Court of Appeal
T had been a fixed-share partner in L. He received monthly drawings based on profits rather than salary. He made capital contributions and had an entitlement to vote at members' meetings. When L converted to an LLP the former full equity and fixed-share partners, including T, signed a members' agreement. The agreement described fixed-share partners as members whereas salaried partners were described as employees. T was dismissed and issued proceedings for unfair dismissal, breach of contract and redundancy. The employment tribunal determined, as a preliminary issue, that the members' agreement created a partnership relationship between the fixed-share partners and full equity partners and, as such, T was not an employee of L.
T submitted that in applying the test in Limited Liability Partnerships Act 2000 s.4(4) the employment tribunal's conclusion that he was a partner and not an employee was perverse as he was not involved in the management of L, his share of profits was too small and the decision placed too much weight on the labels of the members' agreement rather than the substance of the relationships it created.
HELD: As T was a member of L, the employment tribunal had to consider whether he was an employee by applying s.4(4) of the 2000 Act, Kovats v TFO Management LLP  I.C.R. 1140 considered. It was obvious that the members' agreement was intending to set up a relationship between the signatories of a nature that, if analysed by applying the Partnership Act 1890, could fairly be regarded as a partnership relationship between the full equity and the fixed-share partners. There was no contrast between the full equity members and the fixed-share partners on the one hand and the salaried partners on the other, who, the agreement made clear, were employees who made no capital contribution and had no share of the profits, Stekel v Ellice  1 W.L.R. 191, M Young Legal Associates Ltd v Zahid (A Firm)  EWCA Civ 613,  1 W.L.R. 2562,  1 W.L.R. 2562 and Hodson v Hodson  EWCA Civ 1042,  P.N.L.R. 8 applied. It could not be said that T had no role in the management of L and employees were not ordinarily involved in a partnership's management. Whilst T had only a potentially small share in L's profits that could not be dismissed and the inference was that T agreed to become a fixed-share partner rather than a salaried partner precisely because it carried the promise of a better return. He also had a prospect of a share in the surplus assets of L on a winding up. Those considerations were all consistent with a partnership status rather than an employment status. The employment tribunal was entitled to take all those matters into account when reaching its decision. It could not be suggested that the employment tribunal's decision was perverse (see paras 30, 33, 59-60, 65-67 of judgment).
 IRLR 391 :  1 WLR 1887
Limited Liability, Partnership, Profits
William Meade (Senior Clerk)