Whistle while you work?

August 2014  |  EXPERT BRIEFING  |  EMPLOYMENT LAW

financierworldwide.com

 

The recent ruling that a former member of an LLP can pursue a whistleblowing claim against her former firm should set alarm bells ringing for many financial services businesses.

The case concerned allegations that the claimant, a former member of law firm Clyde and Co LLP, had been discriminated against because of her sex and subjected to detrimental treatment (including expulsion from the firm) because she had made ‘protected disclosures’ – or blown the whistle – about alleged money laundering and bribery by a Tanzanian firm to which she had been seconded.

Although partners and LLP members can already bring discrimination claims in the UK, the claimant needed to establish that she was a ‘worker’ in order to pursue her whistleblowing claim. ‘Workers’ have an intermediate status somewhere between employees (who enjoy a spectrum of statutory employment rights, including the right to claim unfair dismissal) and the self-employed (who have far fewer statutory rights). Workers are not as tightly protected by the law as employees, but still have valuable rights such as the right to paid annual leave, the right not to suffer unlawful deductions from their pay, the right to be paid the minimum wage, part-time workers rights and the right to be accompanied at disciplinary and grievance meetings. They can also bring claims under whistleblowing legislation.

In order to be a worker, an individual must work under a contract (written or oral) which requires them to provide services personally, in circumstances where the other party is not a client or customer of the individual. This can include a wide range of staff, such as casual workers, freelancers and workers on ‘zero hours’ contracts, as well as individuals who might regard themselves as self-employed.

The Supreme Court in this case determined that the claimant satisfied that test. The LLP was in no sense her client or customer; she could not market her services to any other party and she was integral to its business. As a result, she can now pursue her whistleblowing claim. Worryingly for old-style partnerships, the Court left open the question of whether partners in such a partnership could also be workers for these purposes.

The case has significant implications for those financial services businesses which are set up as LLPs, and potentially partnerships. Operating in a highly-regulated sphere and with highly-paid senior staff who can afford to instruct lawyers, financial services businesses are particularly vulnerable to whistleblowing complaints: an individual in dispute with a firm may well be able to find an instance of him raising a regulatory issue (even if he did so only in passing) and rely on this as being a ‘protected disclosure’. To succeed with a claim, the individual would need to establish that he reasonably believed the disclosure was in public interest and then show a causal link between the disclosure and any detrimental treatment by the firm. Some LLP members will use the whistleblowing legislation strategically to seek to negotiate favourable exit terms, as compensation for such a claim is potentially unlimited.

As well as the merits of a claim and its obligations to regulators, a firm faced with such a claim will need to consider the possible impact on its reputation, its (potential) investors, the time spent in defending a claim and the (usually unrecoverable) cost of defending an Employment Tribunal claim. The pressure to settle is likely to be even greater if an individual can show that his concerns were not addressed properly when first raised.

Although many LLP agreements contain arbitration clauses, that will not prevent a member bringing a claim in the Employment Tribunal based on his statutory employment/worker rights.

In order to manage these risks, financial services firms should ensure that they have a whistleblowing policy and procedure in place which is clear to its staff, and that this is applied to all staff, including LLP members, to ensure that such concerns are properly investigated and addressed when raised. Firms wishing to expel LLP members will also need to be alive to the risk of whistleblowing claims and, if there is any risk of such a claim (or a discrimination claim), ensure that the reasons for any business decisions, including in respect of the level of bonuses/discretionary profit share and expulsion or compulsory retirement, are properly documented and do not imply any causal link between the member having raised regulatory issues or other breaches of legal obligations and their profit share or expulsion.

Firms will also need to consider the wider implications of LLP members having worker status, such as the need to ensure that they receive paid holiday, the need for express agreement to offset monies owing the LLP, part-time members’ rights, permitting members to be accompanied at any hearing regarding any conduct issue or any complaint/grievance and, potentially, pension auto-enrolment.

Finally, although the Supreme Court’s decision does not of itself mean that LLP members should be taxed as employees, LLPs should be aware that changes to HMRC rules introduced this April mean that if their members do not have significant influence in the management of the firm, do not have capital contributions of more than 25 percent of their remuneration and receive a fixed payment which constitutes 80 percent or more of their pay, the LLP will be required to PAYE the members (and meet employers’ NI on those payments).

 

Jane Amphlett is a partner at HowardKennedyFsi LLP. She can be contacted on +44 (0)20 7344 5543 or by email: jane.amphlett@hkfsi.com.

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BY

Jane Amphlett

HowardKennedyFsi LLP


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