JUDGMENT
Clyde & Co LLP and another (Respondents) v
Bates van Winkelhof (Appellant)
before
Lord Neuberger, President
Lady Hale, Deputy President
Lord Clarke
Lord Wilson
Lord Carnwath
JUDGMENT GIVEN ON
21 May 2014
Heard on 24 and 25 March 2014
Appellant Respondent
Thomas Linden QC Andrew Stafford QC
David Craig
Claudia Renton
Chris Quinn
Nicholas Goodfellow
(Instructed by Mishcon de
Reya
)
(Instructed by Clyde & Co
LLP
)
Intervener (Public
Concern at Work)
John Machell QC
Jonathan Cohen
Adil Mohamedbhai
(Instructed by CM Murray
LLP
)
LADY HALE (with whom Lord Neuberger and Lord Wilson agree)
1. Can a member of a Limited Liability Partnership (LLP) be a “worker” within
the meaning of section 230(3) of the Employment Rights Act 1996 (“the 1996
Act”)? If she is, she may claim the benefit of the protection given to “whistleblowers” in sections 43A to 43L of that Act, inserted by the Public Interest
Disclosure Act 1998. There are also potentially other rights involved if the member
is a “worker”.
2. Section 230(3) of the 1996 Act defines two sorts of worker for the purpose
of that Act. Limb (a) covers an individual who has entered into, works under or has
worked under “a contract of employment”. No-one has suggested that the contract
between the member and the LLP in this case was a contract of employment. The
question is whether the member falls within limb (b) of section 230(3), which covers
an individual who has entered into or works under or worked under
“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”.
3. Section 230(5) is also relevant:
“In this Act, ‘employment’ . . .
(b) in relation to a worker, means employment under his contract;
and ‘employed’ shall be construed accordingly.”
Section 230(4) provides that in the Act, “employer” means the person by whom the
worker is employed.
4. The immediate context is whether the member can claim the benefit of the
protection given to “whistle-blowers” by the 1996 Act. But limb (b) workers are
also able to claim two other rights under the 1996 Act, the right not to suffer an
Page 2
unauthorised deduction from wages (section 13) and the right not to be subjected to
a detriment for exercising rights under the Working Time Regulations (SI
1998/1833) (section 45A). The same definition of worker is also used in some other
legislation, most notably the National Minimum Wage Act 1998, the Working Time
Regulations 1998 (SI 1998/1833), and the Part-time Workers (Prevention of Less
Favourable Treatment) Regulations 2000 (SI 2000/1551). But the rights given to
this type of worker are much less extensive than those given to workers under a
contract of employment. They do not, for example, include protection against unfair
dismissal.
The facts
5. The appellant is an English qualified solicitor. In 2005 she was employed by
Shadbolt & Co LLP to develop a joint venture with a Tanzanian law firm, with
whom she also had an employment contract. In 2009, Shadbolt ended their joint
venture with that firm but entered into a joint venture with a different Tanzanian
firm. Later in 2009, Clyde & Co LLP were negotiating to take over various parts of
Shadbolt’s business, including the Tanzanian joint venture. On 24 December 2009,
they made a formal offer to the appellant, subject to completion of the deal with
Shadbolt. Under this, she would become an “Equity Partner” of the LLP. Her annual
share of the LLP profits was fixed at £103,000 (whether or not the LLP actually
made a profit). Her existing arrangements with the Tanzanian joint venture would
continue. The LLP would “look to propose her as a Senior Equity Partner once the
results of the joint venture are able to provide a track record showing the
sustainability of income and profit to satisfy our partnership process”.
6. The deal with Shadbolt was completed in February 2010, when the appellant
became a member of Clyde & Co LLP. She signed a Deed of Adherence to the
LLP’s Members’ Agreement. The other parties to the Deed were the LLP and each
of the Members individually. Under the Members’ Agreement, there were two levels
of membership, “Equity Members” and “Senior Equity Members”. Senior Equity
Members were placed on the LLP’s lockstep, each level of which conferred a certain
number of profit sharing units. Equity Members received a fixed annual share of
profits and such profit sharing units as the management board might determine. The
rights of the Senior Equity Members were more extensive than those of the Equity
Members, but they could all vote to elect the Senior Partner and the members of the
management board. Members agreed that “the objective of each Member shall be to
carry on business for the best advantage of the LLP so as to promote the wellbeing
and success of the Business for the prosperity and advantage of all Members and to
that end each Member shall devote his full time and attention to the Business” and
that “each Member shall be just and faithful to the LLP in all transactions relating
to the Business and in relation to the property and other assets of the LLP”.
“Business” is defined as “the business to be carried on by the LLP as set out in clause
Page 3
3”, which states that “[t]he LLP carries on business as solicitors, foreign lawyers
and registered European lawyers”.
