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TA N F I E L D C H A M B E R S
EMPLOYMENT GROUP BULLETIN
Welcome to the spring edition of the Employment Group Bulletin. First, Martina Murphy tackles
the employment status of members of LLPs and controlling shareholders. Inside, you will also
find Paul Stevenson’s timely thoughts on pay for staff kept at home by the wrong kind of snow.
2009 was a busy year for employment practitioners in which a depressed economy seemed to
do little to diminish the appetite for litigation. Indeed, the ever-increasing number of claims
contributed to serious listing difficulties in some Tribunals. It will be interesting to see if the
recently announced 6-month pilot scheme of evening sittings will ease the pressure in 2010.
Catriona MacLaren
Member, shareholder or employee
Small scale businesses, solicitors’ firms, multi-billion pound hedge funds: a wide range of
businesses have now chosen to become Limited Liability Partnerships (LLPs). However, the
structure of LLPs, with membership often by those in senior roles in the business, has
implications in employment law. Members may have rights not just as members, but also as
employees. Similar questions arise when majority shareholders work for their companies. This
article reviews the principles to be used by employment tribunals in determining the
employment status of such individuals.
Employment status of members of LLPs
UK LLPs are governed by the Limited Liability Partnerships Act 2000. ‘Members’ of an LLP (often
described as ‘partners’) are similar to shareholders and directors of a limited company. Individual
members are self-employed for income tax purposes on their share of the profits from the LLP (s.13 LLP
Act 2000). Their basic employment position appears straightforward; a partner is not an employee
(Cowell v Quilter Goodison [1989] IRLR 392, CA), essentially because the partnership itself does not
have a separate or corporate identity.
Problems have arisen, however, in relation to the employment status of non-equity partners and where
there are complex arrangements. Burgess v O’Brien (1966) 1 ITR 164 emphasised that the relationship
between a salaried partner and a partnership is a question of fact in each case. It appears that the usual
assumption is that the relevant status is either partner or employee rather than neither.
A recent Employment Appeal Tribunal (EAT) decision, Kovats v 1) TFO Management LLP and 2) The
Family Group of Companies (UK) (2009) ICR 1140, has shed some light on the issue. Kovats (K), a
partner of TFO, appealed against an employment tribunal's decision that he had not also been an
employee. His role was to act as chief investment officer. He had signed a deed of accession, agreeing to
be bound by TFO's members' agreement and was entitled to a fixed annual membership distribution. At
his own request he had opted to be paid gross and be responsible for his own tax and NI contributions.
Following discontent with his performance a resolution was passed requiring him to retire from the
partnership. K brought a claim for unfair dismissal. The tribunal dismissed the claim on the ground that
it did not have jurisdiction because he had not been an employee. In doing so, it took as its starting point
the LLP Act 2000 s.4(4) - “a member of a limited liability partnership shall not be regarded for any purpose
as employed by the limited liability partnership unless, if he and the other members were partners in a
ISSUE NO 6: Winter 2010
Member, shareholder
or employee
SNOW PROBLEMS
continued overleaf
W W W. T A N F I E L D C H A M B E R S . C O . U K

Martina Murphy
Martina acts on behalf of NHS Trusts, the
Metropolitan Police Authority, and local
authorities, and is on Thompsons Solicitors'
approved panel of Counsel. Martina is also
on the Employment Committee for the
Federation of Small Businesses.
Recently, in November 2009, she was instructed on behalf of a FTSE
250 Company in its application for a High Court injunction which
involved issues of restrictive covenants and protection of
confidential information.
When she's not working, Martina is a keen runner and has
completed the London Marathon. She can often be found at a
ridiculously early hour running around Greenwich Park with the
Greenwich Runners.
partnership, he would be regarded for that purpose as employed by the
partnership.”
The EAT dismissed the appeal, upholding the ET’s decision. In enacting
s.4(4), Parliament had expressly provided that the legal test for
determining whether a person was a partner or an employee of a
partnership (the test under Partnership Act 1890) also determined
whether a member of an LLP was employed by it for the purposes of the
Employment Rights Act 1996. In the context of partnership, the tribunal
had to decide first whether a person fell within the category of
partnership or employment. If it decided that the person was not a
partner, it did not follow that the person was necessarily an employee;
the usual common law tests would still need to be applied, as the person
might in fact be self-employed.
