22-02-2012

Partner or Employee?

The decision illustrates the Courts’ position on distinguishing members of an LLP and partners on the one hand from employees on the other, and highlights the difficulties for LLP members when trying to assert employee status.

Mr Tiffin made claims in the employment tribunal in 2009 alleging unfair dismissal and breach of contract. The tribunal and indeed the Employment Appeal tribunal ruled that Mr Tiffin was not an employee but a partner.  When the firm became an LLP in 2007, Mr Tiffin signed an agreement which listed him as a fixed-share partner. Lord Justice Rimer said that it was clear “ That Tiffin intended to become a partner and accepted the changed status, new obligations and responsibilities involved.” Equity and fixed share partners were “ essentially the same”. “Both must contribute capital , shared profits and “had a voice” in the firm’s management.

The ET had been entitled to conclude on the facts that, “viewed through the prism of s. 4(4) of the Limited Liability Partnerships Act 2000 Mr Tiffin would have been a partner in the notional partnership”.

It is important that firms make it absolutely clear whether an individual has partner status or is an employee. If you have voting rights or a capital share then you are partner. If you are a salaried partner being taxed PAYE and without the hallmarks, ie the obligations and responsibilities and some degree of involvement in the management of the firm, then you are an employee.