Partner or employee?

Posted: 23rd February 2012

Is a partner who receives only a small share of the firm’s profit and takes no part in the management of the firm really a partner?
That question was at the heart of a recent case heard in the Court of Appeal. It involved a partner in a law firm who had entered into a partnership agreement, later becoming a ‘member’ when the firm became a Limited Liability Partnership. He was unable to build a big enough client base and left the firm.
He sued for breach of contract and unfair dismissal, and claimed statutory redundancy pay. He contended that his role was that of an employee, rather than a partner. His argument was based on the fact that he was not involved in the management of the firm, and that his profit share was minuscule.
The Employment Appeal Tribunal (EAT) concluded that he was a partner. His arrangement with the firm was not consistent with an employer/employee relationship. In addition, neither the size of his profit share nor his participation in the firm’s management was relevant to the question. The Court of Appeal upheld the EAT’s decision.
Having agreements in place which make the position clear is an invaluable precaution in reducing the potential for later disputes.