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Can Partners in Professional Partnerships claim Employment Status?

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Madeleine Thomson

For businesses operating as a partnership, promotion and ownership of the business can be controlled by means of operating different levels of partnership, for example a salaried partner, fixed term partner or equity partner.Madeleine Thomson

Whereas salaried partners are sometimes regarded as glorified employees and will normally enjoy full employment rights, “fixed share” are a different breed as normally they will only contribute a relatively small share of the capital, and as a result be excluded from much of the decision making within the business and have limited voting rights. In terms of their actual stake and control of the business, there may in fact be little to distinguish between them and their salaried partner colleagues, but it now appears, in law, that salaried partners are much better protected when the business decides to end the partner’s tenure.

The Court of Appeal case of Tiffin v Lester Aldridge LLP, reported this month, has provided clarification that a fixed share partner, even one with very limited capital contribution and voting rights, does not have employee status and therefore is not entitled to seek unfair dismissal compensation if they are levered out of the business against their will.

Mr Tiffin started with Lester Aldridge, a firm of solicitors, as an employee in 2001.  In 2005 he was promoted to “salaried partner” and retained the status of employee. He was promoted again in 2006 to a “fixed share partner” and instead of salary, received monthly drawings based on a fixed share of the profits.  He was obliged to make a £5,000 capital contribution to the partnership. He received five profit share points, the value to be assessed once the profits were known for the financial year.  He became responsible for dealing with his own income tax and his national insurance contribution class changed to 2 and 4. In 2007, the firm converted to an LLP and Mr Tiffin entered into a members’ agreement where, as a fixed share partner, he was described as a “member”, whereas salaried partners were referred to, in the members’ agreement, as “employees”. His voting rights were limited and the agreement provided that if the firm was wound up, he would receive less than 25 times the value than a full equity partner.  His capital contribution increased by £1,250.

The partnership decided to terminate his membership of the LLP with effect from February 2009.  Mr Tiffin issued an unfair dismissal claim and other related claims in the employment tribunal. His employment status was disputed and he failed to persuade the employment tribunal he was an employee, in order to pursue his employment claims.

Because the partnership was an LLP Section 4(4) of the Limited Liability Partnerships Act 2000 also applied, which states that LLP members can enjoy employment status in certain circumstances but a member shall not be deemed as employed “unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership”.  This means that the same principles apply to determine whether a member of an LLP is an employee as apply to establish whether a partner in a partnership is an employee.

Though salaried partners in the Lester Aldridge business made no capital contribution, enjoyed no share of the profits or share in surplus assets in a winding up and no say in the management of the firm, the fixed share partners enjoyed all of these things, though to a far lesser degree than the full equity partners. Therefore the features of the fixed share partners bore a much closer resemblance to the equity partners than their salaried partner colleagues.  The Court of Appeal considered that the intention of the parties in signing up to the members’ agreement was to establish a relationship of partnership and not employment.

Mr Tiffin argued that he had no real say in the management of the firm.  However, the court reviewed the fact that he had been entitled to speak at partners’ meetings and he had voted on 22 of 52 proposed resolutions.  He had a vote when it came to opening or closing an office, merging or acquiring another business, selling part of the business, admission of new partners and amending the members’ agreement.

Although Mr Tiffin sought to argue in favour of being an employee, (that he did not have a prospect of a real share in the profits of the business), the Court of Appeal found that because he did draw a share of the profits, albeit less than the equity partners, in addition to the fact that in a winding up situation he would be entitled to a share of surplus assets and he had contributed capital to the business. This established him as a partner and not an employee.

The law does not provide for any minimum levels of capital contribution, profit sharing, voting rights to distinguish as between partners who can be employees and those who cannot.

Equity partners may, as a result of this decision, consider that they are best protected by having all their junior partners as fixed share partners, and moving away completely from the salaried partner grade.  With a relatively minimal capital contribution and the granting of limited voting rights with fixed profit share as opposed to salary, it appears that the business may escape the employment relationship and the risk of unfair dismissal and employment related claims if the relationship goes sour.

