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Comment: Court of Appeal confirms fixed-share partners are not employees
The Court of Appeal has confirmed that a member of an LLP is not an employee simply by virtue of being entitled to a fixed share of the profits
The Court of Appeal has confirmed in its recent decision (Tiffin v Lester Aldridge) that members of a Limited Liability Partnership ("LLP") who contribute capital to the LLP, have the right to participate in management decisions and/or have the right to a proportion of any surplus assets on dissolution of the LLP are not employees of that LLP, notwithstanding that they are only entitled to a guaranteed fixed share of the LLP's annual profits.
In coming to its decision, the Court of Appeal highlighted the factors which may be relevant when considering the employment status of a member of an LLP and offered useful guidance on the application of section 4(4) of the Limited Liability Partnerships Act 2000 (which sets out the circumstances in which a member of an LLP cannot be considered as an employee of that LLP).
The decision confirms that any contribution to an LLP's capital (even if modest) and any right to participate in the management decisions of an LLP (irrespective of how limited) will be inconsistent with the status of an employee, and that the method of determining a member's share of the LLP's annual profits is a subsidiary consideration.
The decision is a welcome addition to the existing case law on the subject and is a useful confirmation that an LLP is not required to deduct income tax and employee's National Insurance contributions under PAYE or pay employer's National Insurance contributions on payments made to its "fixed-share partners" where their rights under the LLP's contractual arrangements are inconsistent with the status of an employee.
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09 February 2012
Author: Dan Pipe, Senior Solicitor
