England and Wales Court of Appeal (Civil Division) Decisions

You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35 (01 February 2012)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2012/35.html
Cite as: [2012] IRLR 391, [2012] WLR(D) 19, [2012] 1 WLR 1887, [2012] ICR 647, [2012] EWCA Civ 35, [2012] 2 All ER 1113, [2012] WLR 1887

[New search] [Printable RTF version] [View ICLR summary: [2012] WLR(D) 19] [Buy ICLR report: [2012] 1 WLR 1887] [Buy ICLR report: [2012] ICR 647] [Help]

		Neutral Citation Number: [2012] EWCA Civ 35
		Case No: A2/2010/2938

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
Mr Justice Silber, Mr D. Bleiman and Mr S. Yeboah
Appeal No: UKEAT/0255/10/DM

Royal Courts of Justice
Strand, London, WC2A 2LL

01/02/2012

B e f o r e :

SIR NICHOLAS WALL, THE PRESIDENT OF THE FAMILY DIVISION
LORD JUSTICE RIMER
and
LORD JUSTICE JACKSON
____________________

Between:

	MARTIN TIFFIN	Appellant
	- and -
	LESTER ALDRIDGE LLP	Respondent

____________________

(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr Shaen Catherwood (instructed through the Bar Pro Bono Unit) and Mr John Machell (instructed pro bono under the Bar Public Access Scheme) for the Appellant
Ms Jennifer Eady QC and Mr Mark Whitcombe (instructed by Lester Aldridge LLP) for the Respondent
Hearing date: 8 November 2011
____________________

HTML VERSION OF JUDGMENT
____________________

Lord Justice Rimer :

Introduction

The appellant is Martin Tiffin. He is a former member of the limited liability partnership, Lester Aldridge LLP ('the LLP'), a firm of solicitors, which is the respondent. Mr Tiffin and the LLP parted company on 14 February 2009. Whilst he was with the LLP, Mr Tiffin practised as a solicitor but he no longer does so. In April 2009 he presented a claim against the LLP in Southampton Employment Tribunal ('the ET') which included claims for money payments for unfair dismissal, breach of contract and redundancy. The claims were advanced on the premise that he had been an employee of the LLP. The LLP's response was that he had not and that therefore the ET had no jurisdiction to entertain his claims.

The issue raised by that response was tried as a preliminary point at a hearing before Employment Judge Craft on 29 October 2009. Mr Tiffin represented himself and Mr Whitcombe the LLP. By his judgment, sent with reasons to the parties on 18 December 2009, Judge Craft upheld the LLP's assertions and dismissed Mr Tiffin's claims.

Mr Tiffin appealed to the Employment Appeal Tribunal ('the EAT'), at which Claire Darwin of counsel (appearing pro bono) represented him and Mr Whitcombe again represented the LLP. The EAT panel comprised Silber J, Mr D. Bleiman and Mr S. Yeboah. By its reserved judgment, delivered by Silber J on 12 November 2010, the EAT dismissed the appeal.

By an order of 3 February 2011, Sedley LJ permitted Mr Tiffin to appeal to this court. He considered it arguable 'that the facts found by the ET constituted [Mr Tiffin] an employee of the LLP rather than a partner in it'. He regarded the appeal as raising an important question of principle. At the hearing before us, Mr Tiffin was represented by Mr Catherwood and Mr Machell. Mr Machell addressed us on the law relating to limited liability partnerships; and Mr Catherwood on the merits of the appeal. Ms Eady QC, leading Mr Whitcombe, represented the LLP

That Mr Tiffin was a former member of the LLP does not by itself answer the question whether or not he was an employee of the LLP. Such a member may or may not be an employee. The answer to the question required an application to the facts of the provisions of section 4(4) of the Limited Liability Partnerships Act 2000, an exercise requiring a consideration of the circumstances in which a partnership may come into existence between individuals engaged in carrying on a business. Before relating the facts, I shall first summarise the legal background against which they arise.

The Employment Rights Act 1996

It is agreed that the ET would only have had jurisdiction to hear Mr Tiffin's claims if, before leaving the LLP, he had been an 'employee' of it. Section 230 of the Employment Rights Act 1996 provides, so far as material:

'(1) In this Act "employee" means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act "contract of employment" means a contract of service …, whether express or implied, and (if it is express) whether oral or in writing. …

(4) In this Act, "employer", in relation to an employee …, means the person by whom the employee … is (or, where the employment has ceased, was) employed.

(5) In this Act "employment" –

(a) in relation to an employee, means … employment under a contract of employment ….'

MacKenna J provided a classic summary of a contract of service in Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance [1968] 2 QB 497, at 515ff. He explained that such a contract will exist if three conditions are fulfilled: (i) the putative employee agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in performing some service for the employer; (ii) he agrees, expressly or impliedly, to be subject to the employer's control in a degree sufficient to make the employer the master; and control includes the power of deciding the thing to be done, the way in which it is to be done, the means to be employed in doing it and the time and place where it will be done; and (iii) the other provisions of the contract are consistent with its being a contract of service. The question for the ET was whether Mr Tiffin's relationship with the LLP was under a contract that satisfied those conditions.

The Partnership Act 1890

Prior to converting to an LLP, Lester Aldridge was a partnership. Section 1 of the Partnership Act 1890 defines what a 'partnership' is and section 2 provides guidance for determining the existence of a partnership. Section 4 defines what a 'firm' is and section 5 deals with the power of a partner to bind it. These sections provide, so far as material:

'1. Definition of partnership

(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit. …

2. Rules for determining existence of partnership

In determining whether a partnership does or does not exist, regard shall be had to the following rules:

(1) Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

(2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.

(3) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business; and in particular –

(a) The receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such:

(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such: …

4. Meaning of firm

(1) Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm-name. …

5. Power of partner to bind the firm

Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying out in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.'

There is no need for an extended discussion of the requirements of a partnership. In most cases raising such questions, there is no dispute that a partnership satisfying the conditions of section 1(1) exists or existed between A, B and C. The issue usually arising will be whether D is or was also a partner; and that will often be because his status in the firm did not give him parity with A, B and C, perhaps because he was a so-called 'salaried partner' or because he had little or no share in the firm's profits and/or made little or no contribution to its capital. The approach of the courts to the resolution of such issues is relevant to the issues raised by the appeal. I shall refer to three authorities that illustrate it.

Stekel v. Ellice [1973] 1 WLR 191 is a decision of Megarry J. It is important to understand the facts. The defendant, E, was the sole surviving partner of a firm of chartered accountants. In October 1967 he employed the plaintiff, S, for a probationary period of three months at an annual salary with a view to a partnership. In January 1968, in light of an unsolved problem that I need not detail, E suggested that the question of a partnership should be deferred for about six months. He told S that he would expect him to inject capital of some £1,750 or so into the firm when he became a partner. The question of partnership was raised again in September 1968. The problem was still unresolved and E suggested a 'salaried partnership' for S as a modus vivendi.

