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03 June 2014
The Supreme Court decision in Clyde & Co v Bates van Winkelhof(1) has provided welcome clarification of the scope of whistleblowing protection for partners and members of limited liability partnerships (LLPs). The question for determination was whether the claimant, a member of an LLP, could be considered a 'worker' within Section 230(3)(b) of the Employment Rights Act 1996. If so, the claimant could claim protection from detriment (which in the claimant's case included expulsion from the LLP) on the grounds that she had made a whistleblowing complaint.
The claimant – a member of Clyde & Co, an English registered LLP – was paid a fixed share and 20% of the profits of a joint venture with Ako Law, a Tanzanian law firm with which she principally worked (for further details please see "Protection for partners: which way will the wind blow?").
She alleged that on November 23 2010 she had reported to Clyde & Co that the managing partner of Ako Law had paid bribes and was involved in money laundering. She was dismissed by Ako Law on November 25 2010 and was suspended by Clyde & Co the following day. Following an investigation, she was expelled as a member of Clyde & Co on January 13 2011.
The case concerned the statutory definition of a 'limb (b) worker', defined as:
"an individual who has entered into, works under (or where the employment has ceased, worked under)...
(b) 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 professional business undertaking carried on by the individual."
Delivering the leading judgment, Lady Hale decided that on an ordinary reading of Section 230(3)(b) of the Employment Rights Act, the claimant was clearly a worker and therefore entitled in principle to the same whistleblowing protection as an employee. The claimant provided services for Clyde & Co, which was clearly not a client or customer.
She went on to express the view that "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".
However, two reasons had been put forward in the Court of Appeal as to why, notwithstanding the clear wording of the Employment Rights Act, the claimant could not benefit from the whistleblowing protection.
Section 4(4) of the Limited Liability Partnership Act reason
Section 4(4) of the Limited Liability Partnership Act 2000 provides that:
"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."
Hale's view was that Section 4(4) is of limited scope. It means simply that whatever the position would be if LLP members were partners in a traditional partnership, that position would be mirrored in an LLP.
The term 'employed by the partnership' is similarly limited. It should not be construed to include within its ambit "those who undertake to do or perform personally any work or services for another party to the contract" under Section 230(3) of the Employment Rights Act.
The second reason was the "sociological reason" put forward by Lord Justice Elias that "the partnership concept is the antithesis of subordination", and that some degree of subordination is necessary for protection to be provided.
Having reviewed the authorities in the discrimination law arena, Hale made clear that each case had to be decided by applying the words of the statute to its facts. Even though this may not always be easy, it should not be resolved "by adding some mystery ingredient of subordination to the concept of employee and worker".
A new human rights angle?
Hale went on to consider whether Article 10 of the European Convention on Human Rights (ECHR), which provides for a qualified right to freedom of expression, had any place in this context.
She referred to a case of the dismissal of a nurse who had reported her employer to the prosecuting authorities because of under-staffing and who was found to have had her Article 10 rights violated.(2) In that case, the right of the nurse to disclose information had been closely examined, including whether she had pursued a legitimate aim in making her report and whether the steps that she had taken were proportionate to that aim. Article 10 applies to the workplace in general(3) and in the private law sphere,(4) but in this case it was not necessary to consider the ECHR rights, as the claimant had clear protection under the Employment Rights Act.
Lord Clarke found in favour of the claimant on the basis that a limb (b) worker would be "regarded for any purpose as employed by" the LLP within Section 4(4) of the Limited Liability Partnership Act in any event. He said that the common law employment terminology has been given much wider meaning under the Employment Rights Act to include people working other than under a contract of employment.
Lord Carnwath provided obiter comments on the assertion(5) that the traditional view that a partner cannot be an employee of his or her own firm is open to challenge.(6) While this point was not decided, it was his clear view that the particular arguments raised in this case did not assist. He reiterated the fundamental difference between the partnership relationship and that of employer and employee.
The decision is not surprising, both because of the wording of the statute and the climate in which commercial parties now operate, where – in the wake of a number of public scandals – more regulation and closer public scrutiny are generally considered necessary and desirable.
The decision is also unsurprising because, as Hale said expressly, it is consistent with the policy considerations which underpin this part of the Employment Rights Act – essentially, that workers should be encouraged to speak up about their concerns of workplace wrongdoing without fear of penalty. There is therefore no reason in principle why any category of person at work should not be entitled to protection against retaliation for speaking out about wrongdoing, subject to the public interest test.(7)
However, it is still only the beginning for the claimant: she will now return to the employment tribunal for the hearing of the substance of her claim. However, the repercussions of the decision are likely to mean that partnerships and LLPs will need to look closely at their whistleblowing codes to ensure that they provide adequately for partners. They will also want to look at their partnership and LLP agreements to see whether any modifications are required or advisable. It is unlikely that the decision will lead to a proliferation of whistleblowing to external bodies,(8) but it may be the case that partners or members seek to use the decision to their advantage in negotiating any settlement when they leave under hostile circumstances.
For further information on this topic please contact Abigail Silver or Geraldine Elliott at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1) 2014 UKSC 32; judgment issued on May 21 2014.
(2) Heinish v Germany  IRLR 922.
(3) Kudeshkina v Russia; Application 29492/05, February 26 2009.
(4) Fuentes Bobo v Spain 2000 31 EHRR 1115.
(5) Made by John Machell QC, counsel for Public Concern at Work, the charity which intervened in the proceedings.
(6) This argument was put forward on the basis that Section 82(1) of the Law of Property Act 1925 allowed people to enter into agreements with themselves.
(7) The complainant must have a reasonable belief that his or her disclosure is in the public interest in order to gain protection (there are other requirements for a complainant which must also be satisfied).
(8) There is a list of prescribed persons, all of whom have a regulatory function, to whom individuals can raise concerns if they feel that they are unable to speak up within their organisations.
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