The EAT decided that the tribunal had been correct to conclude that the
words "any purpose" and "that purpose" in s.4(4) had to be regarded as
a reference to K's role as chief investment officer, and that it had to ask
itself whether, if the LLP was a normal partnership under the Partnership
Act 1890, K's role as chief investment officer would be regarded as
employment. The tribunal had been entitled, on the evidence before it, to
conclude that K was not an employee of TFO. It had applied the correct
legal test and had made findings of fact, which it was entitled to make.
The employee status of a controlling shareholder
In Secretary of State for Business, Enterprise and Regulatory
Reform (BERR) v Neufeld & Anor [2009] IRLR 475 CA the Court of
Appeal has given guidance on the approach employment tribunals
should take in considering whether a majority shareholder should be
regarded as an employee.
The case concerned the common situation of a majority shareholder
and/or director of an insolvent company claiming to be an ‘employee’ in
order to claim certain unpaid amounts from the Secretary of State under
the Employment Rights Act 1996 s.182 Part XII (‘employee rights on
insolvency of the employer’). On the facts of these joined cases, directors
with 90% (Neufeld) and 100% (Howe) shareholdings respectively in
their companies were employees.
Although the CA stated that whether or not such a shareholder/director
is an employee of the company is a question of fact, they gave some
helpful guidance. In any such case there are likely to be two issues,
although in practice the evidence relevant to their resolution will be
likely to overlap.
a. The first and logically preliminary issue will be whether the putative
contract is a genuine contract or a sham.
b. The second issue, assuming there is a genuine contract, is whether it
amounted to a contract of employment (as opposed to eg a contract
for services) at the relevant time.
The CA made it clear, that, in particular, it will be no answer to a
majority/controlling shareholder’s claim to be an employee to argue that
he cannot be an employee in law because:
(i) The extent of his control of the company means that the control
condition of a contract of employment cannot be satisfied; or
(ii) He has practical control over his own destiny and cannot be
dismissed from his employment except with his consent.
Further, the CA observed that an owner acting as an owner, as is
inevitable in small companies for example, can also be an employee.
TC
Snow Problems
Although what has been arguably the coldest snap in a
generation has passed, its effects will be long felt. The popular
press reported that millions were told that they would lose a
day’s pay if they did not get into work while Sky News announced
that one in ten firms said that their entire workforce had been
absent at times during the worst affected period. This article
considers the issues which are likely to arise during episodes of
extreme weather and suggests a guideline approach.
Starting point
our authors
The starting point will always be the contract of employment or
written particulars of employment. If there is a clearly defined policy
to deal with inclement weather then that should be the end of the
matter. This, however, will rarely be the case.
Disciplinary sanction
Theoretically, an employer might want to take disciplinary steps
against an employee who has failed to turn up for work if, in their
opinion, the employee was able to work but had chosen not to.
As part of any disciplinary procedure an employer would be required
to inquire into the known circumstances of each absence. This would
be essential given that consistency in treatment is one of the
hallmarks of a fair disciplinary procedure. Given the extreme weather
experienced almost universally this year it would be difficult for an
employer to investigate the circumstances of each case and, therefore,
to ensure a consistent approach.
It would almost always be unfair to dismiss an employee for failing to
turn up to work where hampered by snow, particularly where the
employer was aware that the employee would not be able to attend.
Deductions from wages
Anecdotal evidence suggests that some employers have proposed to
make, or have made, deductions from wages. By way of the ERA 1996,
ss. 13(1) and 15(1) no deductions may be made from a worker’s
wages unless:
i. It is required or permitted by a statutory or contractual provision;
or
ii. The worker in question has given his/her prior consent to the
deduction.
continued on back page
W W W. TA N F I E L D C H A M B E R S . C O . U K

Paul Stevenson
Paul Stevenson has a thriving and diverse
employment practice and frequently appears
in employment tribunals at every stage from
review hearings and pre-hearing reviews
through to final hearings. Paul has wideranging
experience of advising and drafting
particulars of complaint and resistance in all
manner of employment claims from unfair dismissal to age and
disability discrimination. He has also advised on compromise
agreements and restrictive covenants. Recent experience includes
providing advice to and appearing for both Claimants and
Respondents in redundancy claims where TUPE and the Working Time
Regulations were engaged. When away from his desk, Paul is the chair
of a charity working in west Africa and provides advice and assistance
to a student publishing company in Oxford. He enjoys good food,
photography, politics, reading and travel.