To that end, the parties made an agreement in October 1968. It recited that they had agreed 'to enter into a partnership' upon its terms. Its duration was expressed to be until 5 April 1969, on or before which the parties were to enter into a further agreement under which S would become a full partner. S was described in the agreement as a 'salaried partner' at the same salary as he had already been earning. The partnership's capital was to be provided by, and belong solely to, E, who was also to take all profits and bear all losses. There were provisions as to the keeping of accounts, full-time service, diligent attendance to the firm's business and so on. S and E were each permitted to give notice determining the partnership in certain circumstances. On its determination, E was to be entitled to all the capital and to all the firm's clients save those introduced by S; but if either died during the currency of the partnership, the other was to be entitled (without payment) to all the clients. If E died, the practice was to belong to S, who was to pay E's personal representatives E's capital in the firm and apportioned sums for profits and work in progress.

Following the October 1968 agreement, S was held out as a partner and was so shown on the notepaper. He acted as a partner within the firm. His salary was paid without deduction of tax, whereas previously E had deducted tax. No further agreement as was proposed was executed and after 5 April 1969 the parties continued in practice as before. They parted in August 1970, S taking his clients with him. He sued for a declaration of the dissolution of the partnership and a winding up of its affairs. The issue was whether there had been a partnership at all.

Megarry J found that there had been no agreement for a partnership apart from the terms of the October 1968 agreement. Nor had a partnership been established by conduct. The question was whether the October 1968 agreement constituted a 'partnership' for the purposes of section 27 of the Partnership Act 1890 and (as I consider follows) also for the purposes of section 1(1). (Section 27 is concerned with the continuation after the expiry date of a fixed term partnership, which is what E said had happened). Megarry J said, at [1973] 1 WLR 191, 198D:

'Certain aspects of a salaried partnership were not disputed. The term "salaried partner" is not a term of art, and to some extent it may be said to be a contradiction in terms. However, it is a convenient expression which is widely used to denote a person who is held out to the world as being a partner, with his name appearing as partner on the notepaper of the firm and so on. At the same time, he receives a salary as remuneration, rather than a share of the profits, though he may, in addition to his salary, receive some bonus or other sum of money dependent on the profits. Quoad the outside the world it often will matter little whether a man is a full partner or a salaried partner; for a salaried partner is held out as being a partner, and the partners will be liable for his acts accordingly. But within the partnership it may be important to know whether a salaried partner is truly to be classified as a mere employee, or as a partner.'

Having considered various authorities and text books, which he regarded as providing inconclusive guidance, Megarry J summarised the position as follows, at 199G:

'I have found it impossible to deduce any real rule from the authorities before me, and I think that, while paying due regard to those authorities, I must look at the matter on principle. It seems to me impossible to say that as a matter of law a salaried partner is or is not necessarily a partner in the true sense. He may or may not be a partner, depending on the facts. What must be done, I think, is to look at the substance of the relationship between the parties; and there is ample authority for saying that the question whether or not there is a partnership depends on what the true relationship is, and not on any mere label attached to that relationship. A relationship that is plainly not a partnership is no more made into a partnership by calling it one than a relationship which is plainly a partnership is prevented from being one by a clause negativing partnership: see, for example, Lindley on Partnership, 13^th ed. (1971), p. 66.

If, then, there is a plain contract of master and servant, and the only qualification of that relationship is that the servant is being held out as being a partner, the name "salaried partner" seems perfectly apt for him; and yet he will be no partner in relation to the members of the firm. At the other extreme, there may be a full partnership deed under which all the partners save one take a share of the profits, with that one being paid a fixed salary not dependent on profits. Again, "salaried partner" seems to me an apt description of that one: yet I do not see why he should not be a true partner, at all events it he is entitled to share in the profits on a winding up, thereby satisfying the point made on section 39 by Lindley at p. 13. However, I do not think it could be said it would be impossible to exclude or vary section 39 by the terms of the partnership agreement, or even by subsequent variation (see section 19), and so I think that there could well be cases in which a salaried partner will be a true partner even though he would not benefit from section 39. It may be that most salaried partners are persons whose only title to partnership is that they are held out as being partners; but even if "salaried partners" who are true partners, though at a salary, are in a minority, that does not mean that they are non-existent.

If I am right in this, then it seems to me that one must in every case look at the terms of the relationship to ascertain whether or not it creates a true partnership. …

Having so directed himself, Megarry J's conclusion was as follows, at 200H to 201D:

'Is [the October 1968 agreement] an agreement for employment or an agreement for partnership? If it is merely a contract of employment, then it is one of the most remarkable contracts for employment that I have seen. As I read it, it is very much more an agreement for a partnership than it is an agreement for employment. True, the provisions for a salary and for the ownership of capital are not the usual provisions to be found in a partnership agreement; but I do not think that they or anything else denature the agreement. Certainly the relationship between the parties under the agreement seems to me to satisfy the statutory definition in section 1(1) [of the Partnership Act 1890] as being "the relation which subsists between persons carrying on a business in common with a view of profit". True again, the plaintiff had no "share of the profits" within section 2(3), and so there is no prima facie evidence that he is a partner in the business under the [sic: this?] head; but the absence of one possible head of prima facie evidence does not negative other evidence of partnership. Furthermore, on the evidence before me, the actual conduct of the parties after October 1, 1968, fully accorded with the concept of partnership as recorded in the 1968 agreement. That being so, I think that the there is a "partnership entered into for a fixed term" for the purposes of section 27, and that this was continued without any express new agreement. That partnership was determined by mutual agreement in August 1970 when, with the defendant's agreement, the plaintiff departed with all the papers relating to his clients. …'

It was not submitted to us that Stekel's case was wrongly decided. Its basis was that it was apparent from the terms of the October 1968 agreement that the nature of the business relationship that the parties thereby intended to create was one under which they were to carry on business in common with a view of profit. Their agreement was sufficient to satisfy the definition of a partnership in section 1(1) of the 1890 Act. It mattered not that S was to receive no share of the firm's profits and had no share in its capital.

I refer next to the decision of this court in M. Young Legal Associates Ltd v. Zahid (a firm) and others [2006] EWCA Civ 613; [2006] 1 WLR 2562, which also underlined that critical to the question of whether a partnership is created between A and B is whether or not they intended to enter into a relationship satisfying section 1(1) rather than some different relationship. The claimant had sued a firm of solicitors in the firm name and had also named as defendants various individuals whom it claimed were partners in the firm. The issue on appeal was whether, as the judge had held, the defendant, Mr Lees, was such a partner. He had joined a practice with Mr Bashir (who had held a practising certificate for only about 24 months) solely so that, as a more senior solicitor, his status in it would provide it with a sufficiently qualified principal to enable it to satisfy the requirements of rule 13(2) of the Solicitors' Practice Rules 1990; and he was only to be associated with the firm until such time as Mr Bashir would be so qualified as to meet those requirements himself. Mr Lees was to be paid an annual salary and was to arrange for the payment of tax and national insurance contributions on it. He was not required to contribute any capital to the firm. The firm's notepaper named Mr Bashir and Mr Lees as its only partners. Mr Lees' position as expressed in a letter he had written was that Mr Bashir had approached him to become a partner in the firm; and in another letter he disclaimed any suggestion that the partnership so established was a sham. The judge found that a partnership satisfying the definition in section 1(1) of the Partnership Act 1890 had been set up between the two men.

