Tiffin v Lester Aldridge LLP

The Court of Appeal held that the appellant, a former fixed share member of Lester Aldridge LLP, was not an employee of the LLP for the purposes of the Employment Rights Act 1996 and so the Employment Tribunal had no jurisdiction to hear his claims for unfair dismissal, breach of contract and redundancy. Central to the decision was the correct construction and operation of section 4(4) of the Limited Liability Partnerships Act 2000: the court interpreted the subsection as requiring a notional inquiry whether, on the hypothesis that the LLP’s business was carried on in partnership, the individual would have been a partner under the Partnership Act 1890; if so, he cannot be an employee. Applying established partnership principles (Ready Mixed Concrete and subsequent authorities including Stekel, Zahid and Hodson) and examining the members’ agreement, the court concluded that the terms evidenced a partnership relationship between fixed share and full equity partners and that the appellant therefore was not an employee.

Background and nature of the claim

The appellant, Martin Tiffin, brought claims in the Employment Tribunal (ET) for money payments including unfair dismissal, breach of contract and redundancy on the basis that he had been an employee of Lester Aldridge LLP. The LLP denied that he was an employee and raised jurisdictional objection. The ET (Judge Craft) dismissed the claims at a preliminary hearing. The appellant appealed to the Employment Appeal Tribunal (EAT) which dismissed the appeal. Permission to appeal to the Court of Appeal was granted and the appeal was heard by the Court of Appeal.

Issues framed

• Whether, for the purposes of the Employment Rights Act 1996 (section 230), the appellant was an "employee" of the LLP.
• How section 4(4) of the Limited Liability Partnerships Act 2000 is to be understood and applied when determining whether a member of an LLP is to be regarded as employed by the LLP.
• Whether the members’ agreement and the surrounding factual matrix evidenced a partnership relationship (within the Partnership Act 1890) such that the appellant could not be an employee.

Court’s reasoning and outcome

The court explained that section 4(4) must be read so as to avoid an absurd literal consequence (that no member could ever be an employee). The correct approach is to assume, for the statutory hypothesis, that the LLP’s business is being carried on in partnership and to ask whether the individual in question would, on that assumption and applying partnership law principles, be a partner; if so he cannot be an employee of the LLP. If he would not be a partner, a further inquiry follows as to whether the relationship would be that of employment (using ordinary tests where appropriate). The court reviewed partnership authorities (including Stekel, Ready Mixed Concrete, Zahid and Hodson) and considered the members’ agreement in detail. The members’ agreement recorded capital contributions by fixed share partners, entitlement to profit shares (albeit smaller than full equity partners), voting and participation rights and entitlement to share surplus on winding up. The ET had found the agreement was not a sham and that the appellant had willingly signed it. Applying the legal test, the Court of Appeal found no error of law or perversity in the ET/EAT approach and dismissed the appeal. The court also rejected an attempt to import Autoclenz reasoning to recharacterise the members’ agreement where the ET had expressly found it reflected the parties’ intentions.

Appeal dismissed. The Court of Appeal held that section 4(4) of the Limited Liability Partnerships Act 2000 must be read so as to require a notional assumption that the LLP’s business is carried on in partnership and to ask whether the individual would, on that hypothesis, be a partner under the Partnership Act 1890; if he would be a partner he cannot be an employee. Applying that approach and the partnership authorities to the members’ agreement and findings of fact, the appellant was properly held to be a fixed share/equity partner and not an employee, so the ET had no jurisdiction for his employment claims.

Employment Tribunal (Judge Craft) dismissed appellant's claims on preliminary issue (judgment sent 18 December 2009); Employment Appeal Tribunal (Silber J, Bleiman and Yeboah) dismissed the appeal (reserved judgment 12 November 2010); permission to appeal to the Court of Appeal granted by Sedley LJ (order 3 February 2011); Court of Appeal ([2012] EWCA Civ 35) dismissed the appeal (judgment 1 February 2012).