Employment Status: Are You Really A Partner?

The dance goes on. Disputes over employment status never go away.

As Employment Judge Emerton said in Ferrao v Create Health Limited (Case No. 2300758/2011), where I represented the successful claimant, a ‘bank nurse’, ‘if it quacks like a duck, it’s a duck, even if you call it a goose’.

There is no satisfactory definition of ‘employee’: ‘It is almost impossible to give a precise definition….It is often easy to recognise a contract of employment when you see it, but difficult to say wherein the difference lies.’ per Denning LJ in Stevenson Jordan and Harrison v MacDonald and Evans [1952] 1 TLR 101.

Each case turns on its facts and there continues to be abundant litigation over the status of ‘employee’, ‘worker’ and genuinely ‘self-employed’.
Employment status is important, because ‘employees’ have important rights to claim unfair dismissal, redundancy payments, maternity pay and TUPE protection. Self-employed ‘workers’, as well as ‘employees’, can claim unlawful discrimination, holiday pay and minimum wage. Employment status also determines tax liability, with the tax regime offering benefits broadly in inverse proportion to employment protection rights.

Litigation generally involves claimants seeking to prove they are ‘employees’ or ‘workers’, to invoke employment protection rights. Other litigation involves HMRC against individuals who claim to be self-employed, but are ‘employees’ in the eyes of the taxman.

The most recent and high profile litigation comes from from Miss Quashie, the £200,000 a year lap dancer at Stringfellows. Miss Quashie claims unfair dismissal. To succeed, she must first show she was an ‘employee’; whilst Stringfellows reported defence is that she ‘has the employment rights of a market trader’.

‘Control’ used to be the dominant test of employee status. Miss Quashie was subject to detailed club ‘rules’, but she will have a greasy pole to climb (the allusion is to Disraeli) in distinguishing Spearmint Rhino Ventures (UK) Limited v HMRC [2007] EWHC 613 (Ch). In Spearmint, the High Court held that dancers were liable for VAT, as they supplied services on their own behalf and not as employees or agents or of the club.

The Supreme Court, in Autoclenz v Belcher [2011] UKSC 41 was dealing with a very different set of facts. Car valets, who worked in teams of four and were paid per car, had contracts saying they were self-employed sub-contractors. But they had no other source of work; and Autoclenz provided invoices, equipment and materials. The Supreme Court held that they were employees, looking at the reality of the situation. Here, the written agreement did not represent ‘the true agreement….This may be described as a purposive approach to the problem.’ per Lord Clarke.

This is where employment law strays from traditional contract law, on the basis of lack of equality of bargaining power between employer and employee. An employer is in a position to impose a written employment contract which does not reflect the intention of the parties.

In another Supreme Court decision this year, it was held that an arbitrator was not ‘employed under’ a contract and so not within the scope of discrimination law: Jivraj v Hashwani [2011] UKSC 40.

The legal profession has been beset by more than our fair share of litigation over employment status. We are familiar with the terms ‘equity partner’, ‘fixed-share partner’ and ‘salaried partner’, but labels are not conclusive. A ‘partner’ may be an employee; just as a ‘director’ may not be an employee.

T, a solicitor, was a ‘fixed share’ partner in an LLP. He signed an LLP membership agreement, was paid monthly drawings based on a fixed share of profits and received a share of residual profits. He could sign cheques. He made a capital contribution. He was entitled to attend members’ meetings and to a residue of the firm if it was wound up. But there was a substantial disparity between his financial contribution, his involvement in management, his voting rights and his profits, compared to the equity partners. He had no client base. Was he an employee?

B a solicitor in another firm, was a ‘salaried partner’, also paid monthly drawings and a profit share. He, too, signed a partnership agreement. He had no capital stake and bore no risk of losses. Again, he was not treated by the equity partners as somebody ‘within their hierarchy’. He was subject to targets and challenged when these were not achieved. He was not consulted about significant events in the life of the firm, ‘such as an impending audit by the SRA’. Was he an employee?

T was not an employee: Tiffin v Lester Aldridge LLP [2011] IRCR 105. But B was an employee: Williamson & Soden Solicitors v Briars [2011] UKEAT/0611/10. ‘First…what it is essential to focus upon is the true nature of the relationship; secondly, that will primarily be a matter for the …evaluation of fact; thirdly…the labels that parties place upon the relationship may be relevant factors, but are in no sense determinative’ per Langstaff J in Briars.

Will the Supreme Court entertain us again next year? Look out for X v Mid-Sussex CAB [2011] EWCA Civ 28 CA, on appeal as to whether a disabled lawyer volunteer was a ‘worker’; and O’Brien v MoJ in the ECJ (C-393/10), on whether fee-paid judges are part-time ‘workers’ entitled to equal treatment in pension rights.

The dance goes on.

Geoffrey Bignell

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