LLP status

LLP partners who expose bad behaviour are protected by whistleblowing legislation, the Supreme Court has held in a decision with potentially far-reaching impact for law firms, hedge funds and accountancy firms.

The Court has handed down its much anticipated decision in Clyde & Co LLP and another v Winkelhof [2014] UKSC 32 this week. The case arose after Clyde & Co allegedly expelled one of its members after she raised concerns regarding bribery and corruption in a Tanzanian joint venture entity to which Clyde & Co LLP was a party.

The firm objected to the whistleblowing claim on the ground that the member was not a “worker” within the meaning of s 230(3) of the 1996 Act and did not benefit from the protection given to “whistleblowers”. However, the Supreme Court has ruled that the appellant is a “worker” within the meaning of the 1996 Act. As such, she is entitled to claim the protection of its whistleblowing provisions.

Abigail Silver, senior associate at City law firm RPC, said: “This decision was expected and follows a literal construction of the wording of the provision.

“The Court of Appeal, the court below, became sidetracked into discussing the conceptual differences between the employment relationship and the partnership relationship, the former depending on the employee being in a subordinate role to his employer. However, Lady Hale says in her judgment that cases like this one are ‘not solved by adding some mystery ingredient of “subordination” to the concept of employee and worker’.

“The reason the legislation was brought in was to encourage people to come forward with reports of wrongdoing without fear, so in principle it should apply to everybody. There may be some tension, however, given the duties of confidence and, often also, of absolute good faith, which members of LLPs may owe to each other or to the LLP. I think LLP members will want to look at their agreements and consider whether changes are required.”

Darren Isaacs, partner at GQ Employment Law, said: “This case could be a turning point for the employment rights of partners in limited liability partnerships, effectively handing partners a new right to protection under the UK’s whistleblowing legislation.

“Now that the Supreme Court has decided to confirm that partners have these rights, we should expect to see an increase in whistleblowing disputes arising out of limited liability partnerships, which will be exposed to a higher risk of claims from disgruntled partners. Large law firms and accountancy firms with international affiliates could also be at risk of facing whistleblowing claims in the UK employment tribunal from partners at local offices in countries with a completely different employment culture from the UK.

“This has the potential to cause a significant headache to management teams. Lots of accountancy, legal and other professional services firms will be analysing this case very closely because of the potentially far reaching consequences of the court’s decision.”