LLPs forced to consider enrolling partners after Supreme Court ruling

The judgment on May 21¹ meant that a member of a partnership could be considered as an employee and afforded employee protection for the purpose of whistleblowing, and the regulator has now said this may extend to auto-enrolment for partners of LLPs.

The regulator’s view is likely to have an impact on professional services firms such as law firms and accountancies, as they commonly use the LLP structure. The Supreme Court ruled that Bates van Winkelhof, a partner at law firm Clyde & Co, should be classed as an employee of the firm, which afforded her whistleblowing protection.

The regulator has been considering the issue since the ruling, but has now concluded that the court’s decision should be treated as applicable for auto-enrolment and that LLPs should assess their members and form a judgment over whether they should be enrolled.

“The regulator’s view is that an LLP should assume that the Supreme Court’s decision is equally applicable to the Pensions Act 2008 for auto-enrolment purposes,” said a spokesperson for the regulator.

The spokesperson added: “The LLP will now need to assess each of their partners against the definition of worker in the Pensions Act to determine whether the partner is a worker or is self-employed for automatic enrolment purposes, having regard to the matters mentioned by the Supreme Court.”

Evaluating partners

Firms must take into account the partner’s integration with, dependence on and subordination to the organisation, as well as their freedom to provide their services to other organisations.

Some experts predicted this last exclusivity clause may prove especially important. “In most cases the exclusivity may be the fundamental one,” said Anne-Marie Winton, partner at law firm Nabarro. “It’s going to be strongly influential."

The regulator said that subordination and dependence may be an indicator rather than a requirement of being a worker, but Winton pointed out that even partners who were completely in control of how they operated within their firm may be prohibited from providing services to other organisations, making them exclusive.

The ruling still contains some scope for interpretation as LLPs were required to assess and determine for themselves whether a partner was an employee, said Winton.

Many partners are expected to opt out to maintain some of the benefits of not being classed as employees. “A number of partners at law firms will have tax protection, and if they don’t opt out they’ll lose that,” said Faith Dickson, partner at law firm Sackers.

Despite this, some said that LLPs may be vulnerable to dissatisfied partners demanding further benefits. 

“LLP members could start saying they’re entitled to auto-enrolment and other employee benefits,” said Penny Cogher, partner at law firm Speechly Bircham. “And that the employer has failed its statutory duty and demand compensation.”

¹The original verson of this article stated incorrectly that this judgment was handed down "last week", when it fact it was handed down on May 21.