7. In November 2010, the appellant reported to the LLP’s money laundering
reporting officers that the managing partner of the Tanzanian law firm had admitted
paying bribes to secure work and to secure the outcome of cases. She claims that
these were “protected disclosures” within the meaning of section 43A of the 1996
Act. She also claims that she was subject to a number of detriments as a result,
including suspending her, making allegations of misconduct against her and
ultimately expelling her from the LLP in January 2011. These claims are denied by
the LLP and have not yet been tried.
8. In February 2011, the appellant brought claims in the Employment Tribunal
against the LLP and one of its Senior Equity Members under the sex discrimination
provisions of the Equality Act 2010 and under the whistle-blowing provisions of the
1996 Act. The respondents’ preliminary objection to both claims, that the Tribunal
had no jurisdiction because the appellant worked primarily outside the jurisdiction
in Tanzania, has been resolved in her favour. The respondents also objected to her
whistle-blowing claim on the ground that she was not a “worker” within the meaning
of section 230(3) of the 1996 Act.
9. The Employment Tribunal found that she was not a “worker”, although she
worked under a contract to do or perform personally work or services for the LLP,
because she was “in business in her own right receiving a share of the profits in
relation to the work carried out”. In the Employment Appeal Tribunal, Judge Peter
Clark allowed her appeal and held that she was a worker. She was an integral part
of the LLP’s business, she could not offer her services to anyone else, she was in a
subordinate position and the LLP was not her client. (The Court of Appeal
commented that Judge Clark “appears to have considered the issue of subordination
in the context of determining whether the LLP was a client or customer rather than
as an independent requirement in its own right”: [2013] ICR 883 para 30). The
LLP’s appeal to the Court of Appeal was successful, but on a completely different
ground from those argued in the Tribunals: [2012] EWCA Civ 1207.
The decision of the Court of Appeal
10. The Court of Appeal held that the appellant could not be a worker for the
purpose of section 230(3) of the 1996 Act because of section 4(4) of the Limited
Liability Partnerships Act 2000. This provides:
Page 4
“A member of a limited liability partnership shall not be regarded for
any purpose as employed by the limited liability partnership unless, if
he and the other members were partners in a partnership, he would be
regarded for that purpose as employed by the partnership.”
11. The LLP argued that “employed by” should be widely construed to include
both types of 1996 Act worker. The appellant claimed that its natural meaning was
restricted to contracts of employment. Elias LJ (with whom the other members of
the court agreed) accepted that “focusing simply on the language, the argument is
not clear cut” (para 48). But “the intention seems to me to be that whatever the
employment status of the partners under the 1890 Act, it should not alter as a result
of incorporation”. If Parliament did not intend to change their status as regards
whether they were employees under limb (a), “I can see no logical reason why
Parliament would have adopted a different position with respect to the questions
whether they may be limb (b) workers” (para 48).
12. There was no previous case considering whether a partner could be a limb
(b) worker. But both Ellis v Joseph Ellis & Co [1905] 1 KB 324 and Cowell v Quilter
Goodison Co Ltd [1989] IRLR 392 established that a partner could not be an
employee. Essentially this was because the partners were all in a contractual
relationship with one another in a joint venture and thus each partner would have to
be employed, inter alia, by himself. “He would be both workman and employer,
which is a legal impossibility” (para 63). Further, “[t]he very concept of employment
presupposes as a matter of sociological fact a hierarchical relationship whereby the
worker is to some extent subordinate to the employer . . . Where the relationship is
one of partners in a joint venture, that characteristic is absent” (para 64). These
reasons applied just as much to limb (b) status as they did to employees.
13. Given that section 4(4) produced this result, Elias LJ did not have to consider
whether it was an essential part of the definition of “worker” that one party was in a
subordinate relationship to the other (para 68). He acknowledged that “there is a
powerful case for saying that, focusing solely on the language of section 230, the
terms of the statutory definition of worker were satisfied in this case”. He agreed
with the EAT that the LLP “could in no sensible way be said to be either the client
or the customer of the claimant” (para 69). But “the analysis has to be more subtle”
than that (para 70). “Underlying the statutory definition of ‘worker’ is the notion
that one party has to be in a subordinate relationship to the other”. An LLP could
not properly be described as a client or a customer but neither could it properly be
described as an employer of its members (para 71). Hence he was “inclined to the
view that the employment judge was correct”. He would be “minded to hold that the
member of an LLP would not by virtue of that status alone constitute either an
employee or a worker” (para 73). Whether they might “enter into some separate
employment relationship with the partnership, rather in the manner that a company
director can do, would be a different question” (para 73).
Page 5
This appeal
14. Mr Thomas Linden QC, on behalf of the appellant claimant, argues that the
plain wording of section 230(3)(b) includes his client. It is common ground that she
is employed under a contract personally to perform work or services for the LLP;
she was an integral part of their business and the LLP was not her client or customer.