The argument against such conclusion advanced on Mr Lees' behalf on his appeal was based on three propositions: namely, that a person cannot be a partner in a firm unless (i) he is entitled to participate in the profits of the firm, including being entitled to a fixed payment directly linked to and dependent upon its profits; or (ii) if not so entitled, he is entitled to an interest in the capital of the firm; or (iii) if not entitled under either of the two heads aforesaid, he is intended to assume a dominant role in the firm's management.

Wilson LJ delivered the lead judgment, with which in all material respects Hughes and Tuckey LJJ agreed. As for propositions (ii) and (iii), he held ([2006] 1 WLR 2562, at [7]) that, whilst a person's entitlement to an interest in capital and a dominant role in management may be a strong indication of his status as a partner in it, the suggestion that the law will always refuse to recognise a person as a partner in the absence of those features must be rejected.

The real issue was, therefore, proposition (i), namely that it is a condition of partnership satisfying section 1(1) of the Partnership Act 1890 that each partner must be entitled to participate in the profits generated by the business. In a scholarly review of the relevant learning, Wilson LJ concluded that even though such a condition had been a prerequisite of a partnership under the law applying prior to the enactment of the Partnership Act 1890, there was no such condition for a partnership within the meaning of the section 1(1) definition. Moreover, if the proposition were correct, it would mean that Stekel's case had been wrongly decided because S had no share of the firm's profits. Wilson LJ, however, agreed with the decision in Stekel's case; he also agreed:

'[32]. … with the propositions in the books on Partnership by Lindley and Banks and by Mr Blackett-Ord himself [he was counsel for Mr Lees] to the effect that an agreement for a person to be paid a specified sum for work to be done by him on behalf of a firm does not preclude his thereby becoming a partner of it. No authority for the contrary proposition can be derived from the 1890 Act even though it would have been simple to provide for it either in the core definition in section 1(1) or, in particular, in section 2(3) in which the significance of receipt of a share of profits in determining whether a partnership exists is expressly addressed. On the contrary, the words of the core definition are wide enough to render the recipient of payments in a fixed sum a partner provided that there is a business, that it is carried on with a view to profit and, crucially for present purposes, that he is carrying it on in common with another or others.'

I introduced Zahid's case by saying that it underlined that critical to the question of whether a partnership is created between A and B is whether or not they intended to create a partnership. In determining whether or not they did so intend, all the features of their agreement must be considered, as Wilson LJ explained:

'[33]. It is idle to deny that, indirectly, an employee has an interest in the profitability of the firm for the continuation of his job may well depend on it. Nevertheless the absence of a direct link between the level of payments and the profits of the firm is in most cases a strongly negative pointer towards the crucial conclusion as to whether the recipient is among those who are carrying on its business. But the conclusion must be informed by reference to all the features of the agreement. Thus, for example, provision or otherwise for a contribution on his part to the working capital of the firm will be relevant. And it will be important to discern whether, expressly or impliedly, the agreement provides not only that acts within his authority should bind the acknowledged partners but also that their acts should bind him; for such is provided by section 5 of the Act to be a necessary incident of partnership but would, of course, be inconsistent with his status as an employee. …

[35]. In my view, however, the judge's conclusion was correct. There was one feature of the context to the agreement between the two men which was determinative, namely the need for a solicitor's practice to comply with rule 13 of the 1990 Rules. Its effect was that the firm could lawfully practise between March 2002 and November 2002 only if Mr Lees was a partner in it. The evidence of both men was that it was in order to comply with rule 13 that they entered into the agreement and indeed that Mr Lees became associated with the firm at all. …

[37]. In that the two men intended to comply with rule 13, they must have intended to enter into a contract of partnership. …'

I should refer also to this passage from Hughes LJ's judgment:

'[41]. … the words of section 1 of the 1890 Act seem to me to put the matter beyond doubt. They refer to the making of profit as an aim, but studiously abstain from reference to any necessity that it be shared. On principle it seems to me that if there is an essential element of partnership it is the carrying on of business in common, that is to say in such manner as to make each the agent of the other for all acts done in the course of the business. Having thus constituted themselves, the partners are free under the Act to arrange for the remuneration of themselves in any manner they choose, including by agreement that one or more shall receive specific sums, or that one or more receive nothing, in either case irrespective of profits.'

The third authority to which I would refer is Hodson v. Hodson [2009] EWCA Civ (1042); [2010] PNLR 8. Its facts bore a similarity to Zahid's case. It too was a case in which the appellant solicitor had entered into a partnership deed with another solicitor solely because her longer qualification as a solicitor would enable the firm to satisfy the requirements of rule 13 of the Solicitors Practice Rules 1990. She was to enjoy a mere 1% interest in the firm's profits and to bear a like liability for losses. This court, by a judgment that I delivered and with which Arden and Sedley LJJ agreed, upheld the judge's decision that a partnership had been intended to be, and had been, created by the deed into which the two solicitors had entered. The deed purported to create a partnership and it had not been suggested that it was a sham. It was clear from the outset – as reflected in her 1% share – that the appellant was going to be carrying out very little work for the partnership but also that she was going to be playing an important supervisory role in it. The requisites of section 1(1) were satisfied. It would no doubt have followed from Zahid's case that, even if the appellant had not been entitled to any share of the firm's profits, she would still have been held to have been a partner in it.

In determining whether a partnership within the meaning of section 1(1) of the 1890 Act is created by an agreement between A, B, C and D in relation to carrying on of a business by them, it is therefore critical to ascertain their intentions as to whether or not such a partnership was to be created.

The Limited Liability Partnerships Act 2000

Section 1(1) of the Limited Liability Partnerships Act 2000 gave birth to the limited liability partnership ('LLP') as a 'new form of legal entity'. Section 1(2) provides that an LLP is a body corporate with a legal personality separate from that of its members. Section 1(3) provides that it has 'unlimited capacity'. Section 1(4) provides that its members have such liability to contribute to its assets on a winding up as is provided by the Act. Section 1(5) provides that:

'Accordingly, except as far as otherwise provided by this Act or any other enactment, the law relating to partnerships does not apply to a limited liability partnership'.

Section 2 prescribes the documentary requirements for the incorporation of an LLP, including by subsection (1)(a) that 'two or more persons associated for carrying on a lawful business with a view of profit must have subscribed their names to an incorporation document'. Section 3 provides for the registration with the registrar of companies of the documents delivered under section 2 and for the issue by him of a certificate of incorporation. Section 4, headed 'Membership' and of direct present materiality, provides:

'(1) On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than any who have died or been dissolved).

(2) Any other person may become a member of a limited liability partnership by and in accordance with an agreement with the existing members.

(3) A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members.

(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 partnership, he would be regarded for that purpose as employed by the partnership.'

Subsection (4) is a critical provision for the purposes of this appeal.

I can pass over section 4A. Section 5, headed 'Relationship of members etc.', provides, so far as material:

'(1) Except as far as otherwise provided by this Act or any other enactment, the mutual rights and duties of the members of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its members, shall be governed –

(a) by agreement between the members, or between the limited liability partnership and its members, or

(b) in the absence of agreement as to any matter, by any provision made in relation to that matter by regulation under section 15(c).'

