Overturning the decision of the Court of Appeal, the Supreme Court has held that an LLP member fell within the definition of ‘worker’ under the Employment Rights Act 1996 (ERA) and was therefore entitled to bring a whistleblowing claim against the LLP.
The Supreme Court* found that the LLP member was a worker because she received a guaranteed level of salary (part of her equity share was fixed, part was profit related), she was required to personally perform services, the LLP was not her client or customer and she was restricted from working for anyone other than the LLP. Subordination was not essential in demonstrating worker status, and each case would be considered on its facts.
Employment law implications flow from the decision, with statutory rights such as the right to paid annual leave and limits on working time now seeming to apply to LLP members. In addition, it appears that the decision will have implications within the auto enrolment context, where most people had been of the view that LLP members were not “workers” and therefore potentially eligible jobholders for auto enrolment purposes.
What are the auto enrolment implications?
The definition of ‘worker’ used in the auto enrolment legislation is slightly different to the ERA definition but is sufficiently similar for it to be argued that as a result of the conclusion reached in the case, LLP members with qualifying earnings may need to be enrolled into a qualifying scheme. However, the public policy at play in each situation is very different.
There is good reason for protecting an individual who makes a whistleblowing claim against an LLP of which he or she is a member. There is arguably less need to protect LLP members by bringing them within the auto enrolment regime, which is primarily aimed at individuals in lower paid jobs who may not be making their own pension provision. Despite this, the Supreme Court’s decision appears to have had an impact on the position of LLP members under the auto enrolment legislation.
Following the Supreme Court’s decision, should LLPs treat their members as ‘jobholders’ and enrol them into qualifying schemes?
We take the view that LLPs should take a prudent approach and consider the position of each LLP member with a view to enrolling them in a qualifying scheme. However not every LLP member will need to be enrolled because he or she may not have “qualifying earnings” within the definition in the Pensions Act 2008. If an individual is a full equity member of an LLP, with the sum he or she receives being based entirely on profits made by the LLP, it is arguable that he does not receive “qualifying earnings” within the definition in the Pensions Act 2008. Earnings in this context are primarily salary, wages, commission, bonuses and overtime payments. If however he or she receives a fixed amount of the equity, it may be that they do receive “earnings” and therefore should be enrolled into a qualifying scheme. LLPs are likely to need legal advice on this issue.
The Pensions Regulator has confirmed that LLPs should assess the status of their members and, given the significant level of fines and penalties which can be imposed by the Regulator in respect of non-compliance, LLPs ought to look at whether they should be enrolling their members. Communications to members should be carefully considered too, to ensure they do not create expectations or a contractual commitment to provide pensions, should it be decided in future that LLP members are not “workers” for auto enrolment purposes or, conversely, be worded in such a way that could be interpreted as an incentive to opt out. The law is uncertain on the point; as it is likely to be some time before we have a definitive answer either from the courts or the legislature, caution is advised.
For more information, email firstname.lastname@example.org.
*Clyde & Co LLP and another v Bates van Winkelhof  UKSC 32