There is no additional element of subordination involved in the concept of
employment; but if there is, the claimant was subordinate for this purpose. Section
4(4) of the 2000 Act does not modify the 1996 Act in respect of “worker” status, but
even if it did, she would have been a worker in a partnership. Finally, he argues that
the claimant’s right to freedom of expression under article 10 of the European
Convention on Human Rights requires that we construe the legislation so as to afford
her effective protection for her rights.
15. On the statutory construction point, Mr Andrew Stafford QC, for Clyde & Co
LLP, argues that the Court of Appeal were right for the reasons they gave. A partner
under an ordinary partnership cannot be an employee of a partnership of which she
is a member. Section 4(4) of the 2000 Act was plugging into that rule and applies
just as much to the wider definition of “worker” as it does to employees. Under
article 10, he argues that our whistle-blowing protection is more advanced than that
in much of Europe, the Convention right is not as extensive, and so it is not necessary
to interpret section 230 of the 1996 Act so as to cover members of an LLP; and in
any event it would “go against the grain” of the legislation as he has identified it,
and thus not be within the bounds of “possible” readings for the purpose of section
3 of the Human Rights Act 1998.
Discussion
16. The immediately striking thing about this case is how much hard work has to
be done in order to find that a member of an LLP is not a worker within the meaning
of section 230(3)(b) of the 1996 Act. It is common ground that the appellant worked
“under a contract personally to perform any work or services”. It is now common
ground that she provided those services “for” the LLP. It is also now common
ground that the LLP was not her “client or customer”. The Court of Appeal accepted
(para 69) that there was a “powerful case” that the definition was satisfied. How then
can it be said that she was not a “worker” for this purpose?
17. The argument which found favour with the Court of Appeal was that section
230(3) had impliedly been modified by section 4(4) of the 2000 Act. It is, of course,
the case that when passing the 1996 Act, or when amending it in 1998 to insert the
whistle-blowing provisions, Parliament could not have had limited liability
partnerships in mind, because they did not then exist. It was not then known whether
Page 6
the pressure, mainly from large accountancy firms, to introduce some new form of
business structure with limited liability would be heeded, or, if it was, what form
such a structure might take. It might have retained the traditional form of partnership
in England and Wales, in which the firm is not a separate legal personality but a
group of individuals who contract with one another and collectively with others; or
it might have been a completely new form, in which, although called a “partnership”,
the entity has a separate legal personality. The latter course was eventually chosen.
18. Meanwhile, in another part of the forest, the Law Commission and Scottish
Law Commission were conducting a joint project on partnership law. They
published a joint consultation paper in 2000, shortly after the Limited Liability
Partnerships Act 2000 received the Royal Assent (Law Commission Consultation
Paper No 159, Scottish Law Commission Discussion Paper No 111). In this they
pointed out that there was doubt in Scots law, which does accord separate legal
personality to a partnership, whether a partnership could enter into an employment
contract with one of its partners (para 23.21; referring to Allison v Alison’s Trustees
(1904) 6 F 496 and Fife County Council v Minister of National Insurance 1947 SC
629). They provisionally recommended that, if a partnership were to have a separate
legal personality, it should be able to enter into a contract of employment with one
of its partners. It may well be, therefore, that those with an interest in partnership
law were already alert to the fact that, if a partnership were to become a separate
legal entity, at the very least the arguments about whether partners could also be
employees would be different. There is, after all, no problem at all about a majority
shareholder also being, not only a Director, but also an employee of a limited
company.
19. The Law Commissions published their Report on Partnership Law in 2003
(Law Com No 283, Scot Law Com No 192). This reported that the response of
consultees to their suggestion that it should be possible for partners to become
employees was divided. The Commissions were persuaded that “the status, right and
obligations of a partner were wholly different from those of an employee” (para
13.52). Hence they recommended that a partnership should not be capable of
engaging a partner as an employee.
20. We cannot know what prompted the inclusion of section 4(4) in the 2000 Act
(and intriguingly, the Law Commissions do not refer to it either in their Consultation
Paper or in their Report). We do know that section 4(4) has caused some
bewilderment among English lawyers. In Tiffin v Lester Aldridge LLP [2012] 1
WLR 1887, para 31, Rimer LJ commented that
“[t]he drafting of section 4(4) raises problems. . . . That is because in
law an individual cannot be an employee of himself. Nor can a partner
in a partnership be an employee of the partnership, because it is
Page 7
equally not possible for an individual to be an employee of himself
and his co-partners (see Cowell v Quilter Goodison Co Ltd [1989]
IRLR 392). Unfortunately, the authors of section 4(4) were apparently
unaware of this.”
He went on to conclude that what section 4(4) must have been getting at is not what
it says that it is getting at, which is whether the member “would be regarded as
employed by the partnership” if the members of the LLP were “partners in a
partnership”; instead, in his view, it must have been getting at whether the LLP
member would be regarded as a partner had the LLP been a partnership.
