UK: England and Wales: fixed share partner was not employee of LLP

The ICLR, as part of its free case summary service, has provided a summary for the decision given last week by the Court of Appeal in Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35: see here. The court held that a fixed share partner in a limited liability partnership was not an employee and in doing so considered the operation of Section 4(4) of the Limited Liability Partnerships Act 2000.  To quote the first paragraph of the summary:

Section 4(4) of the Limited Liability Partnerships Act 2000 required an assumption that the business of the limited liability partnership had been carried on by two or more of its members as partners and upon that assumption, required an inquiry as to whether or not the person whose status was in question would have been one of the partners. If the answer to that inquiry was that he would have been a partner then he could not have been an employee of the partnership; if the answer was that he would not have been a partner there would have to be further inquiry as to whether his relationship would have been that of an employee. It was implicit that the primary source material for the purpose of answering those questions would be the members’ agreement although that would not necessarily represent the totality of what might be looked at".

UK: England and Wales: section 38 of the Partnership Act 1890

Section 38 of the Partnership Act (1890) provides that after a partnership's dissolution, the authority of each partner to bind firm continues so far as is necessary to wind up the partnership's affairs and to complete transactions begun but unfinished at the date of the dissolution. Earlier this week, in Boghani v Nathoo [2011] EWHC 2101 (Ch), the High Court set out various propositions concerning the operation and effect of Section 38 (at para. [37]):

• The obligations of partners to third parties continue notwithstanding the dissolution of the partnership.
• In England, if not in Scotland, the satisfaction of those obligations by performance, release or novation or the payment of damages will not usually involve reliance on the terms of s.38.
• S.38 does not entitle the surviving partners to engage in new bargains or contracts so as to bind a deceased or former partner.
• Even in relation to transactions, not being new bargains or contracts, begun but unfinished at the time of dissolution s.38 applies only if and to the extent that the completion of such transactions is necessary to wind up the affairs of the partnership.
• S.38, if applicable, confers a power; it does not impose any additional duty.

UK: England and Wales: a partner or employee?

The Employment Appeal Tribunal delivered its judgment yesterday in Tiffin v Lester Aldridge LLP [2010] UKEAT 0255_10_1611: see here. In earlier proceedings, the Employment Tribunal held that the claimant, a solicitor, was a "partner" within the meaning of Section 1(1) of the Partnership Act 1890 and not an "employee" within the meaning of Section 230(1) of the Employment Rights Act 1996. Section 1(1) of the 1890 Act provides that partnership is "the relation which subsists between persons carrying on a business in common with a view of profit".

The solicitor was a fixed share partner, received a salary and a small share of the profits, was liable to contribute a small proportion of the capital to the respondent firm but had very limited involvement in the firm's management. Before the EAT it was argued, amongst other things, that the Employment Tribunal had erred in finding that the solicitor was a partner because his limited involvement in management negated the finding that he carried on a "business in common" as required by Section 1 of the 1890 Act. The EAT rejected this argument, observing that there was no minimum threshold that had to be reached with regard to a person's rights to profits or involvement in the firm's management in order to be regarded as a partner. In this regard, the EAT observed (paras. [19] to [20]):

There is no statutory provision or authority, which states that for a person to be a partner, he or she has to have a certain minimum number or a certain minimum types of rights to vote or to participate in management decisions. Indeed the members of this Tribunal are aware that in many large professional partnerships, all but very 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. There is evidence that the Claimant was entitled to participate in the Respondent's management as he could attend and vote at partnership and members meetings as well as being able to make representations at them. He had authority to sign cheques on behalf of the Respondent ... In our view, there was quite enough material ... to enable the Employment Tribunal to conclude that the Claimant carried on business in association with the Respondent".

UK: England and Wales: a partner's duty of skill and care - an objective standard

[Updated 16 March] There are very few cases considering the duty of skill and care owed by partners towards their partnership. Indeed, as the Law Commissions observed in their 2003 joint report on partnership law, "[t]he [Partnership] 1890 Act contains no statement of the duty of care which a partner owes to the partnership. There is uncertainty in both jurisdictions as to the standard of care which is imposed on a partner" (para. 11.16).

Against this background, Tann v Herrington [2009] EWHC 445 (Ch); [2009] WLR (D) 89 is important because the trial judge held that a partner owed his firm a duty to exercise reasonable care and skill, determined by reference to an objective standard. His Lordship rejected the argument that the partner's duty was "to take such a level of care as he would take in relation to his own affairs". 

The decision is not yet available on BAILII but a summary has been provided here by the ICLR as part of its excellent WLR(D) service. The position in Scotland was considered several years ago in Ross Harper and Murphy v Banks [2000] SLT 699. 

Update (16 March 2009): the decision is now available on BAILII - see here.