Traditionally, members of a partnership or a Limited Liability Partnership (LLP) have their rights defined by the scope of the partnership agreement. However, recent developments have indicated their specific relationship with the partnership may afford them additional rights as a worker or employee.
As it is not uncommon for members of a partnership or LLP to transition in and out of a business undertaking, it is paramount that both the partnership entity and the member have a full grasp of the rights that arise out of their relationship from the outset in order to avoid contention at a later date.
Whether or not a member of a partnership or LLP depends on the existence of a contract of employment between the member and the entity. A contract of employment must entail sufficient degrees of control over the employee, and the financial risk of the undertaking cannot disproportionately weigh on the employee. This may give rise to tension where the member also makes key governing decisions for the entity.
If considered an employee, a member will be protected from unfair dismissal. An unfair dismissal claim can arise where an employee is summarily dismissed without proper adherence to grievance procedures. It can also arise in the form of constructive dismissal, where an employee is subject to harassment or unfounded investigations in order to force them to quit.
LLP membership and worker status
In 2014, the UK Supreme Court held that members of an LLP who do not otherwise qualify as employees are entitled to worker status and accompanying protections. A worker has lesser protections than an employee, for example they cannot make an unfair dismissal claim. They are, however, protected against discrimination and harassment by their employer. A discrimination claim carries with it the potential for unlimited damages, which could prove fatal for a business undertaking.
The 2014 ruling, mentioned above, was in the context of whistleblowing over business activity that might constitute criminal activity, obstruction justice or harm the environment. As a result, an employer cannot take retaliatory action against a member on the basis of a good faith disclosure of information.
Consequences for partnerships and LLPs
As protections to partnership and LLP members expand, so too does the potential for claims being brought by aggrieved members. Worker and employee rights are protected by statute and can only be waived through formal settlement agreements. Leaving a partnership or LLP vulnerable to legal action has potential consequences for business reputation in additional to becoming involved in costly and time-consuming litigation.
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At Lewis Nedas, our Employment Law Solicitors have over 25 years’ experience in advising and representing national and international companies. Our Employment Lawyers have joined the Office Essential Network, which is a specialist organisation aimed at assisting young start-up businesses requiring advice on employment issues, including for partnerships and LLPs.