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The UK and Canadian Supreme Courts to Consider the Legal Status of Equity Partners

Posted in Administrative, Case Comments, Labour and Employment, Professions
Sam Rogers

Can equity partners at professional firms take advantage of statutory employment law protections? Both the UK and Canadian Supreme Courts have recently granted leave in cases which consider that question. In the UK, Clyde & Co LLP v Bates Van Winkelhof concerns a whistle blower claim, money laundering in Tanzania, and allegations of sexual discrimination. In Canada, Fasken Martineau DuMoulin LLP v. British Columbia (Human Rights Tribunal) is, in typical Canadian fashion, far less exciting. It concerns the application of a national full service law firm’s mandatory retirement policy.

Background

The majority of multi-lawyer law firms in the United Kingdom, Canada, and other common law jurisdictions are run as partnerships. For large firms with hundreds of partners and offices across the country or around the world an individual partner’s involvement in the management of the firm may be limited to voting to elect a board of partners. Although these partners share in the profits of the firm they no longer have any effective management or control over the partnership of which they are a member.

Given that, some partners may see themselves as more akin to employees rather than true partners. This then raises the question, to what extent should law firm partners be able to rely on statutory protections designed to benefit employees?

Decisions Below

Clyde & Co LLP v Bates Van Winkelhof

The claimant was an English qualified solicitor and equity partner who spent most of her time living and practicing law in Tanzania. She reported that the managing partner of a local, affiliated, firm was involved with money laundering and bribing officials. She was suspended by her firm and fired following an investigation. She brought a claim against her firm pursuant to the “whistle blower provision,” section 47B of the Employment Rights Act 1996. She also brought claims pursuant to  section 45 of the Equity Act 2010 for discrimination on the basis of her sex and because she was pregnant.

Her firm raised the preliminary objection that, with respect to the whistle blower claim, that she was not a “worker” as defined by subsection 230(3) of the Employment Rights Act. The Employment Tribunal agreed, holding that the claimant was not a “worker” as “the claimant was in business in her own right receiving a share of the profits in relation to the work carried out.”

On appeal to the Employment Appeal Tribunal, the claimant was successful. The court found that the claimant had “precluded herself from offering her professional services to anyone but” her firm and was therefore in a “subordinate position” and a worker.

Finally, before the EWCA, the firm was successful. Although the reasoning of the court is (necessarily) convoluted it boils down to two key points. First, legally:

[S]ince the partnership is not a separate legal entity, the parties are in a relationship with each other and accordingly each partner has to be employed, inter alia, by himself. He would be both workman and employer which is a legal impossibility. (para 63)

It should be noted that, in the UK, Limited Liability Partnerships do in fact have legal status separate from their members by operation of section 1 of the Limited Liability Partnership Act 2000. However, section 4(4), of the same act, forced the Court to ask whether the claimant would have been considered a worker had the firm been a partnership with unlimited liability under the Partnership Act 1890. Partnerships under that act do not have separate legal status.

Second, sociologically:

The very concept of employment presupposes as a matter of sociological fact a hierarchical relationship whereby the worker is to some extent at least subordinate to the employer… Where the relationship is one of partners in a joint venture, that characteristic is absent. Each partner is agent for the other and is bound by the acts of the other and each partner is both severally and jointly liable for the liabilities of the partners. There is lacking the relationship of service and control which is inherent in both concepts of employee and limb (b) worker. The partnership concept is the antithesis of subordination. (para 64)

Fasken Martineau DuMoulin LLP v. British Columbia (Human Rights Tribunal)

The claimant was a senior equity partner in Fasken’s Vancouver office. Fasken, like many national firms in Canada, has a mandatory retirement age of 65 for equity partners.

The claimant was forced into retirement and filed a complaint with the Human Rights Tribunal alleging that he was discriminated against on the basis of age contrary to section 13 of the British Columbia Human Rights Code. Fasken brought an application to dismiss the complaint on the basis that the Tribunal did not have jurisdiction as there was no employment relationship.

The Tribunal disagreed finding that, although at common law an employment relationship may not exist, for the purposes of administering the Code, the complainant was employed by Fasken. Fasken appealed and the British Columbia Supreme Court agreed with the Tribunal holding that the “broad and liberal approach to the concept of employment for human rights” allowed the Tribunal to take jurisdiction. Fasken appealed again and won at the British Columbia Court of Appeal. Writing for the court, Madam Justice Levine held:

In my opinion, the principles of interpretation of the Human Rights Code,… which mandate a broad, liberal approach consistent with its remedial purposes, do not change underlying legal relationships to the extent found by the Tribunal and the chambers judge. In particular, they do not extend to overriding the fundamental and well-established principle of law that a partnership is not, in law, a separate entity from, but is a collective of, its partners, and as such, cannot, in law, be an employer of a partner. (para 3)

Potential Significance

These cases will help inform and define the nature of the relationship between individual equity partners and their firms in Canada, the UK, and other common law jurisdictions.

Fasken could have significant implications for any full service law firm in Canada with a mandatory retirement age. A holding by the Supreme Court that the Tribunal has jurisdiction could open firms to a large number of similar claims.

Clyde and Co. LLP could have similarly significant implications. A finding that the claimant was in fact a worker, as defined by the Employment Rights Act, 1996, would give law firm partners a range of legal protections to which they have never before had access.

On a broader level, although both of these cases concern law firms, the rulings will equally apply to accounting firms as well as any other professional firm organized as a LLP. A finding that partners enjoy statutory employment law protections will have a significant impact on the operation of these firms.

Case Information

Clyde & Co LLP v Bates Van Winkelhof, [2012] EWCA 1207

UK Supreme Court Docket: UKSC 2012/0229

Date of Leave: February 12, 2013

Fasken Martineau DuMoulin LLP v. British Columbia (Human Rights Tribunal), 2012 BCCA 313

Supreme Court of Canada Docket: 34997

Date of Leave: March 7, 2013