RIP—LLP protection on whistleblowing

RIP—LLP protection on whistleblowing
Employment analysis: Susan Fanning, a partner at DLA Piper, examines the Supreme Court’s ruling that a member of a limited liability partnership (LLP) was a worker who could, therefore, bring a whistleblowing claim.

Original news

Clyde & Co LLP and another v Bates van Winklehof [2014] UKSC 32, [2014] All ER (D) 173 (May)

The Supreme Court allowed an appeal brought by the appellant solicitor, who was a member of an LLP. The Court of Appeal, Civil Division, had decided that, applying the Limited Liability Partnerships Act 2000, s 4(4) (LLPA 2000), she was not a worker, within the meaning of the Employment Rights Act 1996, s 230(3)(b) (ERA 1996), and was therefore not entitled to claim the protection of its whistleblowing provisions. The Supreme Court reversed that decision.

What issue did this case raise?

The issue considered by the Supreme Court was whether a member of an LLP can have the status of worker for the purposes of being entitled to bring a whistleblowing claim. Generally in the past, partners and LLP members have been regarded as being self-employed, which gives them very limited employment rights. The rights given to workers are wider and include the right to be protected so as not to suffer retaliation because they have blown the whistle. In this case, Ms Bates van Winkelhof was expelled from the partnership and was seeking to bring a claim that this was a detriment which she suffered as a result of blowing the whistle regarding bribery allegations. The Supreme Court had to determine whether she was able to bring the claim at all. It decided that she was a worker for these purposes and could bring a claim—the substantive merits of the case will be considered in a later hearing.

What is the significance of the ruling?

The whistleblowing protection applies to employees in respect of dismissal and to the wider category of worker in respect of protection against suffering a detriment. A worker is defined as either an employee or an individual who works under a contract whereby the individual undertakes to do or perform any work or services for another party to the contract whose status is not that of a client or customer of any profession or undertaking carried on by the individual.

The Supreme Court held that there was no requirement that the LLP member should be subordinate to be a worker—what mattered was that Ms Bates van Winkelhof could not market her services as a solicitor to anyone other than the LLP and she was an integral part of its business.

The decision is surprising—the prevailing view had previously been that LLP membership and worker status were effectively inconsistent as an LLP member is regarded as self-employed. That was the view of the Court of Appeal in this case. However, the Supreme Court disagreed. The Supreme Court considered that there are two types of self-employed persons:

those carrying on a profession or business undertaking on their own account, and

those who provide their service as part of a profession or business undertaking of someone else

The second type are included within the class of worker.

Is the decision a desirable one? Could there be any negative consequences?

From the point of view of encouraging a culture of openness and transparency in which corporate wrongdoing can be investigated and put right before it develops into a major problem, it is desirable for the protection afforded to genuine whistleblowers to be wide in scope. In that respect it is a positive development that LLP members have the same protection as employees in whistleblowing cases. This is entirely in keeping with the policy and purpose of the whistleblowing protection. 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.

However, the decision could potentially have significant implications for partnership disputes as it gives members of LLPs access to a claim with potentially unlimited compensation. It will often not be difficult for a member who is in dispute with the LLP over issues such as compulsory retirement, demotion or reduction in profit share to point to something which they may be able to rely on as a protected disclosure. Although disclosures now have to be in the public interest in order to be protected, as many LLPs operate in highly regulated industries such as law and financial services, there is a real risk that even allegations of fairly minor wrongdoing could be regarded as being in the public interest.

In addition, as workers, LLP members may be entitled to other rights including the right to receive paid annual leave and to be auto-enrolled in a pension scheme, and the right not to suffer unauthorised deductions from wages. While these additional rights may be relatively low value, they may cause an unexpected administrative headache for human resources departments.

What are the implications of the decision for employment lawyers and their clients?

We would expect an increase in whistleblowing claims being raised by LLP members. The ability to bring a claim which has uncapped compensation and is potentially damaging to the LLP’s reputation could be a significant negotiating chip.

What are the practical implications of this decision?

In the short term all LLPs, including law firms, should review their whistleblowing policies to ensure that they apply to disclosures by members of the LLP. LLPs will now need to ensure they have formal whistleblowing policies and processes for all members. Senior management needs to be made aware that any potential protected disclosures must be taken seriously and that no retaliatory action must be taken against an LLP member who raises an allegation of wrongdoing by the firm. LLPs may also need to review other policies and agreements to ensure that any other consequences of worker status are addressed. In the future the decision may affect the way LLPs structure and manage their memberships.

How does the ruling fit in with other developments in this area of law?

The decision is consistent with the trend towards increased protection for whistleblowers in the UK to ensure those who raise concerns are protected against retaliation. The government has issued a call for evidence on whether further reform of whistleblowing law is needed. This closed in November 2013 and a response is expected shortly.

Interviewed by Robert Matthews. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.