In the case of Train v (1) DTE Business Advisory Services Ltd and another and (2) Rosen, an Employment Appeal Tribunal had to decide whether a former partner was an employee.
An accountancy practice, that had been a traditional partnership, was restructured so that the business was operated through a group of limited companies and the former partners became shareholders and directors. The former partners were treated as employees, paid a salary taxed through the PAYE system, had a fixed holiday entitlement and the agreement stating that these arrangements would not constitute a partnership.
One of the former partners, Mr Train, resigned as a director and employee and made an Employment Tribunal Claim for unfair constructive dismissal and unlawful age discrimination. The Employment Tribunal held that Mr Train was not an employee so was not entitled to make a claim. The Employment Appeal Tribunal upheld this decision as it found that the agreement made with former partners at the accountancy firm was a profit sharing agreement, which in reality constituted a partnership agreement under the Partnership Act 1890. This is because the former partners’ salaries were variable depending on the profits of the firm and that the former partners had no separate employment contract.
This case is of concern to former partners of partnerships which have incorporated into private companies and are treating former partners as employees as there may be a danger that former partners find they have obligations and potential liabilities as a partner when under the impression that they were employees.
The accountancy practice could have saved time, trouble and money in legal fees by ensuring its partnership agreement and new commercial agreements had been thoroughly drafted and considered. Lawson-West, solicitors, can help draw up Partnership Agreements and can also draft and advise on employment contracts and employee handbooks.
Lawson West LLP is an authorised member of the Law Society’s Lawyers for your Business scheme, a specialist scheme aimed at ensuring that businesses get the legal advice that they need before any problems arise. As part of this scheme, we offer a free half hour consultation.
