When is a partner not a partner?
A recent Employment Appeal Tribunal (“EAT”) ruling has found that a solicitor who was held out as a partner and remunerated as a partner was nevertheless an employee of the solicitors’ firm at which he worked. As such, he was entitled to bring an employment claim against the firm on leaving the practice. Although only an EAT finding this ruling is a timely reminder that, in law, the issue of whether someone is actually a partner or not is a matter of substance over form, and that answer is not always as predictable as one may think.
Why is this an issue?
One of the fundamental principles of partnerships is that all partners share joint and several liability for the wrongful acts or omissions of the partnership. To a would-be claimant pursuing a gripe against the firm, therefore, the ability to tap into the resources of the entire partnership (and its PI cover, if applicable) in respect of the errors of one individual is of significant benefit, especially if the errant partner has absconded or been found to have acted improperly.
But (ignoring issues about whether someone may be liable as if they were a partner because of some holding out of partnership status) joint and several liability can only be conferred upon ‘actual’ partners – anyone not falling within that category escapes, and thereby shallows the ‘pool’ of resources into which our would-be claimant can dive. Establishing partnership status is therefore a contentious area.
How has this problem come about?
Over recent years, pressures on partnerships to continue progressing employees’ careers against a climate of dwindling profits has led to the creation of many tiers of partnership, ranging from those that remain salaried through to those taking a fixed share of profits. This has led to much debate regarding the status of these new breeds of ‘partner’ in the eyes of the law. Various factors have been found to be influential in determining whether (and to what extent) the law should recognise these individuals as partners, such as:
•Whether the individual is held out as a partner to clients
•Whether the individual has signed up to a partnership deed, including agreeing terms to share profits and losses of the partnership
•Whether the individual is remunerated through a share of the firm’s profits
•Whether the individual has committed their own resources to the partnership by way of capital
•Whether the individual is involved in the general management of the firm and
•Whether the individual is a signatory to the firm’s accounts
The existence of all of the above traits will undoubtedly invite the conclusion that the individual is a ‘true’ partner. But what if some are missing? How many are needed?
So what happened in this case?
Solicitor Jeremy Briars began working for Williamson & Soden in 2001, where he was initially paid a salary of £55,000. In 2003, he became a salaried partner, and was held out to clients from that moment on as being a partner of the firm. In 2004, Mr Briars’ remuneration was altered so that he would receive a share of the firm’s profits amounting to £55,000 per year, plus one eighteenth of the firm’s overall net profits.
When Mr Briars left the firm, he brought an employment claim against Williamson & Soden. The firm argued that Mr Briars was not entitled to bring an employment claim given that he was a partner at the material time and not an employee. They relied on his status and profit-based remuneration to justify their argument.
However, the EAT disagreed and determined that Mr Briars was in fact an employee. Their decision was based on the fact that Mr Briars:
•Had no capital stake in the firm
•Had no involvement in management decisions of the firm and
•Had no risk of losses that the firm might incur.
Joint and several liability of partners is very attractive for those seeking to do business with partnerships, as it gives some comfort in the event that things go wrong. Not only does it ‘deepen the pool’, but it also makes it much harder for PI insurers of partnerships to decline to cover claims where one partner has breached the terms of the cover; if the other partners remain jointly and severally liable for that partner’s misdeeds, it is only right that they (and therefore, by implication, the claimant) should still have access to the firm’s PI.
As mentioned above, this is only an EAT ruling and, as such, it is unlikely to carry much judicial weight. That said, it serves as a reminder to those wishing to take advantage of the benefits of joint and several liability not to make assumptions about the status of the parties they are seeking to do business with; these issues go much deeper than the headed notepaper.
This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, click here.