Clyde & Co LLP & Anor v van Winklehof [2014] UKSC 32

A solicitor and equity member of Clyde & Co LLP made disclosures about bribery by a Tanzanian joint venture partner and was expelled. The Supreme Court held that a member of an LLP can be a 'worker' under section 230(3)(b) of the Employment Rights Act 1996, entitling her to whistle-blower protection.

Facts

The appellant, Ms Bates van Winkelhof, was an English-qualified solicitor who became an Equity Member of Clyde & Co LLP in February 2010, having previously worked for Shadbolt & Co LLP on a Tanzanian joint venture. She signed a Deed of Adherence to the LLP’s Members’ Agreement, receiving a fixed annual share of profits of £103,000 and committing her full time and attention to the LLP’s business as solicitors.

In November 2010, she reported to the LLP’s money laundering reporting officers that the managing partner of the Tanzanian firm had admitted paying bribes to secure work and case outcomes. She claimed these were protected disclosures under section 43A of the Employment Rights Act 1996 and that she suffered detriments including suspension, allegations of misconduct, and expulsion from the LLP in January 2011.

She brought claims in the Employment Tribunal under the whistle-blowing provisions of the 1996 Act and the sex discrimination provisions of the Equality Act 2010. A preliminary jurisdictional issue arose as to whether she was a ‘worker’ within the meaning of section 230(3) of the 1996 Act.

Issues

The central issue was whether a member of a Limited Liability Partnership (LLP) can be a ‘worker’ within the meaning of section 230(3)(b) of the Employment Rights Act 1996, so as to claim whistle-blower protection under sections 43A to 43L. This depended on:

• Whether section 4(4) of the Limited Liability Partnerships Act 2000, which provides that a member ‘shall not be regarded for any purpose as employed by the limited liability partnership’ unless he would be so regarded as a partner in a traditional partnership, precluded worker status.
• Whether an implicit requirement of ‘subordination’ formed part of the statutory definition of ‘worker’.

Arguments

Appellant

Mr Linden QC argued that the plain wording of section 230(3)(b) applied: the appellant worked under a contract personally to perform services for the LLP; she was integral to its business; and the LLP was not her client or customer. Section 4(4) of the 2000 Act did not modify worker status, and even if it did, she would have been a worker in a partnership. Article 10 ECHR also required an interpretation affording effective whistle-blowing protection.

Respondent

Mr Stafford QC argued that a partner in an ordinary partnership cannot be an employee of the partnership, and section 4(4) of the 2000 Act extended that rule to the wider definition of ‘worker’. The Convention did not require the extension of protection to LLP members and doing so would go against the grain of the legislation.

Judgment

The Supreme Court unanimously allowed the appeal. Lady Hale (with whom Lord Neuberger and Lord Wilson agreed) held that section 4(4) of the 2000 Act does not exclude LLP members from being ‘workers’ under section 230(3)(b) of the 1996 Act.

Construction of section 4(4)

The natural and ordinary meaning of ’employed by’ is employment under a contract of service. English law distinguishes clearly between employees, self-employed persons in business on their own account working for clients/customers, and an intermediate class of self-employed people who provide services as part of another’s business. Had Parliament intended section 4(4) to cover the wider limb (b) category, it could have said so expressly. Section 230(5) of the 1996 Act itself demonstrates that where Parliament wished to extend ’employed’ beyond its ordinary meaning it did so expressly; no such extension appears in the 2000 Act. Lady Hale explained that section 4(4) reflects the UK-wide nature of the 2000 Act and the uncertainty in Scots law as to whether partners could be employed by their partnership.

Subordination

The Court of Appeal (Elias LJ) had considered that ‘subordination’ underpinned the definition of worker. Lady Hale rejected this as a freestanding, universal test. Reviewing authorities including Byrne Bros v Baird, Cotswold Developments v Williams, James v Redcats, and Hospital Medical Group v Westwood, she agreed with Maurice Kay LJ that there is no single key to unlock the statutory words in every case. While subordination may sometimes assist in distinguishing workers from independent contractors, it is not a necessary requirement. A small business may be economically dependent on a key customer without being a worker; equally, a controlling shareholder may be both boss and worker.

Application to the facts

The appellant fell within the express words of section 230(3)(b): she performed services personally, she could not market her services as a solicitor to anyone other than the LLP, she was integral to the LLP’s business, and the LLP was in no sense her client or customer.

Human Rights

Lady Hale noted that this conclusion was consistent with article 10 ECHR, referring to Heinisch v Germany, but the appellant already had statutory protection on a conventional reading, so it was unnecessary to rely on section 3 of the Human Rights Act 1998.

Points left open

The Court expressly did not decide (i) whether a partner in a traditional partnership can ever be an employee of the partnership, or (ii) whether a partner can be a ‘worker’ for that partnership. Mr Machell QC’s challenge to the dual status rule, relying inter alia on section 82 of the Law of Property Act 1925, was not resolved.

Lord Clarke

Lord Clarke agreed the appellant was a limb (b) worker on the wording of section 230(3)(b) but dissented on the construction of section 4(4), considering that section 230(5) brought worker employment within the phrase ‘for any purpose’ in section 4(4). He nevertheless refrained from resolving the further partnership question.

Lord Carnwath

Lord Carnwath agreed with Lady Hale, emphasising the hybrid nature of an LLP as between an 1890 Act partnership and a limited company, so the decision did not necessarily bear on other forms of partnership. He was currently unpersuaded by Mr Machell’s challenge to the traditional rule that a partner cannot be an employee of his own firm, considering that section 82 of the Law of Property Act 1925 did not bridge the fundamental difference between partnership and employment identified in Ellis v Joseph Ellis & Co.

Implications

The decision confirms that members of an LLP who personally perform work or services for the LLP, and for whom the LLP is not a client or customer, are ‘workers’ within limb (b) of section 230(3) of the 1996 Act. They are accordingly entitled to whistle-blower protection under sections 43A to 43L, protection against unlawful deductions from wages, working time protection, and rights under the National Minimum Wage Act 1998 and the Part-time Workers Regulations 2000. They remain, however, without protection against unfair dismissal, which is confined to employees under a contract of service.

The judgment clarifies that ‘subordination’ is not a freestanding requirement of worker status under section 230(3)(b). The statutory words themselves are to be applied to the facts, and integration into the alleged employer’s business, together with the absence of a client/customer relationship, will often be decisive.

The decision is significant for LLPs, particularly in professional services such as law and finance, where partners may need whistle-blower protection. It leaves open the question whether partners in traditional partnerships can be employees or workers of the firm, and expressly confines its reasoning to the hybrid nature of LLPs. The Court also declined to resolve whether article 10 ECHR would require, via section 3 of the Human Rights Act 1998, an interpretation extending protection where the statute would not otherwise do so.

Verdict: Appeal allowed. The appellant is a ‘worker’ within the meaning of section 230(3)(b) of the Employment Rights Act 1996 and entitled to claim the protection of its whistle-blowing provisions. The case was remitted to the Employment Tribunal to determine her whistle-blowing and sex discrimination claims.

Source: Clyde & Co LLP & Anor v van Winklehof [2014] UKSC 32