21. But once it is recognised that the 2000 Act is a UK-wide statute, and that
there is doubt about whether partners in a Scottish partnership can also be employed
by the partnership, then there is no need to give such a strained construction to
section 4(4). All that it is saying is that, whatever the position would be were the
LLP members to be partners in a traditional partnership, then that position is the
same in an LLP. I would hold, therefore, that that is how section 4(4) is to be
construed.
22. The issue in Tiffin was whether a member of an LLP could make a claim for
unfair dismissal against the LLP. That, of course, depends, not upon whether she is
a “worker” in the wider sense used in section 230(3)(b) of the 1996 Act, but upon
whether she is an employee under a contract of employment. On any view,
“employed by” in section 4(4) would cover a person employed under a contract of
service.
23. The question for us is whether “employed by” in section 4(4) bears a wider
meaning than that and also covers those who “undertake to do or perform personally
any work or services for another party to the contract . . .”. In my view, it does not.
24. First, the natural and ordinary meaning of “employed by” is employed under
a contract of service. Our law draws a clear distinction between those who are so
employed and those who are self-employed but enter into contracts to perform work
or services for others.
25. Second, within the latter class, the law now draws a distinction between two
different kinds of self-employed people. One kind are people who carry on a
profession or a business undertaking on their own account and enter into contracts
with clients or customers to provide work or services for them. The arbitrators in
Hashwani v Jivraj (London Court of International Arbitration intervening) [2011]
UKSC 40, [2011] 1 WLR 1872 were people of that kind. The other kind are selfPage 8
employed people who provide their services as part of a profession or business
undertaking carried on by some-one else. The general medical practitioner in
Hospital Medical Group Ltd v Westwood [2012] EWCA Civ 1005; [2013] ICR 415,
who also provided his services as a hair restoration surgeon to a company offering
hair restoration services to the public, was a person of that kind and thus a “worker”
within the meaning of section 230(3)(b) of the 1996 Act. Had Parliament wished to
include this “worker” class of self-employed people within the meaning of section
4(4), it could have done so expressly but it did not.
26. Thirdly, however, doing so would have raised the question of whether
partners in a traditional partnership can also be workers for that partnership in this
wider sense. That would be a very different question from whether they can be
employees. If Parliament had indeed wished to exclude that possibility, which might
have been a change in the law, it could be expected to do so directly and expressly,
but it did not.
27. Fourthly, and perhaps most importantly, there are the provisions of section
230 of the 1996 Act itself. Section 230(1) defines an “employee” as an individual
who has entered into, works, or has worked under a contract of employment. Section
230(2) defines a contract employment as “a contract of service or apprenticeship”.
Section 230(5) expressly provides that, in the 1996 Act, “employment” means both
the employment of an employee under a contract of employment and the
employment of a worker under his contract. “Employed” is to be construed
accordingly. Thus, in order to be able to use the words “employed” and
“employment” in a wider sense than they would normally carry, so as to cover the
employment of class (b) “workers” and those for whom they work, Parliament
expressly enacted an extension to what would otherwise be the natural and ordinary
meaning of those words. Such an extension is conspicuously lacking in the 2000
Act. With the greatest of respect to Lord Clarke, I do not consider it possible to
construe the wording of the 2000 Act, the conventional meaning of which is quite
clear, by reference to an extended definition in an earlier Act which was restricted
to that Act. “For all purposes” in section 4(4) of the 2000 Act refers to all the
purposes for which employment under a contract of service is relevant.
28. For all those reasons, I conclude that section 4(4) of the 2000 Act does not
mean that members of an LLP can only be “workers” within the meaning of section
230(3) of the 1996 Act if they would also have been “workers” had the members of
the LLP been partners in a traditional partnership.
29. This means that there is no need to consider the subsidiary but important
questions which would arise had section 4(4) borne the meaning for which Clyde &
Co contend: (i) is it indeed the law, as held by the Court of Appeal in Cowell v
Quilter & Goodison and Tiffin v Lester Aldridge LLP that a partner can never be an
Page 9
employee of the partnership; and (ii) if so, does the same reasoning which leads to
that conclusion also lead to the conclusion that a partner can never be a “worker”
for the partnership? Suffice it to say that Mr John Machell QC, for the interveners,
Public Concern at Work, mounted a serious challenge to the rule against dual status.
Ellis v Joseph Ellis was decided before section 82 of the Law of Property Act 1925
made it clear that a person could contract with himself and others. There are some
contracts which a partner may make with the members of the partnership, such as
lending them money or granting them a lease or a tenancy. So why should it be
legally impossible to be employed, under either type of contract, by the partnership?
This question raises two subsidiary questions: (a) whether such a relationship can
arise from the terms of the partnership agreement itself (as apparently suggested by
Lord Clarke at para 52 of his judgment), or (b) whether it can only arise by virtue of
a separate contract between the partner and the partnership (a possibility kept open
by Elias LJ in the Court of Appeal, see para 13 above). As it is not necessary for us
to resolve any of these issues in order to decide this case, I express no opinion upon
a question which is clearly of some complexity and difficulty.
