We asked Majella McGuinness, solicitor, of PricewaterhouseCoopers Legal LLP to examine the recent case which deals with worker status for equity partners - Bates van Winklehof v Clyde & Co LLP.


The issue
Ms Bates van Winkelhof became an equity partner of Clyde & Co LLP in February 2010. She received a profit-related element of remuneration and a guaranteed level of remuneration. This differed from senior equity members who were remunerated by a share of profits only. Ms Bates was expelled from the partnership in January 2011. She brought a number of claims in the employment tribunal, one of which was that her expulsion amounted to detrimental treatment on the grounds of her having made protected disclosures (a whistleblowing claim under section 47B (1) of the Employment Rights Act 1996).


The Legal position
Only workers and employees are entitled to bring whistleblowing claims. It was common ground that Ms Bates was not an employee. However, she argued that she was a worker.
A worker is defined under section 230(3) of the Employment Rights Act 1996 (equivalent to 3(3) of the Employment Rights (Northern Ireland) Order 1996) as an individual who has entered into or works under:

• A contract of employment.
• Any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

The EAT Decision
The EAT held that there are four statutory requirements for a worker:

1. There must be a contract;
2. Under that contract the worker must undertake to do or perform work or service personally;
3. The work or services are to be done or performed for another party to the contract; and
4. The other party is not a client or customer of a profession or business undertaking carried out by the individual.

The EAT held that all four requirements were met:

• The Clyde & Co LLP equity membership agreement was a contract.
• Ms Bates was performing the work personally.
• Ms Bates was working for the benefit of Clyde & Co LLP which was a party to the contract.
• The LLP was not Ms Bates's client. Ms Bates did not actively market her services as an independent person to the world in general as a person with clients or customers would do. Under the LLP agreement, she agreed to devote her full time and attention to Clyde & Co's business and therefore had precluded herself by agreement from offering her professional services to anyone but Clyde & Co.

In relation to the fourth requirement, the EAT referred to the need to protect workers who are in a subordinate and dependent position. The EAT conceded that a full equity partner or a member who is wholly dependent on a share of the organisation's profit for his or her remuneration may not be considered to be in the necessary subordinate and dependent position to qualify for worker status.


Implications
This is the first appellate decision confirming that an equity partner can enjoy statutory employment protection as a worker, although the status of full equity partners remains unclear. Clyde & Co are appealing and therefore the decision may yet be overturned.

For now, the ruling extends the number of claims that equity partners are able to bring beyond discrimination to include claims under the Whistleblowing, Working Time and Part time Workers Regulations. In addition, there are a number of rights only applicable to workers which, arguably, equity partners will now be entitled to enjoy including:

• The right to be accompanied at a disciplinary or grievance hearing
• Protection against deduction from wages
• Paid annual leave
• Rest breaks
• Maximum working week

There are also implications for auto-enrolment. From 1 October 2012, new laws come into force requiring all employers in the United Kingdom to automatically enrol eligible "jobholders" in a pension scheme. A "jobholder" is defined under the Pensions Act 2008 as an "employee" or "worker". The definition of "worker" in the Pensions Act mirrors the definition set out in the Employment Rights Act considered by the EAT in this case. The implication is that LLPs will be required to automatically enrol their equity partners in a pension scheme.


What you should do now 
As well as being alive to the risk of discrimination claims, LLPs now need to be mindful of the risk of additional claims, particularly "whistleblowing" claims which, like discrimination claims, attract unlimited compensation. LLPs will need to review their members' agreements and all policies and procedures relating to their members to ensure they are in the best position to defend such claims. They will also need to consider their position on auto-enrolment.