Is a fixed share partner an employee?
It all depends on the facts as this Court of Appeal decision confirms.
A former fixed share partner in a UK law firm, Mr Tiffin, brought a number of claims arising out of his dismissal from the firm. In order to do so he sought to establish that he had been an employee. As a fixed share partner he received a fixed share of the profits, contributed capital (albeit a small amount), was entitled to attend management meetings and had some voting rights but not on a par with a full equity partner.
In deciding that Mr Tiffin was not an employee the Court said that a number of ‘partnership’ factors should be considered and that the starting place should be to understand the intention of the parties from the agreements they had entered into and the facts of the case. Here it found that, although Mr Tiffin’s status was less than that of an equity partner and his control over and interest in the business lower, nonetheless the fact that he contributed capital, shared in profits and attended at partners’ meeting where he had some voting rights was not indicative of employee status.
It is important to determine correctly whether individuals are employees or partners so that liabilities can be identified. If an individual is held to be an employee then he is entitled to benefit from employment protection rights and the employer may have obligations to apply PAYE income tax withholding and make national insurance contributions.
This decision may be contrasted with a recent case in which the EAT held that a member of an LLP who was entitled to a fixed profit share was an employee and not a partner. In that case the Tribunal noted that the member did not have a capital stake in the firm, that the firm exercised a significant degree of control over the member and that the member had been told that he was at risk of redundancy and asked to sign a compromise agreement. The EAT held that the member was an employee notwithstanding the fact that the member paid tax and national insurance on a self-employed basis.
Please see a link to both cases mentioned above and our article on the contrasting case in the “Resources” section below.