Section 6, headed 'Members as agents', provides so far as material:

'(1) Every member of a limited liability partnership is the agent of the limited liability partnership.

(2) But a limited liability partnership is not bound by anything done by a member in dealing with a person if –

(a) the member in fact has no authority to act for the limited liability partnership by doing that thing; and

(b) the person knows that he has no authority or does not know or believe him to be a member of the limited liability partnership.'

Pursuant to section 17, the Secretary of State made the Limited Liability Partnerships Regulations 2001 (SI 2001 No 1090). There is no need to refer to any of the regulations other than those in Part VI, headed 'Default Provision'. Regulation 7 provides for the rights and duties of the members of an LLP, and for the rights and duties of an LLP and its members, to be as there set out but subject to the provisions of the general law 'and to the terms of any limited liability partnership agreement'. The provisions so set out are largely derived from section 24 of the Partnership Act 1890, which similarly applies 'subject to any agreement express or implied between the partners'. Regulation 8 provides that no majority of members can expel any member unless a power to do so has been conferred by express agreement between the members; it is modelled directly on section 25 of the 1890 Act. In the present case, a comprehensive members' agreement was entered into between the members of the LLP and no question of any recourse to the Regulations has arisen.

I return to section 4(4) of the 2000 Act. The question for the ET was whether Mr Tiffin was an employee of the LLP. As he was a member of the LLP, the answer to it required a navigation of section 4(4). That informs us that, as such a member, Mr Tiffin 'shall not be regarded for any purpose as employed by the [LLP] unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.' (Emphasis supplied)

The drafting of section 4(4) raises problems. Whilst I suspect that the average conscientious self-employed professional or business person commonly regards himself as his hardest master, such perception is inaccurate as a matter of legal principle. That is because in law an individual cannot be an employee of himself. Nor can a partner in a partnership be an employee of the partnership, because it is equally not possible for an individual to be an employee of himself and his co-partners (see Cowell v. Quilter Goodison Co Ltd and Q.G. Management Services Ltd [1989] IRLR 392). Unfortunately, the authors of section 4(4) were apparently unaware of this. The subsection is directed to ascertaining whether a particular member (call him A) of an LLP is or is not for any purpose an employee of it. The statutory hypothesis which the subsection requires in order to answer that question is that A and the other members of the LLP 'were partners in a partnership'. That hypothesis, if it is to be read and applied literally, must in every case produce the same answer, namely that A cannot be an employee of the LLP for any purpose. If that had been Parliament's intention when enacting section 4(4), it might just as well have ended the subsection immediately before the word 'unless'. That, however, was plainly not its intention. The subsequent words must be contemplating a practical inquiry that, in particular factual circumstances, will yield a yes or no answer to the question whether a particular member of an LLP is an employee of it. The subsection must, therefore, be interpreted in a way that avoids the absurdity inherent in a literal application of its chosen language so that it can be applied in a practical manner that will achieve the result that I consider it obviously intended. The presumption is that Parliament does not intend to enact legislation whose application results in absurdities, and section 4(4) must therefore be interpreted with that in mind.

In my judgment the way section 4(4) is intended to work is as follows. Subject to the qualification which I mention below, it requires an assumption that the business of the LLP has been carried on in partnership by two or more of its members as partners; and, upon that assumption, an inquiry as to whether or not the person whose status is in question would have been one of such partners. If the answer to that inquiry is that he would have been a partner, then he could not have been an employee and so he will not be, nor have been, an employee of the LLP. If the answer is that he would not have been a partner, there must then be a further inquiry as to whether his relationship with the notional partnership would have been that of an employee. If it would have been, then he will be, or would have been, an employee of the LLP. I consider that it is implicit that the primary source material for the purpose of answering these questions will be the members' agreement although this will not necessarily represent the totality of what may be looked at. The inquiry thus requires a consideration of the circumstances in which a person may become a partner in a partnership under the Partnership Act 1890, which is why I have summarised such circumstances. The qualification that I have referred to is that, in what are probably likely to be more unusual cases, the relevant issue may perhaps arise in circumstances in which at the material times there were just two members in the LLP, with the issue being whether one of them was an employee of the LLP. The approach that I have suggested does not work in such a case and would need to be adapted for it. For present purposes, however, there is no need to consider such cases further.

The only reported authority on section 4(4) to which we were referred was Kovats v. TFO Management LLP and another [2009] ICR 1140, a decision of the EAT. The EAT's judgment was delivered by His Honour Judge Birtles QC. The issue was similar to that in this case: a member of an LLP was required by resolution to retire as a member and there arose in his consequential complaint of unfair dismissal the question of whether or not he was an employee. The ET dismissed his claim, holding that he was not and the EAT dismissed his appeal. In directing itself as to the application of section 4(4), the EAT said this:

'[18]. Parliament has thus expressly provided that the legal test which determines whether a person is a partner or an employee of a partnership also determines whether a member of a limited liability partnership is employed by the limited liability partnership. We agree with the following submissions by Mr Catherwood [who was representing the LLP]:

(1) The partnership test applies for determining whether the person is an employee for any purpose including whether or not for the purposes of the Employment Rights Act 1996.

(2) The question of whether a person can be both a member of a limited liability partnership and its employee is not relevant to the facts of this case. The question for the employment tribunal was whether, having regard to section 4(4) the claimant was an employee. The fact (if it is a fact) that, if he was an employee, he might remain a member of the limited liability partnership does not affect that determination.

(3) The application of this test does not ask the standard common law tests applicable to determine whether the person is an employee or self-employed. In our judgment the test of determining employment status in a limited liability partnership is additional to the standard common law tests. Thus in the context of partnership the tribunal is required to decide into which of two legal categories a person falls: partnership or employment. If the tribunal decides that the person is not a partner, it does not follow that he is necessarily an employee: the usual common law tests will still need to be applied, as the person may in fact be self-employed: Lindley & Banks on Partnership, 18^th ed (2002), para 5.70.

(4) The tribunal were correct to first consider whether the claimant was a partner in the partnership. Having found that he was a partner in the partnership (in accordance with section 4(4) of the 2000 Act) the tribunal correctly considered the common law tests and decided that they would not have conferred employment status on him.'

I would not give my unqualified agreement to the whole of that summary of the operation of section 4(4) although I respectfully agree with most of it. I interpret the opening paragraph, and also [18](1), as being in line with the position as I have sought to explain it. As to [18](2), it is clear that a member of an LLP can be an employee of it: that is what section 4(4) recognises. As to [18](3), I interpret this as saying that there are two tasks. The first requires an assumption that the LLP is in fact being carried on as partnership and then requires an answer to the question whether, on that assumption, the claimant would or would not be a partner. The second requires an answer to the question whether, if the claimant would not be a partner, he would be an employee of the partnership (as opposed, for example, to being retained by it on a self-employed basis). If that is the full sense of [18](3), I agree with it. As for [18](4), I respectfully disagree with the approach which the EAT thereby approved. If the finding was that the claimant would have been a partner in the partnership, there was no basis upon which he might also be found to be an employee of it and so no scope for the further inquiry that the ET apparently made in the Kovats case.

