Legal Business Blogs

Firms face additional partner pensions liability after Supreme Court defines LLP members as ‘workers’

Partnerships could now be saddled with a new layer of financial and administrative responsibility after a Supreme Court ruling last week found that partners are ‘workers’ for the purposes of whistleblowing legislation.

The precedent-setting judgment, which followed an as yet untested claim brought by former Clyde & Co partner Krista Bates van Winkelhof, found that as workers, members of limited liability partnerships (LLPs) have the same protections as employees if they have ‘blown the whistle’ at work.

The outcome of the case was welcomed by many employment lawyers as a victory for common sense, however others are warning that as an unintended side effect of this new definition, partners may be entitled to be paid annual leave and must be auto-enrolled in a pension scheme and receive contributions to their pension.

Auto enrollment rules currently require businesses, unless the ‘worker’ opts out, to pay 1% of earnings up to £43,000 a year – a maximum of £430 – straight into a pension pot.

This will rise to 3% in 2017 – a maximum of £1,290 a year.

William Wastie, head of Addleshaw Goddard’s professional practices group, told Legal Business: ‘For businesses which are LLPs, it is a serious judgment that will add to their administrative burden and open them up to a whole new level of financial responsibility as well as exposure to potential unwanted and often unwarranted claims.’

Phil Allen, an employment partner at Weightmans added: ‘It’s a headache. The problem with auto enrollment isn’t that there are lots of firms out there that don’t pay their members some pension contribution, but because they don’t typically do it on a monthly basis. If you have a firm that has good years and bad years, good months and bad months, they’re not necessarily going to be paying their members a monthly pension contribution. It’s a cash flow issue.’

The decision is also a further dent in the self-employed status of LLP members after the HMRC found that only those with 25% of their salary attached to the equity of the firm could be considered partners, with the others regarded and taxed as employees.

However, according to Bates van Winkelhof’s lawyer Joanna Blackburn, a partner at Mishcon de Reya, who put forward the argument that LLP members should be defined as workers during the court proceedings, fears that LLPs will end up with additional outgoings are ‘a complete red herring’.

‘There can’t be any greater cost to the firm because the profit level is always the same. You’re dividing profits and there’s a profit pool how they are allocated to a partner, whether through auto enrollment or directly, which is what’s left at the end of the day when everything is paid for,’ she said.