These provisions cover any sums which a worker would normally
expect to be paid in connection with his/her employment and where
the total amount of wages paid on any occasion is less than the total
amount properly payable on that occasion. Where a worker is faced
with such a deduction it is extremely important that they have
recourse to their contract of employment in order to see what it
permits.
To be entitled to pay, the employee must show that he/she has
worked or is willing to work for it: the governing authority is Miles v
Wakefield Metropolitan District Council [1987] I.C.R. 368. Albeit
obiter, Lord Brightman expressly differentiated between the facts of
that case and what he referred to as “a failure to work, or work
efficiently, as a result of illness or other unavoidable impediment, where
special considerations apply”. He plainly did not envisage the
nationwide inability to attend work which we saw earlier this year. It
will be a question of fact in any case whether an employee was willing
to work. Given, however, that many parts of the country were subject
to warnings not to travel if at all possible employers should be aware
that it would be difficult to argue that a snowbound employee was
unwilling to work.
If an employer attempts to make a deduction purportedly in
accordance with a contractual provision, the terms of the contract
must have been shown to the worker or, if not made in writing, its
effect must have been notified to the worker before the deduction is
made: see the ERA 1996, ss. 13(2), 15(2).
An employee faced with a deduction from wage should seek speedy
legal advice because much will depend on the factual circumstances of
their employment contract. The complaint ought to be presented
within three months beginning with the date of the deduction of
which complaint is made.
Childcare
In a related concern, the closure of thousands of schools gave many
parents unexpected daytime childcare concerns. So what approach
can an employee expect
As a general rule, employees have the right to take reasonable unpaid
leave to deal with unexpected disruption or termination of
arrangements for the care of a dependant: ERA 1996, s. 57A(1).
Statutory protection does not, however, compel an employer to give
time off to allow an employee personally to provide care beyond the
reasonable amount necessary to deal with the immediate crisis. There
would, however, be an argument that where a school closure is not
announced until the last minute an employee could seek statutory
protection for taking the full day off. The amount of time which is
reasonable depends on all the circumstances and an employee should
inform the employer as soon as reasonably practicable and state how
long he/she expects to be absent.
A guideline approach
Employers should develop a clear extreme weather policy which sets
out, in advance, what is expected of both parties. The overriding
concern for an employer should be to ensure that a consistent
practice is applied across their workforce.
Employers should take a balanced approach and should bear in mind
that they have a duty of care to their employees to see that employees
are not subjected to any unnecessary risk of injury and should
consider the possible liability attached to forcing an employee to
travel when it would be unsafe.
Any policy should emphasize that employees have a contractual duty
to attend work and that, where possible, employees should take all
reasonable steps to attend work and should keep in regular contact
with their employer. Alongside encouraging flexible/home working
where possible, employers should foster a culture of advance
planning, particularly in matters relating to child care and should
consider options such as reasonable unpaid leave to cover child care.
The policy should make clear provision for early closure of a
workplace where appropriate. If employees who cannot make it to
work will be required to take a day’s leave as part of their holiday
entitlement this should be unambiguous. A timely reminder of a
definite policy such as this whenever snow falls might mean that
employees tempted to be ‘unable’ to travel to work are suddenly able
to make it.
PAUL STEVENSON
W W W. TA N F I E L D C H A M B E R S . C O . U K

Kevin Moore
Kevin Moore has been a barristers’ clerk
for 35 years and joined Chambers in 1999
having previously been senior clerk in a
highly regarded commercial set. He is a
member of the Institute of Barristers’
Clerks.
Kevin is responsible for the overall clerking of Chambers and is
happy to discuss any aspect of the service with clients. His flexible
and pragmatic approach to the job is appreciated by solicitors who
instruct Chambers and has been recognised in the Legal 500.
Kevin is married with 3 grown up children who still manage to be
a drain on resources. In his spare time Kevin is a long suffering
supporter of West Ham United FC.
David Wright
David has been clerking for 10 years in
leading commercial and employment sets.
He qualified as a barristers’ clerk in 2002
and is a member of the Institute of
Barristers’ Clerks.
