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Partners who expose malpractice in their own law firm will now be protected by whistleblower legislation, the Supreme Court ruled today (21 May), in a precedent-setting judgment that follows a claim brought by former Clyde & Co partner Krista Bates van Winkelhof.

The Supreme Court held, overturning a Court of Appeal finding in 2012, that members of limited liability partnerships are ‘workers’ for the purpose of employment legislation and therefore have the same protections as employees if they have ‘blown the whistle’ at work.

The hearing follows allegations by Bates van Winkelhof – strongly denied by Clyde & Co – that she was forced to leave the firm after blowing the whistle on the managing partner of the firm’s Tanzanian associate firm, alleging that he was paying bribes to win clients. She had also announced her pregnancy. These allegations did not form part of the Supreme Court’s deliberations.

Bates van Winkelhof brought the complaint against Clydes under the Employment Rights Act 1996 (ERA), on the basis that her expulsion from the partnership was detrimental because she had made protected disclosures.

Mishcon de Reya represented Bates van Winkelhof led by head of employment Joanna Blackburn, who instructed Matrix Chambers’ Tom Linden QC and Essex Court’s David Craig. All were acting pro bono.

Bates van Winklehof will now be able to pursue her claim in the Employment Tribunal in September 2014.

This far-reaching ruling now extends protection to many thousands of members of firms often working in the heavily regulated fields of law, accountancy and financial services.

In a statement, Clyde & Co said: ‘We were surprised that the Supreme Court overruled the Court of Appeal’s decision. The Court was not concerned with the merits of Ms Bates van Winkelhof’s underlying claims. Their decision was confined to the narrow point of whether a partner can be considered a ‘worker’ under the 1998 Act. The knock-on consequences of this judgment are potentially significant and far-reaching and could affect partnerships both large and small.

‘We strongly deny Ms Bates van Winkelhof’s still untested allegations. We contend the process of her removal from the partnership was set in place before her pregnancy was known, and before her disclosures. Her refusal throughout to follow the dispute resolution mechanism available within the partnership agreement remains a disappointment.’

Blackburn said: ‘This case was about ensuring that lawyers, accountants, hedge fund managers and a host of other professionals are protected against dismissal if they blow the whistle about matters that they became aware of at work and which have wider ramifications for the public at large.

‘Partners are the people most likely to become aware of wrongdoing in LLPs but risked being at the greatest disadvantage with respect to protection. High profile collapses like Enron and Arthur Anderson demonstrate why we need partners to speak out if they spot wrongdoing. It is in everyone’s long-term interests for partners to have the same whistleblowing protection that all other employees already enjoy.’

Sarah.downey@legalease.co.uk

Comment from the legal profession on the judgment:

John Machell QC at Serle Court, who led a team acting pro bono on behalf of the intervener, Public Concern at Work:

‘The Supreme Court’s decision provides much needed clarity on the question whether an LLP member can be a “worker”, and so entitled to various statutory protections, including under the whistleblowing legislation, but leaves open for future cases the questions whether and in what circumstances an LLP member can be an employee and whether a partner in an ordinary partnership can be a worker or an employee of it.’

Phil Allen, employment partner at Weightmans:

‘On a practical level this decision may create uncertainty for businesses. Members being workers raises the possibility of wider rights. As they are to be defined as ‘workers’ LLP members may be entitled to receive paid annual leave or to be auto-enrolled in a pension scheme – a potential administrative nightmare. Many lawyers will be surprised and alarmed at this ruling. Due to the typical lack of subordination or hierarchy in the relationship of LLP members/partners, the prevailing view had previously been that LLP membership and worker status were effectively inconsistent. We now know that LLP members can bring claims if they allege they have been subjected to a detriment because they spoke out. Contracts, LLP agreements and other key documents may need to be overhauled.’

Nicola Rabson, Linklaters employment partner:

‘This is a sensible decision that is consistent with the trend to ensure those who raise concerns are protected against retaliation.’

Richard Nicolle, employment partner at Stewarts Law:

‘This Judgment would appear consistent with the underlying spirit and intention of the UK’s whistle-blowing legislation. It had appeared a significant inconsistency that a partner making a disclosure in good faith of legal wrongdoing would not have equivalent protection to an employee and this has now been rectified.’

Caroline Carter, head of employment at Ashurst:

This is a highly significant decision. The LLP structure has been particularly popular in finance, accounting and legal services. The Supreme Court’s decision that LLP members can be workers may have repercussions about how these businesses wish to structure and manage their memberships.

‘Whistleblowing claims are uncapped and can be brought in a large number of circumstances, so we would expect such claims to be raised by sizeable numbers of disgruntled LLP members as they exit (or are removed from) LLP arrangements. In addition to whistleblowing rights, “worker” status will mean that LLP members may now have rights in a number of areas including a right to paid annual leave, a right not to be treated less favourably because of part time worker status as well as a right to be auto-enrolled in pension schemes – which could give rise to significant costs. This is an important inroad into any “special status” of LLP members and comes in the month after new rules for this tax year sought to tax certain LLP members as employees.’

Michelle Chance, employment partner at Kingsley Napley:

‘This is good news for both LLPs and LLP members. LLP members have access to financial documentation and management information that most employees would not see, and are therefore more likely to be aware of wrongdoing than more junior members of staff. LLPs should encourage a culture of compliance and transparency in which members are valued for doing the right thing and bringing wrongdoing to their firm’s attention, so that it can be dealt with early on & stamped out.

