06 April 2020 - Article
When I was a junior lawyer, every year I would go to drinks parties at which the newly made-up partners would ironically toast taking on unlimited liability. Now most law firms have converted to Limited Liability Partnerships, the risks of becoming a partner (or, technically, a member of an LLP) are substantially reduced but people are still giving up significant rights, often without realising it. As more and more people are becoming members of LLPs (often simply so that their employers no longer have to pay 13.8% employers' national insurance over and above their salary) employment protections are being eroded… The first difference between employees and partners is that the latter cannot bring unfair dismissal claims. With a maximum compensatory award of £72,300, this means very little to some of my wealthier partner-clients but, to many partners cast out of their firms, this still would, if it were available, represent a significant financial cushion. Indeed, I think it important that employees being promoted and giving up this right get something in return such as a longer notice period. In an industry where three months' notice is the norm for employees, it is entirely reasonable for partners to expect six months or a year. There is also, it is generally thought, no equivalent to constructive dismissal. Therfore, unlike an employee, a badly treated partner cannot walk away from the partnership with no notice, no post-termination restrictions and a claim. In some cases, partners may be able to get some leverage from arguing that the whole partnership agreement has been repudiated and falls away (for everyone) but this is less easy and less tested than constructive dismissal. Partners do, however, still have the protection of discrimination laws and a partner expelled on the grounds of age, disability, gender reassignment, pregnancy, race, religion, sex, sexual orientation can bring a claim in an employment tribunal (though the recent Supreme Court Decision in Seldon
v Clarkson, Wright and Jakes that age discrimination through the retirement of partners at a proportionate age may be lawful). Strangely, however, unlike employees, partners have no special protection if they are pushed out because they blow the whistle on some wrongdoing. Then there is the little matter that the Courts are far more willing to enforce onerous post-termination restrictions against partners than they would be against employees. It is rare to see a post-termination restriction in an employment contract with a duration of more than a year (and any employer trying to enforce such a restriction would probably find it struck down by the Court) whereas, in partnership agreements, it is not uncommon to see two-year restrictions. Frankly, for employers, it's a no-brainer: make the staff members of an LLP and you won't pay employers' NIC, they won't be able to claim unfair dismissal and you can enforce onerous restrictions on their activities after they leave. Conversely, for employees being offered promotion, there are more pitfalls than they often realise.