Madeleine Thomson, Head of Employment Law, Hamlins LLP:
[email protected] 0207 355 6000 www.hamlins.co.uk
Madeleine Thomson is Head of the Employment Law Department and acts predominantly for employers. Her clients span a wide range of sectors including construction, manufacturing, retail, insurance, travel, education and professional services.
She has expertise in all aspects of employment law including complex strategic issues involving TUPE, outsourcings, information and consultation on both national and cross jurisdictional restructures and transfers. She advises companies on changes to their terms and conditions of employment to reflect the latest legislation and market conditions.

As an accredited Workplace Mediator, Madeleine able to resolve workplace disputes before they escalate into employment tribunal claims.

She also provides training to directors and executives on the employment law issues that apply to every day working practices with a view to minimising the company’s exposure to risk of claims for unfair dismissal, discrimination, equal pay, whistleblowing and breach of family friendly legislation.

Hamlins LLP is a well-established, successful commercial law firm based in London’s West End. The firm has expertise in a wide range of sectors including Media and Entertainment, Retail, Travel and Leisure, and Property.  The firm’s Employment team provides a comprehensive employment law service for employers and employees including employment contracts, employee handbook and policies, flexible working requests, workplace investigations and mediations, trade unions, redundancy advice and compromise agreements.

Business

October furlough changes – what you need to know

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October furlough changes – what you need to know 1

By Alan Price, employment law expert and CEO of BrightHR

The Job Retention Scheme is coming to an end on 31 October, and in its final month, there are some significant changes to its funding that employers and employees need to be aware of.

When it was first implemented, the scheme was funded entirely by the government. However, since 1 August, the government has contributed less to the scheme, meaning employers have had to put more of their funds into furloughed staff wages to ensure they continue to earn at least 80% of their salary for the time in which they do not work.

From 1 October, the government will only provide 60% of this payment; employers will need to top up the remaining 20% themselves. They will also need to continue paying employee national insurance and employer pension contributions.

As has been the case since July, furloughed staff can still be asked to return to work on a part-time basis. However, employers need to pay them in full for the hours that they work. They can also be removed from the scheme if the employer deems it necessary, which includes making them redundant.

Once the scheme ends on 31 October, it will be replaced by a new government-funded system of support, the Job Support Scheme, on 1 November. This scheme will be slightly different to the furlough scheme and is designed to support jobs that are not entirely dependent on government funds.

Under the Job Support Scheme, employees will work at least one-third of their normal working hours. The government and the employer will then each provide pay for one-third of the number of hours in which they do not work, meaning all employees on the scheme will receive at least 77% of their normal wages. The government’s contribution will be capped at £697.92 per month.

For example, an employee who normally works five days a week and earns £350 per week. Under the Job Support Scheme, they will work 40% of normal working hours (two days a week). The percentage of hours lost is 60% (worth £210). The employer pays £140 for hours worked, and a further £70 (one-third of hours lost). The government will pay £70 (one-third of hours lost). The employee receives £280 in total per week.

All companies will be eligible to make use of this; however, larger businesses will need to pass specific financial tests. Companies will also not need to have furloughed staff previously.

Employers will be able to claim a reimbursement for employee wages from December 2020 via an online portal.

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Turning a Critical Eye on Impersonation Scams

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Turning a Critical Eye on Impersonation Scams 2

By Mike Kiser, security strategist and evangelist at SailPoint

“The criminal is the creative artist; the detective only the critic.”

— G.K. Chesterton

Impersonation Crime as Art

The recent findings by UK Finance that impersonation scams are up 84 per cent compared to the same period last year shows that criminals have seen the opportunity that Covid-19 has presented over the past six months. Convincing the unwary to hand over financial information and payments requires not only research and creativity, but a large volume of potential targets. Covid-19 has created just such a field ripe for harvest by bad actors.

This is largely due to the acceleration of digital life. As many of us have been subject to stay-at-home orders for the past half year or so, we’ve tried to find various activities to keep us busy. Some have taken up new activities such as baking bread or needlework, others have taken on long-planned renovations to our flats or learned how to garden. These new past times share the benefit of being firmly planted in the real world at a time when almost everything else is an online interaction. Work, social groups, religious and charity organizations—these are all activities and relationships that find their expression in an online video chat or other digital form.

This is a massive cultural change that requires acclimation for the general populace. Depositing a check or booking that next holiday was often something done in person, and the shift to not only “remote work” but also “remote life” has left many susceptible to scams involving impersonation. This is particularly true now that a great deal of personal information is available, granting criminals credibility and enhancing the quality of their “creative artistry” as Chesterton describes it in the quote above.