30. Having reached the conclusion that section 4(4) of the 2000 Act does not
operate so as to exclude the appellant from being a “worker” within the meaning of
section 230(3)(b) of the 1996 Act, it is necessary to consider the “more subtle”
analysis addressed in the Court of Appeal, that “underlying the statutory definition
of worker is the notion that one party has to be in a subordinate relationship to the
other” (para 71). Elias LJ would have been “minded to hold that the member of an
LLP would not by virtue of that status alone constitute either an employee or a
worker” (para 73). If by that he meant only that there are some members of an LLP
who are purely investors and do not undertake personally to work for the LLP, then
of course I would agree. But if by that he meant that those members who do so
undertake (whether by virtue of the membership agreement or otherwise) cannot be
workers, then I respectfully disagree.
31. As already seen, employment law distinguishes between three types of
people: those employed under a contract of employment; those self-employed
people who are in business on their own account and undertake work for their clients
or customers; and an intermediate class of workers who are self- employed but do
not fall within the second class. Discrimination law, on the other hand, while it
includes a contract “personally to do work” within its definition of employment (see,
now, Equality Act 2010, s 83(2)) does not include an express exception for those in
business on their account who work for their clients or customers. But a similar
qualification has been introduced by a different route.
32. In Allonby v Accrington and Rossendale College (Case C-256/01) [2004]
ICR 1328, the European Court of Justice was concerned with whether a college
lecturer who was ostensibly self-employed could nevertheless be a “worker” for the
purpose of an equal pay claim. The Court held, following Lawrie-Blum v Land
Page 10
Baden-Wurttemberg (Case C-66/85) [1987] ICR 483 that “there must be considered
as a worker a person who, for a certain period of time, performs services for and
under the direction of another person in return for which he receives remuneration”
(para 67). However, such people were to be distinguished from “independent
providers of services who are not in a relationship of subordination with the person
who receives the services” (para 68). The concept of subordination was there
introduced in order to distinguish the intermediate category from people who were
dealing with clients or customers on their own account. It was used for the same
purpose in the discrimination case of Jivraj v Hashwani.
33. We are dealing with the more precise wording of section 230(3)(b). English
cases in the EAT have attempted to capture the essential distinction in a variety of
ways. Thus in Byrne Bros (Formwork) Ltd v Baird [2002] ICR 667, Mr Recorder
Underhill QC suggested, at para 17(4), that
“[t]he reason why employees are thought to need such protection is
that they are in a subordinate and dependent position vis-a-vis their
employers: the purpose of the Regulations is to extend protection to
workers who are, substantively and economically, in the same
position. Thus the essence of the intended distinction must be
between, on the one hand, workers whose degree of dependence is
essentially the same as that of employees and, on the other, contractors
who have a sufficiently arm’s-length and independent position to be
treated as being able to look after themselves in the relevant respects.”
34. In Cotswold Developments Construction Ltd v Williams [2006] IRLR 181,
Langstaff J suggested, at para 53, that
“. . . a focus on whether the purported worker actively markets his
services as an independent person to the world in general (a person
who will thus have a client or customer) on the one hand, or whether
he is recruited by the principal to work for that principal as an integral
part of the principal’s operations, will in most cases demonstrate on
which side of the line a given person falls”.
35. In James v Redcats (Brands) Ltd [2007] ICR 1006, Elias J agreed that this
would “often assist in providing the answer” but the difficult cases were those where
the putative worker did not market her services at all (para 50). He also accepted, at
para 48, that
Page 11
“. . . in a general sense the degree of dependence is in large part what
one is seeking to identify – if employees are integrated into the
business, workers may be described as semi-detached and those
conducting a business undertaking as detached – but that must be
assessed by a careful analysis of the contract itself. The fact that the
individual may be in a subordinate position, both economically and
substantively, is of itself of little assistance in defining the relevant
boundary because a small business operation may be as economically
dependent on the other contracting party, as is the self-employed
worker, particularly if it is a key or the only customer.”
36. After looking at how the distinction had been introduced into the sex
discrimination legislation, which contained a similarly wide definition of worker but
without the reference to clients and customers, by reference to a “dominant purpose”
test in Mirror Group Newspapers Ltd v Gunning [1986] ICR 145, he concluded, at
para 59:
“. . . the dominant purpose test is really an attempt to identify the
essential nature of the contract. Is it in essence to be located in the field
of dependent work relationships, or is it in essence a contract between
two independent business undertakings? . . . Its purpose is to
distinguish between the concept of worker and the independent
contractor who is on business in his own account, even if only in a
small way.”
