Legal Topics / Solicitors Journal

LLPs must remain alert to legal challenge

20140523-114451-42291391.jpgA solicitor providing services to an LLP through a service company was permitted to bring a claim. What does this mean for law firms and LLPs generally, asks Kevin Poulter

In Garry Abrams Limited and another v EAD Solicitors LLP and others, the Employment Appeal Tribunal (EAT) ruled that the employment tribunals do have jurisdiction to hear claims of discrimination by limited companies as well as individuals.

Mr Abrams provided his services to Liverpool-based EAD Solicitors LLP (EAD) through a service company, Garry Abrams Limited (GAL), of which he was the sole director and shareholder and which he established in 2011 for advantageous tax reasons. Such a practice is not uncommon and is acknowledged by HMRC.

According to EAD’s Limited Liability Partnership (LLP) agreement, when a member turned 62, they would retire at the end of that year and receive no further share in the firm’s profits. Accordingly, GAL did not receive any further payment from EAD after the end of the year in which Abrams reached 62.GAL raised a claim of associative age discrimination against EAD; as all members were entitled to receive a share in profit, a failure to make such payment was unlawful direct discrimination under section 13 of the Equality Act 2010.

Mr Justice Langstaff, president of the EAT, upheld the Liverpool employment tribunal’s decision that a limited company can pursue a claim of discrimination. In the first instance, EAD had tried to have the claim struck out, arguing that a limited company does not have jurisdiction and that only individuals could be protected by the provisions of the Equality Act. It was determined by the EAT that because the company, GAL, was a member of the LLP, the claim could continue.

This is significant for law firms and any partnerships which engage individuals through service companies. Simply separating out the individual from the company, and vice-versa, is not enough to avoid claims of discrimination under the Equality Act.

Justified retirement age

Whether the claim ultimately succeeds is yet to be seen. However, in the oft-cited case of Seldon v Clarkson Wright and Jakes, which made its all the way up to the Supreme Court, a mandatory retirement age of 65 for partners in a law firm was considered to be a ‘proportionate means of achieving the legitimate aims’ of workforce planning and staff retention.

Bates van Winkelhof

You may also recall the case brought by Krista Bates van Winkelhof against Clyde and Co LLP, where the Supreme Court held that a member of an LLP can be a ‘worker’ within the meaning of section 230(3)(b) of the Employment Rights Act 1996 (ERA) for the purpose of whistleblowing protection, thereby overturning an earlier Court of Appeal decision in the case.

Bates Van Winkelhof became an equity member of the firm in February 2010, receiving a fixed share of the profits in the partnership. In November 2010 she reported to the firm’s money laundering officer that the managing partner of a Tanzanian law firm, with which the firm had a joint venture, had admitted paying bribes to secure work and the outcome of certain cases. Bates Van Winkelhof claimed that these reports constituted ‘protected disclosures’ and that she was subject to a number of detriments as a result of making them, including suspension, allegations of misconduct, and eventually expulsion from the firm in January 2011.

Although the claim was for sex discrimination and detriment as a result of whistleblowing, it would only succeed if she could be considered a ‘worker’. In her reasoning, Lady Hale considered Bates van Winkelhof to be an integral part of the firm’s business and could not offer her services as a solicitor to anyone else, but disagreed with the Court of Appeal’s assertion that subordination is essential to show worker status. The relevant point, which accords with the decision in Abrams, and one which will ring true with many law firm partners, is that ‘one can effectively be one’s own boss and still be a “worker’’.’

In light of the most recent decision, and the direction of other decisions over the past few years, LLPs would be sensible to reconsider, if, and to what extent, they are meeting these statutory requirements in relation to their members, and what risks they may have in the case of any failure. It is uncertain if any further appeal will be made to the current decision by EAD but, for now, the position stands that a member of an LLP, regardless of whether they are an individual or a corporate member, will have the right to raise a claim where they feel they have been discriminated against.

This article first appeared in the Solicitors Journal on 30 June, 2005, and is reproduced with kind permission

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