Important case explores distinction between employee and partner

                                                                                                                                                                                  PDF Version

The recent EAT case of Tiffin -v- Lester Aldridge, in which it was held that a fixed-share partner was not an employee, is a helpful addition to the existing law on the employment status of partners and provides guidance on the factors that a tribunal will look to when considering this issue.

The Tiffin case involved a claim brought by a fixed-share partner at a law firm that in fact he should have the status of an employee and therefore be entitled to the protections offered to employees by statute and otherwise. The claimant argued that there were a number of factors that pointed towards him being an employee such as the fact he was required to work core hours, he relied on others to provide him with work, he was not involved in management and he received too small a share of the profit.

The decision of the EAT made it clear that each case would turn on its facts but concluded that there is no statutory provision or authority that for a person to be a partner he has to have certain minimum rights to vote or participate in management decisions. Neither do the person’s profits have to reach a certain level before they can be regarded as a partner.

The tribunal found that the following factors were consistent with him being a partner:

  • he had entered into a membership agreement with the other parties;
  • he received a salary which was expressed to be a fixed share of equity;
  • he received a small profit share;
  • he was an authorised signatory on the bank account;
  • he was entitled to benefits which employees were not entitled to;
  • he was entitled to attend management meetings and had limited voting rights in relation to a small number of matters;
  • he was required to contribute a small amount of capital to the partnership; and
  • on dissolution of the partnership, he was entitled to a proportion of the profits.

As noted above, each situation will turn on its specific facts but the Tiffin case offers guidance for those structuring their partnership and underlines the need to give each of the above factors consideration when defining roles within their organisation. A failure to do so could open up the partnership to unwanted claims and indeed potential PAYE and NI liabilities.

Adam Hewitson
7 December 2010 

< previous                                                                                                                                                                             next > 

To download a pdf version of this publication please click  HERE

About Throgmorton:
Throgmorton is one of the leading companies specialising in the provision of financial and administrative outsourcing in the UK SME financial services sector.

The information in this notice is intended for general guidance only. Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.