By some weird synchronicity, the Supreme Courts in both the United Kingdom and Canada in the last 24 hours have considered the nature of partnerships and the extent to which employment law protections also applied to partners.
Yesterday’s decision in Clyde & Co LLP and another (Respondents) v Bates van Winklehof (Appellant)  UKSC 32 held that a junior partner (unhelpfully called an Equity Partner) in a London firm was protected by the whistle-blowing protections of the Employment Rights Act 1996. She had been involved in a rather dubious file in Tanzania and reported to the firm’s money laundering reporting officers that the managing partner of the Tanzanian law firm, with whom the London firm was doing business, had admitted paying bribes to secure work and to secure the outcome of cases. She claimed that these were “protected disclosures” within the meaning of section 43A of the 1996 Employment Rights Act.
Baroness Hale held that she was through a close reading of the applicable statutes. Because the law firm was a Limited Liability Partnership, the old law that held that one couldn’t be simultaneously a boss and an employee didn’t apply. LLPs are odd constructs and the UK decision discusses their nature at length.
The next day Justice Rosalie Abella held that an equity partner of a Canadian law firm, facing compulsory retirement at 65, could not invoke the protections of the Human Rights Code, since he lacked the elements of subordination in employment that characterized an employee, and had significant rights within the partnership and control over his employment. See McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39
Her judgment was likely drafted, coded and translated long before there was any hint that the Bates van Winklehof decision was coming down. But it’s fascinating that her analysis stems from the classic partnership law, that the UK Supreme Court side-stepped. And that she didn’t mention the nature of an LLP, despite the fact that major accounting firms (all of whom were LLPs) intervened.
I could argue that both decisions were correct since Bates van Winklehof was admittedly junior and her income was fixed. She didn’t share in the traditional risks and rewards of partnership. And that Lord Carnwath got it right – we’ll be back to the law of LLPs.
Here is the SCC’s headnote:
The Code is quasi-constitutional legislation that attracts a generous interpretation to permit the achievement of its broad public purposes. Those purposes include the prevention of arbitrary disadvantage or exclusion based on enumerated grounds, so that individuals deemed to be vulnerable by virtue of a group characteristic can be protected from discrimination. The Code achieves those purposes by prohibiting discrimination in specific contexts. One of these contexts is employment.
Deciding who is in an “employment relationship” for purposes of the Code means examining how two synergetic aspects function in an employment relationship: control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of a worker. The test is who is responsible for determining working conditions and financial benefits and to what extent does a worker have an influential say in those determinations? The more the work life of individuals is controlled, the greater their dependency and, consequently, their economic, social and psychological vulnerability in the workplace.
Control and dependency are a function not only of whether the worker receives immediate direction from, or is affected by the decisions of others, but also whether he or she has the ability to influence decisions that critically affect his or her working life. The answers to these questions represent the compass for determining the true nature of the relationship. Ultimately, the key is the degree of control and the extent to which the worker is subject and subordinate to someone else’s decision-making over working conditions and remuneration.
Applying the control/dependency test to this case, in addition to the right to participate in the management of the partnership, as an equity partner M benefited from other control mechanisms, including the right to vote for ― and stand for election to ― the firm’s Board; the duty that the other partners owed to him to render accounts; the right not to be subject to discipline or dismissal; the right, on leaving the firm, to his share of the firm’s capital account; and the protection that he could only be expelled from the partnership by a special resolution passed by a meeting of all equity partners and a regional resolution in his region.
As an equity partner, and based on his ownership, sharing of profits and losses, and the right to participate in management, M was part of the group that controlled the partnership, not a person vulnerable to its control, and, for over 30 years, benefited financially from the retirement of other partners. In no material way was M structurally or substantively ever in a subordinate relationship with the other equity partners. It is true that the law firm had certain administrative rules to which M was subject, but they did not transform the substance of the relationship into one of subordination or dependency. This is not to say that a partner in a firm can never be an employee under the Code, but in the absence of any genuine control of M in the significant decisions affecting the workplace, there was no employment relationship between him and the partnership under the provisions of the Code.
The Tribunal therefore had no jurisdiction over M’s relationship with the partnership
And the UK headnote:
The Court finds that there is no need to give such a strained construction to section 4(4). It is saying that, whatever the position would be if the LLP members were partners in a traditional partnership, then that position is the same in an LLP. The Court holds that that is how section 4(4) is to be construed.
The phrase “employed by” in section 4(4) covers a person employed under a contract of service. The Court holds, however, that it does not also cover those who “undertake to do or perform personally any work or services for another party to the contract…”. Section 4(4) of the 2000 Act does not mean that members of an LLP can only be “workers” within the meaning of section 230(3) of the 1996 Act if they would also have been “workers” had the members of the LLP been partners in a traditional partnership.
Next the Court considers the analysis of the Court of Appeal that “underlying the statutory definition of worker is the notion that one party has to be in a subordinate relationship to the other”. The Court of Appeal suggested that a member of a LLP would not by virtue of that status alone constitute either an employee or a worker. If by this, the Court of Appeal meant that those members who undertake personally to work for the LLP cannot be workers, then this Court does not agree. While subordination may sometimes be an aid to distinguishing workers from other self-employed people, it is not a freestanding and universal characteristic of being a worker.
As the appellant has protection under the 1996 Act as interpreted in a conventional way, the Court does not find it necessary to decide whether her convention rights would require and permit it to interpret the Act compatibly.
In a concurring judgment, Lord Clarke agrees with Lady Hale that by the terms of the appellant’s contract with the respondent LLP, she undertook to perform personally certain work or services for it and her status was not by virtue of the contract that of a client or customer. Lord Clarke adds that, in his opinion, the effect of the relevant provisions of the 1996 Act and the 2000 Act, read together, is that a person who is a limb (b) worker within section 230(3) is a person “regarded for any purpose as employed” by the LLP within the 2000 Act.
In a concurring judgment, Lord Carnwath emphasises that, in his view, the conclusion in this case turns on the special characteristics of a LLP, which is something of a hybrid as between a conventional 1890 Act partnership and a limited company. It does not necessarily have any direct relevance to the resolution of equivalent issues in relation to other forms of partnership, under English or Scottish law. The main judgment leaves open the question of what the position would be in a traditional partnership.