If you’re a partner in a Limited Liability Partnership (LLP) and find yourself at odds with your fellow partners, Jo Davis, B P Collins’ employment partner and LLP specialist – who has acted for many partners, including a senior partner in the leading Supreme Court age discrimination case – outlines what you need to know.
LLP vs employer disputes
The first thing to understand is that, except for salaried partners, partners in firms and members of LLPs are not employees. They are more like business owners than staff. This distinction matters because employment law protections, such as unfair dismissal rights, do not apply. The Equality Act 2010 does, however, establish comprehensive protections for partners and members of LLPs, ensuring equality in access to opportunities, fair treatment during membership and protection from discriminatory practices.
Common types of LLP disputes
- Financial disputes
Disagreements over how profits are distributed or whether some members are contributing less to the bottom line than others, can lead to deep resentment and a dispute.
- Control and management
Partners may have different visions for the LLP’s future, such as whether to expand, merge or take on certain clients. If voting rights and management structures aren’t clearly defined, conflict is likely.
- Exit disputes
If a partner is accused of underperforming or acting against the LLP’s interests, others may want them to leave. But unless the LLP agreement allows for expulsion and sets out how it should happen, removal can be legally and reputationally risky. Similarly, retirement terms, notice periods and exit payments should be clearly set out. Disagreements over these issues can lead to fallouts.
- Breach of duties or misconduct
LLP members and partners may owe core duties of good faith or loyalty to the partnership, depending on what’s been agreed. Allegations of breaching these duties, such as taking clients, diverting opportunities or acting in conflict with the LLP, can lead to legal action.
- Claiming worker protections
In certain circumstances, a partner may be a “worker” for the purposes of the Employment Rights Act 1996, opening the door for such partners to claim worker protections, including those related to whistleblowing. This stands alongside their protection from discrimination under the Equality Act and any protection given by the partnership or LLP agreement.
What should you do if you’re in a dispute?
If you’re a LLP partner or member and you find yourself in the middle of a dispute, here’s a brief guide to handling it:
1. Check your partnership or LLP agreement
This is your starting point. The agreement should outline your rights and obligations and may contain procedures for resolving disputes, voting, expulsion or exit. If there is no written agreement or the terms are unclear, the default rules under the Partnership or LLP legislation will apply, which may not reflect your expectations.
2. Seek early legal advice
It’s crucial to understand your position before taking any steps. An experienced partnership lawyer can help you assess your rights, explain your options and avoid actions that could weaken your case or infringe your duties.
3. Avoid escalation if possible
Many disputes can be resolved internally, especially when handled early and sensitively following advice from an experienced lawyer. If that’s not possible or appropriate, mediation or arbitration may be a viable next step.
4. Follow due process
If you’re facing expulsion or disciplinary action, your lawyer will ensure any process followed is fair and consistent with the partnership or LLP agreement. If you’re raising a grievance, document your concerns clearly and keep a record of all communications.
5. Protect your interests
If the relationship has broken down entirely, you may need to negotiate an exit. This could involve agreeing a settlement or buyout. Again, legal advice is essential, especially regarding restrictive covenants and future business interests.
In any working relationship, things can go wrong. A well drafted LLP agreement with dispute resolution clauses, can prevent many issues before they arise. But when problems do occur and you’re facing a dispute with your LLP members, B P Collins’ employment team can help you understand your options early on and achieve a fair outcome. Please email enquiries@bpcollins.co.uk or call 01753 889995.
