Christopher Watson v Wallwork Nelson Johnson & Anor

Employment status requires an objective, multifactorial assessment of the whole relationship. The parties’ labels and intentions are relevant but not decisive. Where experienced parties genuinely agree that an employee will become a partner, their contemporaneous understanding and conduct may carry substantial weight.

A partnership within section 1 of the Partnership Act 1890 is inconsistent with a contract of employment. A binding partnership need not be recorded in an executed deed or contain every proposed term. It may arise once the essential terms are sufficiently certain. In the absence of an agreed variation, the statutory default of joint liability under section 9 may apply, but this does not itself prevent a partnership from existing.

The claimant, an experienced tax accountant, had been employed by an accountancy firm until March 2019. He then became an associate partner, received increased fixed drawings and was removed from payroll, although no final written partnership deed was signed and several proposed terms remained unagreed.

The Manchester Employment Tribunal held that the parties had entered an oral partnership arrangement and that the claimant was no longer an employee under section 230 of the Employment Rights Act 1996. It nevertheless found that he was a worker under section 230(3)(b), and upheld a wages claim. The claimant appealed only the finding that he was not an employee and the consequential dismissal of his unfair dismissal claim.

The central question was whether the Tribunal had permissibly found a partnership notwithstanding the incomplete documentation, the claimant’s limited role and the absence of an agreed indemnity against partnership debts.

1. Appeal dismissed. The Employment Tribunal was entitled to find that the claimant had ceased to work under a contract of employment and had entered a partnership within section 1 of the Partnership Act 1890.

2. Status was to be determined objectively by considering all relevant circumstances. The parties’ description of their relationship could not determine the result, but their genuine intention and contemporaneous understanding were relevant. The Tribunal permissibly attached particular weight to the parties’ expertise, the claimant’s acceptance of a P45 and self-employed tax treatment, and their shared understanding until March 2020 that he was a self-employed associate partner.

3. The absence of a signed partnership deed did not preclude a binding agreement. The Tribunal was entitled to find that, by January 2020 at the latest, the essential terms of the claimant’s associate partnership had been agreed and were sufficiently certain. Its finding was not confined to agreement on remuneration. The fact that other proposed terms remained unagreed did not disclose an error of law.

4. In the absence of an agreement varying section 9 of the Partnership Act 1890, the claimant was potentially jointly liable for partnership debts. That exposure was a relevant factor pointing away from employment. Although the parties had intended to remove that risk in a formal deed, the Tribunal was entitled to find that their failure to agree such a variation was not fatal to the already existing partnership.

5. The Tribunal had not erred by failing expressly to address every provision of the Partnership Act 1890 relied upon by the claimant. It had correctly directed itself to consider all relevant circumstances and was not required to set out every step in its reasoning. Its assessment properly recognised that fixed-share or associate partners may occupy a different position from equity partners, without necessarily ceasing to be partners.

6. The worker-status finding was not appealed. On the premise, accepted on the appeal, that the Tribunal’s approach to section 230(3)(b) of the Employment Rights Act 1996 was correct, it was entitled to find that the claimant was a worker although not an employee. The unfair dismissal ground consequently did not arise.

• Employment Appeal Tribunal: appeal dismissed: [2024] EAT 105.
• Manchester Employment Tribunal: decision sent on 21 January 2022. It found that the claimant was not an employee under section 230 of the Employment Rights Act 1996, but was a worker under section 230(3)(b), and upheld an unauthorised deductions claim.