37. The issue came before the Court of Appeal in Hospital Medical Group Ltd v
Westwood [2012] EWCA Civ 1005, [2013] ICR 415, a case which was
understandably not referred to in the Court of Appeal in this case; it was argued
shortly before the hearing in this case, but judgment was delivered a few days
afterwards. The Hospital Medical Group argued that Dr Westwood was in business
on his own account as a doctor, in which he had three customers, the NHS for his
services as a general practitioner, the Albany Clinic for whom he did transgender
work, and the Hospital Medical Group for whom he performed hair restoration
surgery. The Court of Appeal considered that these were three separate businesses,
quite unrelated to one another, and that he was a class (b) worker in relation to the
Hospital Medical Group.
38. Maurice Kay LJ pointed out (at para 18) that neither the Cotswold
“integration” test nor the Redcats “dominant purpose” test purported to lay down a
test of general application. In his view they were wise “not to lay down a more
prescriptive approach which would gloss the words of the statute”. Judge Peter Clark
in the EAT had taken the view that Dr Westwood was a limb (b) worker because he
had agreed to provide his services as a hair restoration surgeon exclusively to HMG,
Page 12
he did not offer that service to the world in general, and he was recruited by HMG
to work as an integral part of its operations. That was the right approach. The fact
that Dr Westwood was in business on his own account was not conclusive because
the definition also required that the other party to the contract was not his client or
customer and HMG was neither. Maurice Kay LJ concluded, at para 19, by declining
the suggestion that the Court might give some guidance as to a more uniform
approach: “I do not consider that there is a single key with which to unlock the words
of the statute in every case. On the other hand, I agree with Langstaff J that his
“integration” test will often be appropriate as it is here”. For what it is worth, the
Supreme Court refused permission to appeal in that case.
39. I agree with Maurice Kay LJ that there is “not a single key to unlock the
words of the statute in every case”. There can be no substitute for applying the words
of the statute to the facts of the individual case. There will be cases where that is not
easy to do. But in my view they are not solved by adding some mystery ingredient
of “subordination” to the concept of employee and worker. The experienced
employment judges who have considered this problem have all recognised that there
is no magic test other than the words of the statute themselves. As Elias J recognised
in Redcats, a small business may be genuinely an independent business but be
completely dependent upon and subordinate to the demands of a key customer (the
position of those small factories making goods exclusively for the “St Michael”
brand in the past comes to mind). Equally, as Maurice Kay LJ recognised in
Westwood, one may be a professional person with a high degree of autonomy as to
how the work is performed and more than one string to one’s bow, and still be so
closely integrated into the other party’s operation as to fall within the definition. As
the case of the controlling shareholder in a company who is also employed as chief
executive shows, one can effectively be one’s own boss and still be a “worker”.
While subordination may sometimes be an aid to distinguishing workers from other
self-employed people, it is not a freestanding and universal characteristic of being a
worker.
40. It is accepted that the appellant falls within the express words of section
230(3)(b). Judge Peter Clark held that she was a worker for essentially the same
reasons that he held Dr Westwood to be a worker, that she could not market her
services as a solicitor to anyone other than the LLP and was an integral part of their
business. They were in no sense her client or customer. I agree.
Human Rights
41. I have reached that conclusion without the help of the European Convention
on Human Rights. But it may be worth noting that that conclusion is entirely
consistent with the appellant’s rights under article 10, whereas a different conclusion
would pose more problems. Article 10 provides for a qualified right to freedom of
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expression. In Heinisch v Germany [2011] IRLR 922, that right was held to extend
to a geriatric nurse in a nursing home who reported her employers to the prosecuting
authorities because of the understaffing. The European Court of Human Rights held
that her dismissal without notice on the ground that she had lodged a whistleblowing
complaint against her employer and the failure of the domestic courts to order her
reinstatement had violated her rights under article 10. Her right to impart
information could be restricted if this was in accordance with the law, pursued a
legitimate aim (in this case to protect the rights and reputation of the employer), and
was proportionate to that aim. The court considered a number of factors relevant to
the proportionality calculation, bearing in mind the duty of loyalty owed by an
employee to her employer. It was important to establish whether the employee was
acting in good faith and had reasonable grounds for the complaint, whether the
information disclosed was in the public interest, and whether there was any more
discreet means of remedying the wrongdoing; proportionality also required a careful
analysis of the severity of the penalty imposed upon the whistle-blower and its
consequences (see paras 62 to 70). Hence article 10 operates as a protection for
whistle-blowers who act responsibly.
42. In Heinisch, the court also recalled, at para 44, that article 10 applies to the
workplace in general: Kudeshkina v Russia, Application no 29492/05, judgment of
26 February 2009 shows that a professional person such as a judge is entitled to the
freedom to criticise the judicial system. It also applies when relations between
employer and employee are governed by private law: the state has a positive
obligation to protect it even in the sphere of relationships between private persons:
see Fuentes Bobo v Spain (2000) 31 EHRR 1115.