With that summary of the applicable law, I turn to the facts.

The facts found by the ET

Lester Aldridge LLP ('the LLP') is a successor to the former partnership of Lester Aldridge ('LA'), which carried on practice as a firm of solicitors. Mr Tiffin became an 'associate' of LA on 9 August 2001. He worked in its property development team at the Bournemouth office. Although called an associate, his status within LA was that of an employee.

On 1 October 2005 Mr Tiffin was promoted to the status of a 'salaried partner'. By that stage LA was governed by a partnership agreement dated 1 November 2004. The LLP accept that, as a salaried partner, Mr Tiffin's status remained that of an employee. The ET found that such promotion was a temporary measure before Mr Tiffin was admitted as a 'fixed share partner', which happened on 1 May 2006. In reference to Mr Tiffin's admission as a fixed share partner, Judge Craft added in paragraph 4 that:

'[Mr Tiffin] told the [ET] that he signed the Partnership Agreement willingly and saw it as a stepping stone to becoming a fixed equity partner in the Partnership'

It is agreed that in two respects that was wrong. First, Mr Tiffin never signed the partnership agreement or any deed of adherence to it. In the run up to the hearing of this appeal, when Mr Tiffin was representing himself, he made it plain that he regarded that error as of paramount significance and as undermining the ET's decision; and he was anxious that this court should be aware of the error. There is, as I say, no dispute about it but it is immaterial to the soundness or otherwise of the ET's decision, as I explain in [58] below. Nor, rightly, did Mr Catherwood attempt to rely upon it. The second mistake is that the reference in the quoted sentence to becoming a 'fixed equity partner' must have been intended to mean a 'full equity partner'.

Judge Craft described the changes that Mr Tiffin's appointment as a fixed share partner represented for him. Instead of a salary, he was paid monthly drawings, calculated on the basis of an annual fixed share of profits of £62,500. He was also entitled to five 'profit share points', the value of which depended on LA's actual profits for the financial year. He was required to, and did, make a capital contribution of £5,000 to LA. He became a signatory on LA's client and office bank accounts. LA regarded him as no longer an employee, but as a partner, and issued him with a P45 confirming 30 April 2006 as his last day of employment. His national insurance contribution classes changed to classes 2 and 4. LA paid for additional benefits of permanent health insurance and life assurance for him, being benefits differing from those he had previously enjoyed as an employee. He was required to make his own pension arrangements, could claim motor, other travel and also telephone expenses for his personal use and was responsible for dealing with his own income tax.

By 2007 LA was considering converting to LLP status. For the purposes of the conversion the former full equity and fixed share partners of LA all signed a members' agreement that was dated 30 April 2007. Mr Tiffin signed it as a fixed share partner. In paragraph 8, Judge Craft rejected Mr Tiffin's assertion that he had been coerced into doing so and found that he was a willing participant in the conversion to LLP status. In addition to the members' agreement, Judge Craft found that an agreement was also entered into transferring LA's assets and liabilities to the LLP. He explained that the LLP was proposing to write to each of LA's employees on the conversion date informing them that their employment would continue with the LLP and that their continuity of employment would be preserved. Mr Tiffin, a signatory to the members' agreement as a fixed share partner, received no such letter. Judge Craft did not refer to the members' agreement in close detail. I shall digress from his findings and summarise its features.

The members' agreement

The members' agreement was made between the 30 individuals listed in Table 1 of Schedule 1, which described them as 'equity partners'. They included Mr Tiffin. The agreement recited that its purpose was to 'record the terms under which they as members of the LLP will regulate their own and its business and [that it] will come into force in accordance with the provisions of clause 43' (i.e. when signed by all parties and dated). In keeping with the modern style of drafting, the following ten pages are occupied by some 72 definitions.

I shall refer to certain of them. 'Partners' means 'the Full Equity Partners, the Fixed Share Partners all being members of the LLP and the Salaried Partners for the time being, as recorded in the relevant LLP Register'. A 'Full Equity Partner' is any partner with 50 points or more, such points being those allocated to each partner in respect of an accounting period for the purpose of determining how the distributable profits are to be shared. A 'Fixed Share Partner' is 'a Partner (other than a Salaried Partner) who has a Points Allocation of fewer than 50 Points'. 'Deemed Points Allocation' means, for a full equity partner, 100 points and, for a fixed share partner, 'his actual Points Allocation for the relevant Accounting Period' (at the material time, two such partners had ten points each, and the others had five). 'Equity Partner' means each of the full equity partners and fixed share partners for so long as he remains a profit-sharing and capital contributing partner in the LLP. A 'Salaried Partner' is 'a member of the LLP who, although given the title of "partner" in the Firm: (a) receives a fixed salary; (b) does not share in the Distributable Profits; (c) has not contributed to the Capital; and (d) is an employee of the LLP'. 'Capital' means the LLP capital for the time being contributed by, and belonging to, each of the equity partners in accordance with their deemed points allocations; and, unless altered by resolution, each such partner must contribute £1,000 of capital for each point. As for voting rights, a 'Simple Vote' is one where each eligible partner has one vote (whether on a show of hands or a ballot). An 'Ordinary Poll Vote' is one where each eligible partner has the same number of votes as his deemed points allocation. A 'Special Poll Vote' is one where each full equity partner has five votes, each fixed share partner with more than five points has three votes, and each fixed share partner with fewer than six points has two votes.

The body of the agreement, together with the Schedules, occupies some 50 pages. Clause 4.8 provides for each partner to be a member of the LLP 'under the terms of this Agreement and in accordance with the LLP Statutes' and that the term 'partner' as used in the agreement will be used 'generally to denote a member of the LLP'. Clause 4.2 provides that each partner shall carry on the business as agent for and to the benefit of the LLP but shall have 'no mutual agency or power to bind each other'. Clause 2 provides for the keeping of various LLP registers, of which one is of all 'Partners' but must apparently also include the 'Directors', defined as those employees of the firm who have such a title and who are approved by the partners as having the same 'status, obligations and rights under this Agreement as Salaried Partners'. Clause 3 deals with the duration and winding up of the LLP. Clause 3.11 provides for any ultimate balance on a winding up to be divisible between the partners 'in proportion to their Capital at the commencement of the winding up'. That means that only the full equity and fixed share partners can so share: the salaried partners neither share in the LLP's profits nor contribute to its capital.

Section B of the agreement deals with financial provisions, including capital contributions by the equity partners (including, therefore, the fixed share partners, but not the salaried partners). Clauses 8.1 and 8.2 provide for the profit sharing arrangements in the distributable profits between the full equity and fixed share partners and in accordance with their respective points allocations. Clause 8.3 provides for the equity partners to share any investment income in the same proportions as they share distributable profits. Clause 8.4 provides for the equity partners to share any profits or losses of a capital nature in the proportions of their deemed points allocations. By clause 9 the equity partners acknowledge the somewhat complicated fixed charge provisions of Schedule 2, which includes a provision to the effect that the fixed share partners have a second fixed charge for their profit shares against the net profits of the LLP. Clause 10.3 entitles each equity partner to draw on account of his accruing share of distributable profits for the accounting period in accordance with a prescribed schedule of drawings. Clause 11.3 requires each equity partner to contribute to a tax reserve for the purpose of paying the tax assessed on his share of the distributable profits, and clause 11.2 provides for the payments of tax to be administered by the Director of Finance, with the amount paid in respect of each equity partner to be debited against his drawings for the accounting period in which the payment is made.

