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Fixed-share partner was not an 'employee', appeal judges rule

2 February 2012

A fixed-share partner in the law firm Lester Aldridge was not an ‘employee’, the Court of Appeal has ruled.

Martin Tiffin took the firm to an employment tribunal in 2009, claiming unfair dismissal, breach of contract and redundancy on the grounds that he had been an employee of the LLP.

An employment tribunal agreed with Lester Aldridge that Tiffin had been a partner and not an employee and dismissed his claims in December 2009. The following year the EAT dismissed Tiffin’s appeal.

Giving the leading judgment in Tiffin v Aldridge [2012] EWCA Civ 35, Rimer LJ said an employment tribunal would only have jurisdiction to hear Tiffin’s claims, under section 230 of the Employment Rights Act 1996, if he had been an employee.

Rimer LJ said Tiffin became an associate of Lester Aldridge in August 2001, working in the property development team at its Bournemouth office. Although called an associate, his status within the firm was that of an employee.

Tiffin was promoted to salaried partner in 2004, which the firm accepted meant that his status remained as employee, before becoming a fixed-share partner in 2006.

“Instead of a salary, he was paid monthly drawings, calculated on the basis of an annual fixed share of profits of £62,500,” Rimer LJ said.

“He was also entitled to five ‘profit share points’, the value of which depended on LA’s [Lester Aldridge’s] actual profits for the financial year. He was required to, and did, make a capital contribution of £5,000 to LA.

“He became a signatory on LA’s client and office bank accounts. LA regarded him as no longer an employee, but as a partner, and issued him with a P45 confirming 30 April 2006 as his last day of employment. His national insurance contribution classes changed to classes two and four.

“LA paid for additional benefits of permanent health insurance and life assurance for him, being benefits differing from those he had previously enjoyed as an employee. He was required to make his own pension arrangements, could claim motor, other travel and also telephone expenses for his personal use and was responsible for dealing with his own income tax.”

Rimer LJ said that in 2007, when Lester Aldridge was considering conversion to an LLP, the full-equity and fixed-share partners signed a members’ agreement and Tiffin signed as a fixed-share partner.

“In October 2007, following the establishment of the LLP, Mr Tiffin made (in common with all other equity partners) the increased contribution to the LLP’s capital that was required of him, namely £1,250.”

Tiffin’s membership of the LLP was terminated in 2008, but he remained a member until February 2009. Lord Justice Rimer noted that until his issued his unfair dismissal claim, he made no suggestion to the employment tribunal that he had been an employee.

Lord Justice Rimer said that, accepting that Tiffin’s fixed share was guaranteed and “can therefore perhaps be equated to a salary”, he nevertheless also had “a true profit share” represented by his points allocation.

“Although that no doubt gave him only a potentially small share in the firm’s annual profits – at any rate as compared with the shares that the full-equity partners would enjoy – it cannot simply be dismissed: and the inference is that MrTiffin agreed to become a fixed-share partner rather than a salaried partner precisely because it carried the promise of a better return for him. In addition, he also had a prospect of a share in the surplus assets of the LLP on a winding up.”

Rimer LJ dismissed Tiffin’s appeal. Lord Justice Jackson and Sir Nicholas Wall agreed.

Categorised in:

Contracts & Rights Termination