Transcript EMPLOYMENT LAW UPDATE SOCIAL MEDIA IN THE LAW FIRM

Key legal issues to consider on partner
admissions
APP – Up and Coming Members
Susanne Foster
CM Murray LLP
24 September 2012
CM Murray LLP: Specialists in Employment and Partnership Law
Scenario
You are advising a client on joining a UK LLP as a
new member
CM Murray LLP: Specialists in Employment and Partnership Law
Summary
• Documents & Information to review and consider
• Partner Status / Employment Rights
• Practical Pointers
CM Murray LLP: Specialists in Employment and Partnership Law
DOCUMENTS AND INFORMATION
CM Murray LLP: Specialists in Employment and Partnership Law
Partner Duties
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LLP Agreement
Implied terms in LLP Agreement
Default Rules from LLP Regulations
Fiduciary duties
Tortious duties (e.g. duty of care express or implied)
Statutory duties (e.g. CA 2006 etc)
CM Murray LLP: Specialists in Employment and Partnership Law
Documents & Information
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Members’ Agreement
Current and last year’s mgt accounts
Copies of firm’s accounts last 3 years
Budgets for coming year
Business Plan
Details of PII cover
Major Claims and partner disputes
Annuities for former partners
Profit allocation process and criteria
CM Murray LLP: Specialists in Employment and Partnership Law
LLP Agreement
• Capital contribution
– How much? / capital loan arrangements? / recent capital calls?
• Profit Share
– Structure / how calculated / budgeted value per equity point
– Drawings policy / timing of distributions of balance
• Voting Rights
– How are major decisions taken / weighted voting?
CM Murray LLP: Specialists in Employment and Partnership Law
LLP Agreement
Plan ahead (rights on exit / if circumstances change):
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Retirement provisions
Notice period on retirement
Garden Leave
Restrictive covenants (including clients)
Timing of repayment and profit share balance
Maternity and flexible working
CM Murray LLP: Specialists in Employment and Partnership Law
LLP Agreement
Also consider:
• Inclusion of express duty of good faith
• Exclusion of CA 2006, s994 protection
• Exclusion of LLP Regs 2001, Reg 7(7) – access to partnership records
• Exclusion of LLP Regs 2001, Reg 7(8) – obligation to render true
accounts and full information
• Liability – normally limited to capital contribution subject to claw-back
provisions (NB: watch out for any non-standard provisions)
CM Murray LLP: Specialists in Employment and Partnership Law
PARTNER, EMPLOYEE, OTHER?
CM Murray LLP: Specialists in Employment and Partnership Law
Type of Partner
• Full Equity - “genuine partner”
• Fixed Share (‘FSP’)/Fixed Equity – true status
dependent on facts
• Salaried - more in common with employees
CM Murray LLP: Specialists in Employment and Partnership Law
Why status is important
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A FSP may have employment rights
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A formal consultation process may need to be followed to exit an FSP for
conduct, performance or redundancy reasons
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An FSP’s complaint may need to be dealt with as a grievance
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Restrictive covenants more likely to be enforceable against genuine partners
than employees
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Ensure FSP are correctly assessed for tax and NI
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Exiting Partners may raise it to try to improve their negotiating position
CM Murray LLP: Specialists in Employment and Partnership Law
Statutory rights not available
to genuine partners
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Unfair dismissal
Statutory Redundancy Payment
Collective Redundancy Consultation Rights
TUPE protections
Statutory Maternity & Paternity Leave & Pay
Statutory Minimum Notice of Termination
Written reasons for dismissal
Continuity of Service
(And others)
CM Murray LLP: Specialists in Employment and Partnership Law
Who is an Employee?
s.230 Employment Rights Act 1996:
“..an individual who has entered into or works under.. a contract of
employment”
“..contract of employment means a contract of service..whether
express or implied..oral or in writing”
CM Murray LLP: Specialists in Employment and Partnership Law
Who is an Employee?
A contract of service will exist if 3 basic conditions are fulfilled:
• The individual agrees to provide own work and skill in performing a
service, in return for pay;
• Agrees to be subject to employer’s control to a degree sufficient to
make employer the master: (control inc. what is to be done, how, where
& when); and
• The other provisions of the contract are consistent with a contract of
service
Ready Mixed Concrete (South East) Ltd v Minister of Pensions & NI [1968]
CM Murray LLP: Specialists in Employment and Partnership Law
Status of LLP Members?
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A Member of an LLP can be an employee of it
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S 4(4) Limited Liability Partnership Act 2000
“A member of a limited liability partnership shall not be regarded for any purpose
as employed by the limited liability partnership unless, if he and the other
members were partners in a partnership, he would be regarded for that purpose
as employed by the partnership”
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On the facts, would the person whose status is in question have been regarded
as a partner?
• If not, on the facts would he have been an employee?
(NB just because he’s not a partner, doesn’t mean he’s automatically an employee)
CM Murray LLP: Specialists in Employment and Partnership Law
Partner, Employee, Other?