43. Hence it is argued that, if the appellant’s claims as to the reasons for her
dismissal are made good, it would be incompatible with her convention rights for
the law to deny her a remedy. If the whistle-blowing provisions of the 1996 Act
apply to her, she would have such a remedy. Those provisions are consistent with
the proportionality calculation carried out in Heinisch. The expectation is that
disclosure will first be made to the employer or the person responsible for the wrong
doing or to a prescribed regulator (see sections 43C, 43E, 43F). Disclosure may only
be made to other persons in more limited circumstances (see sections 43G, 43H),
for example where the worker reasonably believes that she will be subject to a
detriment if she discloses to her employer, and it must be reasonable in all the
circumstances of the case. If those provisions do not apply to the appellant, then it
is difficult to see what other protection she would have, given that she is not entitled
to protection from unfair dismissal. Hence it is our duty under section 3 of the
Human Rights Act 1998 to interpret the 1996 Act so as to give her that protection.
44. This argument raises what might be a difficult question. Under section 3(1)
of the Human Rights Act 1998, we have a duty to read and give effect to legislation
in a way which is compatible with the convention rights (and this means that it may
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have a different meaning in this context from the meaning it has in others). While it
is comparatively easy to see how this may be done in order to prevent the state from
acting incompatibly with a person’s convention rights, in other words, to respect the
negative obligations of the state, it is a little more difficult to assess whether and
when this is necessary in order to give effect to the positive obligations of the state
and thus to afford one person a remedy against another person which she would not
otherwise have had. It is at this point that the respondent’s argument that the 1996
Act gives better protection than is required under the Convention might be relevant.
45. Fortunately, however, as the appellant already has that protection under the
1996 Act as interpreted in a completely conventional way, it is not necessary for us
to decide whether her convention rights would require and permit us to interpret it
compatibly.
Conclusion
46. In my view, the appellant clearly is a “worker” within the meaning of section
230(3)(b) of the Employment Rights Act 1996 and entitled to claim the protection
of its whistle-blowing provisions. That conclusion is to my mind entirely consistent
with the underlying policy of those provisions, which some might think is
particularly applicable to businesses and professions operating within the tightly
regulated fields of financial and legal services. The appeal must be allowed and the
case remitted to the employment tribunal to determine her claim under those
provisions along with her sex discrimination claim.
LORD CLARKE
47. The issues in this appeal depend essentially upon the true construction of
section 230(3)(b) of the Employment Rights Act 1996 (“the ERA”) and section 4(4)
of the Limited Liability Partnerships Act 2000 (“the LLPA”). I agree with Lady
Hale that, on the true construction of section 230(3)(b) of the ERA, construed
without reference to the LLPA (if that were possible), the appellant could properly
be described as a limb (b) worker because she would satisfy the terms of the subsection. In short, for the reasons given by Lady Hale, by the terms of the appellant’s
contract with the respondent LLP (“Clyde & Co”), she undertook to perform
personally certain work or services for it and its status was not by virtue of the
contract that of a client or customer.
48. That question could not however have fallen for consideration before the
LLPA came into effect because until then there was no such entity as an LLP. The
status of a person working for an LLP must now be determined by reference both to
the ERA and to the LLPA. As Lady Hale observes at para 10, the Court of Appeal
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held that the appellant could not be a worker for the purposes of section 230(3) of
the ERA because of section 4(4) of the LLPA, which provides:
“A member of a limited liability partnership shall not be regarded for
any purpose as employed by the limited liability partnership unless, if
he and other members were partners in a partnership, he would be
regarded for that purpose as employed by the partnership.”
49. I appreciate that this is a minority view in this Court but it seems to me, as it
has seemed to me throughout, that the effect of section 230(3) and (5) of the ERA
and section 4(4) of the LLPA, read together, is that a person who is a limb (b) worker
within section 230(3) is a person “regarded for any purpose as employed” by the
LLP within section 4(4) of the LLPA. This is in part because of section 230(5) of
the ERA, which provides:
“In this Act, ‘employment’ …
(b) in relation to a worker, means employment under his contract;
and ‘employed’ shall be construed accordingly.”
50. I entirely understand that at common law “employment” has traditionally had
a narrow meaning and means, in effect employment under a contract of employment.
However, under the ERA it has been given a wider meaning and extends to a limb
(b) worker, who is by definition working under “any other contract”, that is any
contract other than a contract of employment. There cannot I think be any doubt
that the appellant was a member of an LLP. Moreover, for the reasons given by
Lady Hale she was a worker within section 230(3)(b).
51. As I see it, the question is whether, on these facts, the appellant is being
“regarded for any purpose as employed by the limited liability partnership”. I would
answer that question in the affirmative because she is being so regarded by the
express terms of section 230(5) of the ERA. I appreciate that section 230(5) defines
the meaning of ‘employment’ “in this Act”, that is the ERA but this to my mind a
purpose which falls within the expression “for any purpose” in section 4(4).
