part of their business. The respondent could also not be seen to be the appellant’s client or customer.

As the Supreme Court found that s 4(4) of the 2000 Act was not wide enough to include “workers”, the Lords did not consider the questions of (i) can a partner never be an employee of a partnership and (ii) therefore, can a partner never be a “worker” of a partnership?

The Supreme Court then considered the issue of subordination between a worker and his employer. Lady Hale stated that primarily, the words of the statute must be applied to the facts of the case in question; in cases where this is not easy to do, these cases “are not solved by adding some mystery ingredient of “subordination” to the concept of employee and worker.” The test of subordination should be used to help distinguish workers from other self-employed individuals but “it is not a freestanding and universal characteristic of being a worker.”

It was also decided that as the appellant gained protection under the 1996 Act, it was not necessary for the Supreme Court to decide whether the appellant’s right under Article 10 of the European Convention on Human Rights (freedom of expression) required the Court to interpret the 1996 Act in a compatible manner.

Comment

LLPs will now need to ensure that their whistleblower protections extend to their members; they will need to ensure that any allegation is properly investigated and to avoid situations in which the whistleblower is expelled as a result of reporting the incident.

The decision also means that members of LLPs are entitled to rights under the Working Time Regulations, to paid annual leave and to not suffer unauthorised deductions from wages. LLPs should also seek advice regarding compliance under the auto enrolment pension legislation in respect of their members.