Starting point to identify a genuine partner:
s.1 Partnership Act 1890:
“Partnership is the relation which subsists between persons
carrying on a business in common with a view of profit”
s.1(3) PA 1890:
“The receipt...of a share of the profits of the business is prima
facie evidence that he is a partner in the business but ..does
not of itself make him a partner in the business…”
CM Murray LLP: Specialists in Employment and Partnership Law
Range of Factors
“..impossible to say …. a salaried partner is or is not necessarily a
partner in the true sense. He may or may not be a partner depending on
the facts….”
“What must be done is to look at the substance of the relationship
between the parties … and not..any mere label attached to that
relationship.”
“One must in every case look at the terms of the relationship to
ascertain whether or not it creates a true partnership”
Stekel v Ellice [1973] Megarry J
CM Murray LLP: Specialists in Employment and Partnership Law
Range of Factors
Sharing in profits and losses
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Guaranteed pay
Sharing in liabilities
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Indemnity against liabilities
from Partners
Capital Investment
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No capital requirement
Participation in management
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Subject to control
Ability to hire, fire & sign cheques
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No such rights
Participation in surplus assets on
winding up of the Firm
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No participation
Held out as a partner, inc name
on firm notepaper
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Not held out
CM Murray LLP: Specialists in Employment and Partnership Law
Range of Factors
• Critical question – did they intend to create a partnership rather than
another relationship?
• All features of the agreement have to be considered to establish that
intention
• The absence of profit sharing, capital or dominant management rights
does not undermine or negate other evidence of partnership
CM Murray LLP: Specialists in Employment and Partnership Law
Tiffin v Lester Aldridge LLP (2012)
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Solicitor employed by LA as an associate
Promoted to salaried partner
Appointed to fixed share partner as a stepping stone to equity
Fixed profit share, plus 5 profit share points
Capital contribution of £5,000
Signatory to bank accounts
Issued with P45
Tax and NI as self-employed
Signed Members Agreement on LLP conversion
Entitled to participate in the surplus assets on winding up of the firm
in proportion to his capital
Certain voting rights, though not on all matters
CM Murray LLP: Specialists in Employment and Partnership Law
Tiffin v Lester Aldridge LLP (2012)
Was served notice by the partnership
Claim to ET for unfair dismissal, breach of contract and
Redundancy: rejected – he was a partner, not an employee
Appealed to EAT arguing he was in reality an employee
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He was not involved in management of the firm as FS Partners’
voting rights were “minimal”
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His share of profits and capital were too small
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The ET decision placed too much weight on labels rather than reality
CM Murray LLP: Specialists in Employment and Partnership Law
Tiffin v Lester Aldridge LLP (2012)
EAT:
There is no certain minimum number or types of rights to vote or to
participate in management decisions to qualify as a partner
“..in many large professional partnerships, all but a few of the
partners have any right to participate in the overwhelming range of
decisions made by the firm and yet they are clearly partners”
HELD: Appeal rejected – he was a partner, not an employee, and
could find no error of law in the ET's approach
CM Murray LLP: Specialists in Employment and Partnership Law
Tiffin v Lester Aldridge LLP (2012)
Court of Appeal:
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Members’ Agreement reflected the parties’ intention to set up a partnership
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No suggestion by Tiffin that Members’ Agreement was a sham
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No minimum threshold requirement for managerial involvement or profit share
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He did have a real voice in the firm’s management by his (more limited)
voting rights
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Tiffin contributed to the capital, took a profit share
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He participated in surplus assets on a winding up
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Held: Appeal rejected - he was a Partner
CM Murray LLP: Specialists in Employment and Partnership Law
Discrimination / Whistleblowing
• Protection from discrimination on grounds of age, disability, gender
reassignment, marriage and civil partnership, pregnancy or maternity,
race, religion or belief, sex and sexual orientation
• Provisions in partnership agreement which seek to preclude from
pursuing these rights in an ET will be void (Clyde & Co LLP and anor v
Winkelhof [2011])
• Worker status? Bates van Winkelhof v Clyde & Co LLP and anor
[2012]– Fixed share partner/Whistleblowing
CM Murray LLP: Specialists in Employment and Partnership Law
Key practical points
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Documents + Info + Status = Full Picture
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Written terms not necessarily determinative – court will look at the whole
picture and the reality of the relationship. May have employment protections
on retirement
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Try and be as informed as possible (publically available information; consider
signing confidentiality agreement)
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Include in membership terms offered?
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Guarantee (check drafting ensure no proviso e.g. performance)
Consider carve out from restrictive covenants
CM Murray LLP: Specialists in Employment and Partnership Law
Key practical points
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Others?:
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UK office of US firm? (more sophisticated structure? Member of US
LLP (may need US legal advice) Ask about mgt structure; check
target settings; short notice of termination; off-shore office goes first)
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Substantial or upcoming liabilities e.g. premises / claims not covered
by insurance / pension funds / annuities
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Non-transparent discretionary profit share scheme
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Merger plans?
CM Murray LLP: Specialists in Employment and Partnership Law
Susanne Foster
CM Murray LLP
37th Floor
Canary Wharf,
London, E14 5AA
0207 718 0090
E: [email protected]
@cmmurrayllp
CM Murray LLP: Specialists in Employment and Partnership Law