‘LLP members have for many years benefited from statutory protection against discriminatory treatment and it is therefore consistent that they should enjoy statutory whistleblowing protection too.’

Clare Murray, managing partner at CM Murray, who represented the intervener Public Concern at Work:

‘This is all about the public interest – that the professionals in the front line who are most likely to spot wrongdoing in business and elsewhere feel they can blow the whistle without putting their own careers and livelihoods on the line. That benefits the public if it helps weed out corruption, tax evasion and similar unlawful activities. It’s the right outcome and we feel privileged to have been part of it. It’s a shame though that the court did not feel it necessary to go on and consider whether partners in traditional partnerships under the Partnership Act 1890 are also covered by these whistleblowing protections.’

The Supreme Court will next week preside over a precedent-setting case to decide if partners of limited liability partnerships (LLPs) are entitled to whistle blower protection, following a claim brought by former Clyde & Co partner Krista Bates van Winkelhof.

The hearing follows allegations by Bates van Winkelhof that she was forced to leave Clydes after she ‘blew the whistle’ on the managing partner of the firm’s Tanzanian associate firm, alleging that he was paying bribes to win clients, and also announced her pregnancy. All allegations are ‘vehemently denied’ and will not form part of the Supreme Court’s deliberations next week.

Bates van Winkelhof had brought a complaint against Clydes under the Employment Rights Act 1996 (ERA), on the basis that her expulsion from the partnership was detrimental because she had made protected disclosures.

However, the Court of Appeal ruled in September 2012 that members of LLPs are not considered ‘workers’ under the ERA, and, therefore, that Bates van Winkelhof could not pursue a whistleblowing case against Clydes because did not enjoy the relevant protection under English law.

Mishcon de Reya is representing Bates van Winkelhof at the Supreme Court hearing on Monday 24 March and Tuesday 25 March, which attempts to overturn this ruling.

The firm is being led by head of employment Joanna Blackburn, who has instructed Matrix Chambers’ Tom Linden QC and Essex Court’s David Craig.

As this is the first case to test whether an LLP member can be a ‘worker’, Public Concern at Work, the UK’s leading whistleblowing charity, has been given leave to intervene, commenting in a statement that ‘the outcome of this case will be of significant interest to solicitors, accountants, and other professionals with LLP member status.’

Public Concern at Work will be represented in the appeal by John Machell QC, Jonathan Cohen and Adil Mohamedbhai, who are instructed by niche employment and partnership firm CM Murray. All lawyers are acting on a pro-bono basis.

Should the court rule in Bates van Winkelhof’s favour next week, the allegations of whistleblowing detriment will be referred back to an employment tribunal in September, along with claims of unlawful sex and pregnancy discrimination.

Mishcon’s Blackburn said: ‘As the law stands, partners are in a double bind, as they have a regulatory obligation to report wrongdoing, but without legal protection risk losing their jobs if they do so. This is an issue that every LLP should be incredibly concerned about. The partners of LLPs are the people most likely to become aware of wrongdoing but are the most disadvantaged category of people with respect to protection. It is in everyone’s long-term interests for LLPs and their members to have the same whistleblowing protection as all employees already enjoy.’

A statement from Clydes said: ‘This is not a hearing of Ms Bates van Winklehof’s claims, which have not been tested and which we vehemently deny. Rather the Supreme Court is being invited to uphold the Court of Appeal’s decision that members of partnerships cannot be considered workers under the Public Interest Disclosure Act 1998. The Public Interest Disclosure Act has undergone 46 separate amendments since its inception, and not once has it been considered necessary, or prudent, to include LLP members.

‘Parliament is likely to have been mindful of the wider implications, such as partners’ professional and personal duties of confidentiality, when setting the legislative parameters.

‘A consequence of any proposed classification of LLP members as “workers” would be the exposure of all LLPs, whether large or small, to retrospective claims from members, in some cases dating back to 1998. Such claims would cost partnerships (such as small IFAs, tax and accountancy firms) significant amounts, rendering some insolvent, were compensation to be payable to those privileged enough to attain partnership, for non-receipt of the full gamut of workers’ rights (such as minimum paid holiday entitlements, working hours limitations and, more recently, pensions auto enrolment).

‘If the Court of Appeal’s detailed finding in favour of Clyde & Co is upheld by the Supreme Court, it would severely narrow the scope of Ms Bates van Winklehof’s tribunal claims. Restricted or not, we remain confident of successfully refuting any claim she may bring at tribunal.’

The case will be closely watched and Cathy James, chief executive of Public Concern at Work, said: ‘The nature of the workplace has changed in the UK. The ability of all members of the workforce including LLP members to speak up about dangers or wrongdoing without fear of reprisal is important to protect society. It has been an age old common law principle that those engaged in wrongdoing are not able to hide behind confidentiality clauses. This case is important as it involves important freedom of expression principles. Cases such as the collapse of Arthur Anderson and Enron demonstrate the need to encourage all workers to speak up before damage is done.’

The managing partner of CM Murray, Clare Murray, added: ‘Lawyers, accountants, doctors and asset managers are just a few of the professions that operate through LLP structures; and they are the most likely to be the first to spot possible wrongdoing by corporate or public bodies. But under current case law they risk putting their careers in jeopardy by blowing the whistle when they see that wrongdoing. That can’t be right or be in the public interest. The position needs to change and this appeal to the Supreme Court is an important step towards bringing about that change. We are very proud to be part of it.’

sarah.downey@legalease.co.uk