Do COLPs and COFAs need pre-emptive protection?

The impact of the decision of the Court of Appeal in Clyde & Co & Morris v Bates van Winklehof [2012] EWCA Civ 1207 is of more than passing interest to any would-be COLP or COFA. The decision was that a member of an LLP is unable to bring a whistleblowing claim because in either case they cannot come within the definition of 'worker' under the terms of section 203 (3) Employment Rights Act 1996 (ERA). Partners in ordinary partnerships are in the same position.

It is not difficult to imagine situations in which COLPs and COFAs will find themselves in conflict with other members of their firm

Whenever a problem arises, COLPs and COFAs will have to decide whether the problem needs to be self-reported immediately or whether it can be added to a standard report at the end of the year. They will also have to decide how to describe the problem in their reports. They will be under pressure to err on the side of caution by making immediate reports, and providing as much disclosure as possible so as not to risk their professional reputation. They will be in the firing line if the SRA subsequently decides that a problem was not properly disclosed at the right time.

In contrast, other members of the firm will not be under a similar pressure and will hope that a problem receives nothing more than a passing mention in a standard end of year report. If a problem is highlighted in an exaggerated manner, and if the SRA subsequently takes regulatory action based on the facts as reported, it may be difficult to avoid recrimination against an overzealous reporter.

The conflict is likely to lead to cases in which a COLP or COFA considered to be heavy-handed parts company on acrimonious terms.

Many such conflicts will, on the surface, tick all of the boxes which a COLP or COFA needs to bring an uncapped claim for compensation under the ERA. The curious situation that now arises is that if that individual is an employee, the claim can go ahead, but if they are a partner or member of an LLP it cannot.

As the Court of Appeal has characterised whistleblowing as analogous to discrimination, and as the terms of the Equality Act 2010 generally apply to partners (including the provisions against discrimination) this can be seen as a considerable anomaly.

It is too early to say whether many employees are taking on the role of COLP or COFA. The SRA has not yet completed the initial registration process. However, common sense suggests that COFAs are more likely than COLPs to be employees. The rules permit non-solicitors to act as COFAs and the profession is likely to see a number of finance directors employed by firms taking on the role of COFA. If that role becomes central to their career progression, they will not take any risks in their reports because an SRA complaint on inadequate reporting is likely to lead to a sanction which includes a direction preventing that person from acting as a COFA in the future.

One of the more undesirable developments could be that this might result in some LLPs and partnerships being careful to ensure that their appointees were not employees. Not a great example to set to the world perhaps but anomalous laws may lead to inappropriate behaviour.

What advice should be given to the non-employee COLP or COFA anticipating accession to power on 1 January 2013? Possibly the answer should be in contractual provisions that guaranteed equivalent financial protection in the event that detriment or dismissal resulted from their exercising their duty as they should. Clearly in practice such a provision would be very complicated. Anticipating the outcome of an employment tribunal's decision is hard enough. Second-guessing a civil court's interpretation of rules it usually has no dealings with will be even more uncertain. Also many partnership deeds or LLP agreements will refer such disputes to arbitration. However it would be prudent for a COLP or COFA to at least think about whether such protection should be sought. All law firms have different personalities; such protection will be more necessary in some rather than others.

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