52. If that were correct it would follow that, whether the appellant was employed
as a worker by the LLP for the purposes of the ERA would depend upon whether “if
[she] and the other members were partners in a partnership [ie an 1890 Act
partnership] [she] would be regarded for that purpose as employed by the
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partnership.” This raises the question which Lady Hale describes at para 29 as of
some complexity and difficulty. There is to my mind much to be said for the view
that, if the appellant had been a partner in an 1890 Act partnership, she would now
be treated as employed by the partnership, especially in the light of section 82 of the
Law of Property Act 1925. As Lady Hale asks rhetorically, why should it be legally
impossible to be employed, under either type of contract, by the partnership?
53. If the answer to that question is that there is no good reason why the appellant
would not be regarded as employed by the partnership within the meaning of the last
part of section 4(4) of the LLPA, so that section 4(4) does not prevent the appellant
from being regarded for the purpose of the ERA as employed as a worker, the whole
provision (as I see it) makes sense because its underlying purpose is, at any rate in
this respect, to treat partners in both types of partnership in the same way.
54. Notwithstanding those points, the question remains, as Lady Hale says, of
some complexity and difficulty. In these circumstances, it is desirable that it should
be determined in a case in which it is necessary for it to be decided. That being the
position, at any rate so long as I remain in the minority on the first point, it would
be better for me to refrain from expressing an opinion on the second point.
LORD CARNWATH
55. I agree that the appeal should be allowed for the reasons given by Lady Hale.
I would emphasise that this conclusion turns on the special characteristics of a
limited liability partnership, which is something of a hybrid as between a
conventional 1890 Act partnership and a limited company. It does not necessarily
have any direct relevance to the resolution of equivalent issues in relation to other
forms of partnership, under English or Scottish law.
56. I would only add a short comment in relation to the alternative argument of
Mr Machell QC, which Lady Hale found it unnecessary to address (para 29). This
challenged the traditional view that a partner cannot be an employee of his own firm.
That view is put in strong terms in the current (19th) edition of Lindley & Banks on
Partnerships (2010). Commenting critically on the second part of section 4(4) of the
Limited Liability Partnerships Act 2000, the editors say:
“Note that the drafting of this sub-section is wholly defective…
Partnership and employment are, of course, mutually exclusive
concepts and there are no circumstances under English law where a
partner could be regarded as employed by his own firm.” (para 2-40 n
145, their emphasis)
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That comment is cross-referenced to a later paragraph headed “Partner or
Employee?” (para 5.55) which discusses the criteria for deciding whether a salaried
partner is to be regarded as a partner or an employee, and adds:
“What is certain is that if the salaried partner is held to be and treated
as a partner in law, he cannot also be an employee in the firm.”
Cases referred to include Ellis v Joseph Ellis & Co [1905] 1 KB 324 and Cowell v
Quilter Goodison Co Ltd [1989] IRLR 392, cited by Lady Hale (para 12).
57. As far as concerned English law, that was also the basis on which the Law
Commissions proceeded in their recent review of Partnership Law, mentioned by
Lady Hale. It does not appear to have been questioned by anyone during the
consultation. As she notes (para 18-19), the Commissions recognised possible
doubts as to whether that was also the position under Scots law. But they resolved
them by recommending that, in both jurisdictions, “a partnership should not be
capable of engaging a partner as an employee” (para 13.43; draft bill cl 7(4)).
58. Mr Machell relies in particular on section 82(1) of the Law of Property Act
1925 which provided:
“Any covenant, whether express or implied, or agreement entered into
by a person with himself and one or more other persons shall be
construed and be capable of being enforced in like manner as if the
covenant or agreement had been entered into with the other person or
persons alone.”
Of the cases cited by Lindley, he observes that Ellis was decided before the
enactment of section 82(1), which as he puts it, abolished the “two-party rule”;
Cowell was a decision on its own facts. He offers no academic support for this
submission. Nor does he explain how the point has apparently been overlooked for
so long by practitioners and academics. By way of analogy, he asserts that a
partnership can take a lease of premises owned by one or more of the partners, for
which proposition he cites inter alia Rye v Rye [1962] AC 496 and, Lindley & Banks
para 10.45.
59. Although I agree with Lady Hale that it is unnecessary for us to decide this
issue, for my part I am currently unpersuaded by Mr Machell’s submissions.
Whatever may be the position or legal analysis in respect of leases (on which the
authorities to which he refers are not conclusive), section 82 does not assist him in
the present context in my view. A contract treated as being between a particular
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partner and the other members of his firm may be effective in law for many practical
purposes. But it cannot be equated with a contract between the partner and the firm
as such, since each partner is an essential part of the firm. Furthermore, the
reasoning of the Court of Appeal in Ellis v Joseph Ellis does not turn simply on the
lack of capacity to contract. As Lord Collins MR said, the particular arrangements
made in that case in relation to payment for work did not affect the workers’ relation
to the other partners, which was that of “co-adventurers and not employees”. In my
view this was a statement of principle about the fundamental difference between the
relationship of partners and that of employer and employee, a difference which is
not bridged by section 82.
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