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Clyde & Co loses Bates van Winklehof whistleblowing case

Supreme Court holds that former equity partner was a 'worker'

21 May 2014

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By Manju Manglani, Editor (@ManjuManglani)

The Supreme Court has unanimously allowed the appeal by Krista Bates van Winklehof in Clyde & Co LLP and another v Bates van Winklehof [2014] UKSC 32.

In the judgment given today, the Court held that the appellant, formerly an equity partner at the international law firm, should be considered a 'worker' under the Employment Rights Act 1996.

As such, Bates van Winklehof is entitled to claim the protection of its whistleblowing provisions. Lady Hale gave the lead judgment.

The judgment has great significance for limited liability partnerships as it allows members to blow the whistle on suspected wrongdoing without fear of reprisals.

"High-profile collapses like Enron and Arthur Anderson demonstrate why we need partners to speak out if they spot wrongdoing. It is in everyone's long-term interests for partners to have the same whistleblowing protection that all other employees already enjoy," commented Joanna Blackburn, head of employment at Mishcon de Reya.

Added Michelle Chance, employment and partnership law partner at Kingsley Napley: “LLP members have access to financial documentation and management information that most employees would not see, and are therefore more likely to be aware of wrongdoing than more junior members of staff.”   

To ensure they are protected, "LLPs need to make sure that they have a proper whistleblowing process in place for members to raise concerns," said Annabel Mackay, an employment lawyer at Addleshaw Goddard.

"The effectiveness of any policy should be monitored closely. What is important is to create a culture where subjecting a whistleblower to any detriment will have serious consequences."

She continued: "Without a proper policy in place, LLPs may now face claims for uncapped damages by member whistleblowers, with all the reputational damage and cost that this entails. The cost of this is immeasurable."

Phil Allen, an employment partner at Weightmans, added that the decision "opens the door for LLP members to pursue a wider range of employment-related claims against their organisations".

"On a practical level, this decision may create uncertainty for businesses. As they are to be defined as 'workers', LLP members may be entitled to receive paid annual leave or to be auto-enrolled in a pension scheme - a potential administrative nightmare," he said.

"Contracts, LLP agreements and other key documents may need to be overhauled."

Case history

Bates Van Winklehof was based principally in Tanzania, where she was employed by local firm Ako Law under a joint-venture agreement with Clyde & Co.

In November 2010, she was sacked from Ako Law after reporting her concerns that the firm's managing partner had been involved in money laundering and had paid bribes to get work and influence the outcome of cases.

She brought proceedings after she was expelled from the partnership in January 2011, claiming that the disclosures were 'protected' under the Employment Rights Act 1996.

The Court of Appeal found in September 2012 in Clyde & Co and John Morris v Bates van Winklehof [2012] EWCA Civ 1207 that, as a partner in an LLP, she could not be considered a 'worker' in employment law terms.

In March 2013, a panel of three Supreme Court justices granted Van Winklehof permission to appeal against the appeal court's findings in relation to whether LLP members who whistleblow are protected by the Public Interest Disclosure Act 1998.

Reasons for the judgment

The Supreme Court gave the following reasons for its judgement today.

  • The Court finds that there is no need to give such a strained construction to section 4(4). It is saying that, whatever the position would be if the LLP members were partners in a traditional partnership, then that position is the same in an LLP. The Court holds that that is how section 4(4) is to be construed.

  • The phrase 'employed by' in section 4(4) covers a person employed under a contract of service. The Court holds, however, that it does not also cover those who "undertake to do or perform personally any work or services for another party to the contract…". 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.

  • Next the Court considers the analysis of 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". The Court of Appeal suggested that a member of a LLP would not by virtue of that status alone constitute either an employee or a worker. If, by this, the Court of Appeal meant that those members who undertake personally to work for the LLP cannot be workers, then this Court does not agree. 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.

  • As the appellant has protection under the 1996 Act as interpreted in a conventional way, the Court does not find it necessary to decide whether her convention rights would require and permit it to interpret the Act compatibly.

  • In a concurring judgment, Lord Clarke agrees with Lady Hale that, by the terms of the appellant's contract with the respondent LLP, she undertook to perform personally certain work or services for it and her status was not by virtue of the contract that of a client or customer. Lord Clarke adds that, in his opinion, the effect of the relevant provisions of the 1996 Act and the 2000 Act, 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 the 2000 Act.

  • In a concurring judgment, Lord Carnwath emphasises that, in his view, the conclusion in this case turns on the special characteristics of a LLP, 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. The main judgment leaves open the question of what the position would be in a traditional partnership.

 

 

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