Section C of the agreement deals with partners' meetings, of which there are three categories, with different voting rights: (i) an 'all equity partners' meeting, at which voting entitlement depends on the subject matter; (ii) a full equity partners meeting, with a like variable voting entitlement; and (iii) a provisional dismissal notice meeting, of which only full equity partners are entitled to receive notice and at which they can vote (that is a meeting to consider the approval of a provisional notice given for the dismissal of an equity partner). Salaried partners and directors may be invited to attend category (i) meetings but with no voting entitlement. Directors may also be invited to attend category (ii) meetings, but with no voting entitlement. At least three meetings of all equity partners must be held in each accounting period.

Voting at meetings is governed by clause 22. Entitlement to vote is determined by the subject matter of the resolution, as set out in the 'Resolutions Table', which also determines whether the vote is a simple vote or a special poll vote. Clause 23 determines the percentage of votes required to pass a resolution, again by reference to the type of resolution and the Resolutions Table.

Section D deals with 'Partners' Obligations and Restrictions', of which clauses 27 and 28 are devoted exclusively to those to which the equity partners are subject: they include obligations in relation to matters of fidelity, diligent attendance to the firm's affairs, requirement to account for benefits of varying kinds and so on of a nature that might typically be found in a solicitors' partnership agreement. Clause 29 applies to all partners (and so includes, in context, salaried partners) and deals with holiday entitlements. Clause 30 deals with an equity partner's holiday entitlement in any holiday year for which he has been awarded a sabbatical. Clauses 31, 32 and 33 deal with the maternity, paternity and adoption leave to which equity partners are entitled. Clause 32 deals with the equity partners' entitlements and obligations in respect of sickness benefit. Clause 33 imposes further general obligations on the equity partners (duties to be just and faithful, to conduct themselves properly both personally and professionally and so on); and clause 34 imposes restrictions on their activities. Clause 35.1 requires all full equity partners to execute the 'Lease Covenant' (or a deed of adherence to it), meaning the tenant's obligations under the LLP's lease of its premises in Bournemouth; and clause 35.2 provides for circumstances in which a fixed share partner may also be required to execute such a deed of adherence.

Clause 38 is headed 'Dismissal of an Equity Partner' and contains elaborate provisions for the giving of dismissal notices to an equity partner. Clause 39 imposes time and area restraints upon outgoing equity partners. Schedule 4 provides for the payments due to an outgoing equity partner.

Back to the facts

In October 2007, following the establishment of the LLP, Mr Tiffin made (in common with all other equity partners) the increased contribution to the LLP's capital that was required of him, namely £1,250. On 1 November 2007 eight of the LLP's employees were admitted to the status of salaried partners.

Mr Tiffin's membership of the LLP was terminated following the service upon him of a provisional dismissal notice dated 14 August 2008 and the convening of a full equity partners' meeting at which he was entitled (under clause 38.7 of the members' agreement) to address those present and did so. He remained a member of the LLP until 14 February 2009, although he had been instructed not to attend the LLP's offices following the service of the dismissal notice. Until he issued his ET claim, he made no suggestion to the LLP that he had been an employee of it. He accepted that he had been a fixed share partner in the LLP. He accepted that he had some discretion as to which of the LLP offices he worked at and when he attended work but had not often sought to exercise his discretion in these areas. He accepted that the financial arrangements applicable to a fixed share partner were advantageous to him. He informed the ET that he had not developed any specialisms in his work; was wholly reliant upon others to provide him (and the assistant solicitors who worked under him in the Projects Team) with work in the areas of construction and project management for which he had responsibility; had not established a client base to provide work to him and his colleague; and had not read the members' agreement in full. Judge Craft summarised Mr Tiffin's position as presented to the ET as follows:

'[21]. The Employment Tribunal considers that [Mr Tiffin's] evidence and representations can be summarised as submitting that although he had entered into a fixed share partnership with others in the Partnership [i.e. LA] and continued with that status in [the LLP] and taken such advantages as this gave him he did not, as he stated to the Employment Tribunal, consider that this had placed him in a better position than an employee.'

The decision of the ET

After reference to section 1(1) of the Partnership Act 1890 and extensive reference to the Kovats case, Judge Craft expressed his conclusions as follows:

'[28]. The Employment Tribunal's findings of fact, the majority of which are not disputed, and which are conveniently recited in Mr Whitcombe's Skeleton Argument, confirm that [Mr Tiffin] was an Equity Partner in [the LLP] and was previously a Fixed Share Partner in [LA]. He viewed entering into partnership as a stepping stone to advance his career. He intended to become a partner and accepted the changed status, new obligations and responsibilities this involved. The two agreements the Employment Tribunal has examined in detail are not shams. It has not been suggested that they do not reflect the intentions of the parties or that they were not intended to govern the relationship between the parties to the Partnership [LA] and then the Members of [the LLP].

[29]. The definitions in these agreements are substantially the same as are the continuing obligations and arrangements that govern the relationships between the Partners in the Partnership [LA] and the Members of [the LLP]. [Mr Tiffin] contributed capital and shared profits with his fellow partners and the success of the business depended upon meeting client demands and accepting a particular structure of management for partners and then for members. There has never been any ambiguity as to [Mr Tiffin's] positions in either the Partnership [LA] or [the LLP].

[30]. The Employment Tribunal's findings of fact also lead to the inevitable conclusion that taking into account the relevant common law tests Kovats refers to [Mr Tiffin] would not have been an employee under the Partnership Act.

[31]. [Mr Tiffin] was a Fixed Share/Equity Partner and non-employee in [the LLP]. He did not work under a contract of service for [the LLP], rather he worked pursuant to [the LLP's] Membership Agreement. Therefore he was not employed by [the LLP] under the terms of section 230(1) of the Employment Rights Act 1996 and all his claims that rely on that status – unfair dismissal, breach of contract and statutory redundancy payment – must fail and be dismissed for that reason. …'

The judgment of the EAT

Mr Tiffin's case to the EAT was that, in applying the test in section 4(4) of the 2000 Act, the ET's conclusion that Mr Tiffin was a partner was perverse because (i) he was not involved in the management of the firm; (ii) his share of profits in the firm was too small; (iii) the decision placed too much weight on the labels of the members' agreement rather than on the substance of the relationships that it created; and (iv) that it ought to have found that he would have been an employee of any partnership rather than a partner.