In 2007, David joined Tanfield Chambers as
Principal Employment and Commercial Clerk where he has put his
wealth of experience to good use. His combination of hard-work,
organisation and reliability has proved a real asset to Chambers.
When agreeing fees, David always strives to remain client focussed
and fair.
In his spare time David studies Hapkido (a Korean martial art) and
enjoys playing football and badminton. He is also a bit of a film buff.
Rimer LJ’s Judgment in Neufeld approved Elias P’s guidance in para 98 of
Clark v Clark Construction Initiatives [2008] IRLR 364 EAT on
deciding whether a majority shareholder should have employment
status, with two qualifications:
(1) The onus is on the party denying a contract; where an individual has
paid an employee's tax and NI, prima facie he is entitled to an employee's
rights. Neufeld added that guideline (1) should not be read as
constituting a formal reversal of the burden of proof on to the party
denying employment status. It may still be necessary for the putative
employee to do more than produce documentation to satisfy the tribunal.
(2) The mere fact of majority shareholding (or de facto control) does not
in itself prevent a contract arising.
(3) Similarly, entrepreneur status does not in itself prevent a contract
arising.
(4) If the parties conduct themselves according to the contract (eg as to
hours and holidays), that is a strong pointer towards employment.
(5) Conversely, if their conduct is inconsistent with (or not governed by)
the contract, that is a strong pointer against employment.
(6) The assertion that there is a genuine contract will be undermined if
there is nothing in writing. Neufeld added that guideline (6) may be
expressed too negatively. Lack of writing may be an important
consideration but if the parties' conduct tends to show a true contract of
employment 'we would not wish tribunals to seize too readily on the
absence of a written agreement to justify a rejection of the claim'.
(7) The taking of loans from the company (or the shareholder
guaranteeing its debts) is not intrinsically inconsistent with employment.
(8) Although majority shareholding and/or control will always be
relevant and may be decisive, that fact alone should not justify a finding
of no employment.
Recently, the EAT applied Neufeld in Ashby v Monterry Designs Ltd
(2009) 18/12/2009 holding that a tribunal had misdirected itself when
deciding that a shareholder in a company had not been its employee. The
tribunal had not had the benefit of Neufeld when reaching its decision
and had placed too much weight upon the question of control in
determining whether there was a contract of employment.
Practical effect
The CA were informed in Neufeld that in “2008 there were some 12,000
claims by directors on the National Insurance Fund, of which some 600 had
gone or were expected to go to employment tribunals”. The CA assumed
that a considerable number were directors who were also controlling
shareholders.
A claim on the NI fund could add up to £21,280 assuming that the
maximum redundancy, wages, holiday pay and compensatory notice pay
were all claimed, and the limit on weekly pay is £380 (as it is from 1
October 2009 under s.189). In the author’s view, such potential claims
are likely to be worth pursuing even for high net worth potential
claimants, in the current financial climate.
MARTINA MURPHY
For further information or to instruct a barrister, please contact
David Wright, Employment Clerk or Kevin Moore, Senior
Clerk, on 0207 421 5300 or clerks@tanfieldchambers.co.uk
employment barristers:
David Berkley QC (1979)
Andrew Thompson* (1969)
Paul Staddon (1976)
David Daly (1979)
Simon Cheves (1980)
Robin Howard (1986)
Christopher Bamford (1987)
Stephen Heath (1992)
Catriona MacLaren (1993)
Peter Linstead (1994)
Martina Murphy (1998)
Andrew Sheftel (2004)
Louise Mankau (2005)
Paul Stevenson (2006)
Gemma de Cordova (2006)
Cecily Crampin (2008)
* Joint Editor of Harvey on Industrial Relations and Employment Law
Tanfield Chambers’ dedicated conference facilities are readily accessible
by the mobility-impaired. Please contact the clerks to agree fees in
advance, whether on a fixed or hourly rate. Feedback on our service is
welcomed and should be directed to the Senior Clerk, Kevin Moore. A
copy of Chambers Complaints’ Procedure is available on our website or
on request.
To contact us: T: +44 (0) 20 7421 5300, F: +44 (0) 20 7421 5333, DX: 46 London Chancery Lane, E: clerks@tanfieldchambers.co.uk
Address: Tanfield Chambers, 2-5 Warwick Court, London, WC1R 5DJ