Tiffin v Lester Aldridge LLP

A member of a limited liability partnership may be its employee. Under section 4(4) of the Limited Liability Partnerships Act 2000, the tribunal must assume that the LLP’s business is carried on as a partnership and ask whether the member would be a partner in that notional partnership. If so, the member cannot be an employee. If not, the tribunal must determine whether the relationship would satisfy the ordinary test for employment.

Partnership status depends on the substance of the parties’ intended relationship, assessed from all relevant features. A share of profits or capital and participation in management may indicate partnership, but none is an essential prerequisite. Differences in partners’ financial interests or voting power do not prevent them carrying on business in common.

Martin Tiffin was formerly an employee of a solicitors’ partnership. He subsequently became a fixed share partner and then signed the members’ agreement by which the practice became Lester Aldridge LLP. He contributed capital, received drawings and a points-based share of profits, participated in specified management decisions and had a prospective interest in surplus assets on a winding up.

After his membership was terminated, he brought Employment Tribunal claims for unfair dismissal, breach of contract and a redundancy payment. The tribunal dismissed the claims because he was not an employee. The Employment Appeal Tribunal dismissed his appeal.

The Court of Appeal considered how section 4(4) of the Limited Liability Partnerships Act 2000 applies and whether the tribunal had erred in finding that, on the statutory hypothesis, he would have been a partner rather than an employee.

1. The appeal was dismissed unanimously. The Employment Tribunal had made a finding of fact which was open to it and which disclosed no error of law. Its conclusion that the appellant would have been a partner in the notional partnership was not perverse (per Rimer LJ, with whom Jackson LJ and Sir Nicholas Wall P agreed).

2. A literal reading of section 4(4) of the Limited Liability Partnerships Act 2000 would produce an absurd result because a partner cannot be employed by himself and his co-partners. The provision instead requires an assumption that the LLP’s business is carried on in partnership by two or more members. The tribunal must first decide whether the member whose status is disputed would be one of the partners. If so, that member cannot be an employee. If not, the tribunal must then decide whether the person would be an employee of the notional partnership or would have some other status, such as self-employment. The members’ agreement will ordinarily be the primary, but not necessarily exclusive, source of evidence.

3. The creation of a partnership under section 1(1) of the Partnership Act 1890 depends critically on whether the parties intended a relationship in which they carried on business in common with a view of profit. All features of their agreement must be considered. A partner need not have a particular share of profits or capital, nor assume any minimum or significant role in management. Those matters nevertheless remain relevant indicators of status.

4. The members’ agreement reflected the parties’ genuine intentions and was not a sham. It distinguished equity partners, including fixed share partners, from salaried partners who were expressly employees. The appellant contributed capital, had a points-based interest in profits, could share in surplus assets on a winding up and had a real voice in material management decisions. The disparity between his interests and those of full equity partners did not alter their essentially common character.

5. Autoclenz Ltd v Belcher was inapplicable. The tribunal had found that the appellant willingly signed an agreement which reflected the parties’ true intentions. He could not introduce on appeal a case that its provisions failed to reflect the reality of the relationship.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the Employment Appeal Tribunal’s dismissal of the appeal and the Employment Tribunal’s determination that the appellant was not an employee.

2. Employment Appeal Tribunal: The appeal from Employment Judge Craft was dismissed by Silber J, Mr D. Bleiman and Mr S. Yeboah on 12 November 2010.

3. Southampton Employment Tribunal: Employment Judge Craft determined the employment-status issue as a preliminary point and dismissed the claims for want of employment status. The judgment and reasons were sent to the parties on 18 December 2009.