As for point (i), this focused on the point that fixed share partners were restricted in terms of the types of members' meetings they could attend, the issues upon which they could vote and the power of their vote. They were involved in only one of the six main elements of the management structure. By contrast, the full equity partners were solely responsible for many important matters, including the formulation of the LLP's business strategy, approving its annual business plan, approving its annual budget and outline projections, agreeing targets and key performance indicators and monitoring the performance of the LLP against those targets and approving any major change of policy. The Resolutions Table listed 52 types of resolution but the fixed share partners were only entitled to attend meetings in respect of ten of such resolutions. On an ordinary poll vote, the fixed share partners held between them just 3.3% of the vote. On special poll votes, each full equity partner had five votes; fixed share partners with fewer than six points (such as Mr Tiffin) had two votes, and those with more than five points had three votes. On simple votes, the full equity partners and the fixed share partners each had one vote, whether on a show of hands or a secret ballot. This summary was said to lead to the conclusion that the fixed share partners' voice in the management of the LLP was so modest as to require the conclusion that they did not carry on 'business in common' with the full equity partners within the meaning of section 1(1) of the 1890 Act.

The EAT rejected that submission. They reminded themselves that the threshold for proving perversity on an appeal from an ET is a high one: an appeal ought only to succeed where an 'overwhelming' case is made out that the ET reached a decision which no reasonable tribunal, on a proper appreciation of the evidence and the law, would have reached (Yeboah v. Crofton [2002] IRLR 634, at [93], per Mummery LJ). The complaint under the management head disclosed no error of law and fell a long way short of the required target. The EAT said:

'[19]. There is no statutory provision or authority, which states that for a person to be a partner, he or she has to have a certain minimum number or a certain minimum types of rights to vote or to participate in management decisions. Indeed the members of this Tribunal are aware that in many large professional partnerships, all but a few of the partners have any right to participate in the overwhelming range of decisions made by the firm and yet they are clearly partners. There is evidence that [Mr Tiffin] was entitled to participate in [the LLP's] management as he could attend and vote at partnership and members meetings as well as being able to make representations at them. He had authority to sign cheques on behalf of [the LLP]...'.

As for issue (ii), based on the size of Mr Tiffin's financial interest in the LLP, the argument here was that his fixed profit share plus such additional profit as he might earn from his five points was in striking contrast to the profits that would be enjoyed by the full equity partners, each with between 100 and 200 points, and some being eligible for 'super plateau' performance points of 225 to 250. As Mr Tiffin's capital contribution and profit expectations were, by comparison with those of the full equity partners, minimal, they meant that he could not be a partner.

The EAT, not surprisingly, dealt shortly with that argument too. Zahid's case showed that it is not necessary for a partner to have any right to share in the profits of the firm or to contribute to its capital, whereas in this case Mr Tiffin not only qualified under both heads, he was also entitled to share in any surplus assets on a winding up, albeit that his share would be about 25 times less than that which would be enjoyed by the full equity partners. The EAT held that the question for the ET was one of fact, that it had been entitled to reach the conclusion that it did and that, again, the case fell well short of the 'perversity' threshold.

As for issue (iii), the 'labels' issue, the EAT also disposed of this shortly. The EAT referred to the last two sentences of paragraph 28 of the ET's reasons to the effect that the members' agreement was not a sham but that it reflected the intentions of the parties. The ET had anyway not regarded the labels as definitive; it had made its decision after considering all the relevant factors. The EAT also rejected the criticism that the ET ought in all the circumstances anyway to have found that Mr Tiffin was an employee rather than a partner. Reliance was based on various factors, which the EAT accepted were consistent with a status of employment, but which they also held were not inconsistent with a status of partnership. The ET had correctly asked itself whether Mr Tiffin was a partner and not an employee. It had answered that question positively.

The appeal

I have set out the general legal principles that applied to the task faced by the ET. Section 4(4) of the 2000 Act required the ET to decide whether the terms of the members' agreement would have created a partnership relationship not just between the full equity partners but also between those partners and the fixed share partners. That task was essentially one that required the making of a finding of fact, albeit one first requiring a recognition of the applicable legal principles. The conclusion to which the ET came was that the members' agreement would have created a partnership relationship between the fixed share partners and the full equity partners. It followed that Mr Tiffin, as a fixed share partner, was not an employee of the LLP. That decision is one that must be upheld unless it was vitiated by an error of law. The EAT found no such error and rejected the submission that it was perverse. Mr Catherwood repeated before us essentially the same arguments that failed before the EAT.

There are, I consider, formidable difficulties in the way of Mr Tiffin's appeal. The first is that Mr Catherwood conceded at the outset of his submissions that he was not suggesting that the members' agreement was in any relevant respect a sham. That concession was, if I may say so, rightly made, not least because I do not understand it to have been any part of Mr Tiffin's case before the ET that the agreement was in any respect a sham and the ET expressly found (paragraph 28 of its reasons) that it was not. It there found that both the members' agreement and the partnership agreement that preceded it reflected the intentions of the parties to them and that they were intended to govern the relationship between them. I have earlier mentioned that Mr Tiffin has manifested something of a fixation about the fact that he had not in fact signed the partnership agreement or any deed of adherence to it. It is, however, not that agreement that is material to the issues in this case, but the members' agreement, which he was found to have willingly signed as a fixed share partner.

The problem which this presents for Mr Tiffin is that a reading of the members' agreement shows it to be tolerably obvious that it was intending to set up a relationship between the various signatories and adherents to it of a nature that, if analysed through the prism of the law relating to partnership under the Partnership Act 1890, could fairly be regarded as a partnership relationship between the full equity partners and the fixed share partners. Of course their respective commercial interests in the firm were materially different, with the full equity partners putting a good deal more into it in the way of capital and also expecting to get a good deal more out of it in the way of profits, as well as having a materially greater voice in its management. But the character of the interests in the firm of these two classes of the LLP's members was nevertheless essentially the same. All had to contribute capital. All had a prospect of a share of profits depending upon the performance of the LLP in any particular accounting year (and it makes no difference that, as I understood Ms Eady to accept, the basic fixed share return of the fixed share partners was guaranteed: those partners' points allocation also gave them a true interest in and share of the firm's profits). All had a prospect of a share in the surplus assets on a winding up. All had a voice in the management of the affairs of the LLP. The relevant contrast drawn by the members' agreement is not between the full equity partners and the fixed share partners. It is between those two classes of partner on the one hand and the salaried partners on the other – with the members' agreement making it clear that the latter are employees. They make no capital contribution, have no share of the profits, no share in surplus assets on a winding up, and no voice as of right in relation to the management of the firm.

Megarry J observed in relation to the terms of the October 1968 agreement in Stekel's case (in relation to a man who had made no contribution to the capital of the firm, who during the currency of its operations had no entitlement to any share of its profits and who, at least according to the terms of the October 1968 agreement, was not given any express voice in the management of the firm's operations) that if the agreement was merely a contract of employment, 'it was one of the most remarkable contracts for employment that I have seen' ([1973] 1 WLR 191, at 200H to 201A). The basis of his decision was that the terms of the October 1968 agreement nevertheless showed that the two signatories intended to create a partnership. Zahid's case (in which Mr Lees had no share in the profits or capital of the firm) and Hodson's case (in which the appellant had a mere 1% share of the profits, her co-partner having the other 99%) were also decided on a like basis. There was no question of a sham in these cases. The parties' intentions, pointing clearly towards creating a partnership, were what counted. As it seems to me, if the terms of Mr Tiffin's engagement as a fixed share partner of the LLP require the conclusion that he was a mere employee, his contract of employment would similarly be a remarkable one.

No doubt sensitive to the difficulties that these considerations presented, and despite his express concession that there was here no sham, Mr Catherwood promptly sought to dilute his concession by invoking the support of the decision of the Supreme Court in Autoclenz Ltd v. Belcher and others [2011] ICR 1157. The question there was whether a particular form of written contract which the claimants/respondents had entered into with the appellant made them 'workers' within the meaning of the National Minimum Wage Regulations 1999 and the Working Time Regulations 1998. The contracts contained terms that, taken at face value, purported to show that the claimants were not 'workers' at all but were self-employed sub-contractors, as the appellant said they were. The headnote summarises sufficiently the basis of the Supreme Court's decision for upholding the claimants' case:

'… in the context of employment, where, taking into account the relative bargaining power of the parties, the written documentation might not reflect the reality of their relationship, it was necessary to determine the parties' actual agreement by examining all the circumstances, of which the written agreement was only a part, and identifying the parties' actual legal obligations; and that, on the basis of the findings of the employment tribunal, it had been entitled to disregard the terms of the written documents in so far as they were inconsistent with those findings and to hold that the claimants were "workers" because they were working under contracts of employment within the meaning of [the 1999 Regulations] and of [the 1998 Regulations].'

I understood Mr Catherwood's submission to be that this case too, like Autoclenz, was one of unequal bargaining power between Mr Tiffin and the full equity partners; and that an ascertainment of the 'reality' of their relationship under the members' agreement required one or more of the provisions that tended to point to a partnership relationship rather than an employment relationship to be either discounted or in some manner re-modelled. With respect, I did not and do not follow the argument. It is nothing more than an attempt to advance the case that the members' agreement was in material respects something other than a reflection of the true intentions of the parties, including Mr Tiffin, and that in those respects it was a sham. Given the unqualified findings that the ET made in paragraphs 8 and 28 of its reasons, the submission is a hopeless one. Those findings were to the effect that Mr Tiffin was a willing signatory of the members' agreement, which reflected the true intentions of the parties to it, including Mr Tiffin. Mr Tiffin ran no case below that the members' agreement was in any respect a sham and he cannot do so now. The decision in Autoclenz is of no present relevance.

Mr Catherwood next focused his submissions on the proposition that, compared with the full equity partners, the members' agreement gave the fixed share partners no material voice in the management of the practice at all. Implicit in the submission was that this was a feature pointing away from the fixed share partners being true partners. To this end, Mr Catherwood provided us with a full and careful explanation of the extent of the fixed share partners' voice, role and voting power in relation to the management of the LLP.

That submission is also a difficult one. In Zahid's case, [2006] 1 WLR 2562, at [7], Wilson LJ rejected the submission that it is a prerequisite of the status of a partner that he should be 'intended to assume a dominant role in its management'. I interpret Wilson LJ as using the word 'dominant' in the sense of influential, material or significant. He did not suggest that it was nevertheless an essential prerequisite for a partner that he should at least be intended to assume some lesser management role so long as it did not fall below some irreducible minimum. Nor, in my view, can he have had any such idea in mind, not least because (a) if he had, the court would have had to consider whether or not Mr Lees crossed the relevant threshold; and (b) the notion of any such threshold being measurable by reference to an irreducible minimum is anyway too imprecise to be practicable. As it seems to me, Wilson LJ was saying simply that it is not a prerequisite of the status of a partner that he should assume a role in the management of the partnership – whilst of course he rightly recognised that the assumption of such a role may be a strong indication of status as a partner.

In the present case, for all Mr Catherwood's careful submissions, it cannot be said that the fixed share partners assumed no role in the management of the LLP. By reference to the 52 types of resolution contemplated by the Resolutions Table in Appendix B to the members' agreement, the fixed share partners were entitled to speak at meetings and vote on 22 of them (the submission to the EAT that the number was merely ten was wrong). They included matters such as the admission of a new fixed share partner, opening a new office, closing an office, merging with or acquiring another firm, closing or selling part of the firm's practice, changing the firm name, amending the firm's management structure and amending the members' agreement. It may be that on most votes the fixed share partners would or might find themselves outgunned by the full equity partners. So likewise will any minority of dissenting full equity partners be outgunned by the majority. It cannot, however, be said that the fixed share partners did not have a real voice in material aspects of the LLP's management. This was a feature of the members' agreement of which the ET was entitled to take account in its approach to the question of whether or not Mr Tiffin would have been a partner under the Partnership Act. Whilst Judge Craft did not devote very much of his reasoning to this aspect of the matter, he did take account of it in coming to his conclusion: see paragraph 28 of his reasons, where he said that '[Mr Tiffin] intended to become a partner and accepted the changed status, new obligations and responsibilities this involved.' There is, in my view, not only no substance in Mr Catherwood's management point, it is one that positively tells against Mr Tiffin's case. Employees are not ordinarily involved in a partnership's management. Management is a matter for the partners.

Mr Catherwood made a similar point about the suggestion that Mr Tiffin had a share in the profits of the LLP. The essence of his submission was that Mr Tiffin had no material interest in the profits. This submission was also a difficult one bearing in mind the decision in Zahid's case to the effect that it is also not a prerequisite of the status of a partner that he should share in the partnership's profits. Accepting, as Ms Eady did, that Mr Tiffin's fixed share was guaranteed, and can therefore perhaps be equated to a salary, he nevertheless also had a true profit share represented by his points allocation. Although that no doubt gave him only a potentially small share in the firm's annual profits - at any rate as compared with the shares that the full equity partners would enjoy - it cannot simply be dismissed: and the inference is that Mr Tiffin agreed to become a fixed share partner rather than a salaried partner precisely because it carried the promise of a better return for him. In addition, he also had a prospect of a share in the surplus assets of the LLP on a winding up. These considerations too are all consistent with a partnership status rather than an employment status (see section 2(3) of the Partnership Act 1890), and were considerations that the ET was also entitled to bring into account in making its finding as to Mr Tiffin's status. Exactly the same can be said about Mr Tiffin's contribution to the LLP's capital. That is not something that employees do, any more than they normally share in a firm's profits or take part in its management. The ET was properly entitled to take into account, when making its findings as to Mr Tiffin's status, his entitlement to share in its profits, including on a winding up, and his contribution to capital. The ET duly did so (see paragraph 29 of its reasons).

Although this is an appeal against the decision of the EAT, the real question is whether the ET's conclusion that, viewed through the prism of section 4(4), Mr Tiffin would have been a partner in the notional partnership, was in any material respect vitiated by an error of law. The EAT concluded that it was not. It held that the ET had made a finding of fact that it was entitled to make on the evidence. I agree. Despite the full and careful submissions of Mr Catherwood and Mr Machell, I have no doubt that this appeal must fail. The suggestion that the ET's decision was perverse is in my view an impossible one.

I would dismiss Mr Tiffin's appeal.

Lord Justice Jackson :

I agree.

Sir Nicholas Wall P :

I also agree and there is nothing I can usefully add.