We Must All Be Critics

But Chesterton is right to point out that if the criminal is the artist, there is a critic that has a role to play as well. If this recent wave of exploitation is to be mitigated, however, the critic cannot merely be the detective. The role of reviewer must also be taken on by each individual. After all, scams involving impersonation are a false narrative created for an audience of one. Know the signs of a criminal “performance” (which are useful not only for impersonation scam, but a wide range of malicious activity). It’s helpful to put this in the vein of reviewing a play or other work of art:

(1)  A Surprise Performance

No one goes to a play by accident. They buy tickets in advance and look forward to it for several weeks. They are not surprised when they find themselves in the theatre, and the same should apply for remote interactions. When contacted by a bank, travel agency, or government agency, think about the context. Have you had interactions with them before? Were you expecting them to contact you? If this monologue is unexpected, then be circumspect about the caller and their message.

(2)  Emotional Manipulation

One of the goals of criminals will be to generate an emotional reaction to lower your defenses. Great works of art draw out emotion also, but not in glaringly obvious ways—that’s what makes them great art. Rather, they use a subtle word here, a knowing look there. Be on guard for words that seem calculated to draw a strong emotional response from you, paying special attention to words and phrases that seem inelegant or forced. This includes negative feelings like alarm or fright from not having paid a fine or unknown tickets as well as more positive responses such as “winning” an Amazon gift card or a surprise holiday.

(3)  Immediate Action Demanded

Finally, great works of art move us, but that change is not often immediate. Many scams involve a demand for an immediate response; these scammers have invested time and effort into building a reasonable backstory all with the goal of you taking action while you’re on the phone with them. Given that the person who contacted you is not at your front door, but rather is talking to you remotely, there’s no immediate need to respond. If there are any warning signs concerning the interaction or you feel uncertain, end the conversation and contact the institution directly to ensure that the message is real. Let the story sit with you and examine it in your mind as you would a great play or novel before deciding to respond.

A Shifted World Requires A Shift in Thinking

Criminals are always seeking creative ways to exploit changes in society and those who might be vulnerable as a result. The first half of 2020 has certainly revealed a new theatre for them to perform the art of theft via impersonation. By developing a finely tuned critical eye and knowing the markers of poorly constructed art, we can begin to review these small scale dramatizations and “close the curtain” on this latest round of malicious activity.

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How virtual training is changing the game in remote learning

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How virtual training is changing the game in remote learning 3

By Aris Apostolopoulos, Senior Content Writer at TalentLMS and a faithful follower of the eLearning mentality.

Along with the latest leaps in technology, the current pandemic situation has made remote working not just a niche but a necessity. And with it, the need for remote learning has also skyrocketed.

Things are changing fast for most industries: a McKinsey Global Institute research found that, by 2030, some 375 million workers will be required to master new skills. But apart from the practical need for it, continuous learning is also one of the most efficient ways to keep remote workers engaged and productive.

The question then arises: what kind of remote learning should companies be investing in?

Ideally, it should be a type of training that combines the effectiveness of instructor-led training with the flexibility of online learning, to cater to the realities of today’s (and quite possibly tomorrow’s) remote working landscape.

Enter virtual training.

What is virtual training

Virtual training is a broad term that refers to any training that does not take place in a physical environment — rather in a virtual one. This type of training makes use of new technologies, predominantly web and cloud-based, to deliver asynchronous or synchronous learning.

In asynchronous virtual training, learners go through the course (usually modules utilizing a variety of media like videos, PDFs, quizzes, etc.) at their own pace. On the other hand, synchronous virtual learning is virtual instructor-led training (also known as VILT). During VILT, learners attend live classes conducted online via videoconferencing tools such as Zoom. Currently gaining momentum as a delivery method for training, VILT offers the immediacy of instructor-led training — while at the same time it keeps the costs significantly lower and simplifies the organizational side of things compared to traditional, on-site training.

The difference between remote and virtual training

You may have seen these terms used interchangeably to describe any training solutions that take place in online, virtual environs. While that’s not technically wrong, there is a key difference between remote and virtual training.

Remote training refers to a physical distance between a learner and an instructor. This usually requires a training software (like an LMS) that users can log into and attend courses online. Virtual training, originally, only referred to the nature of the delivery method (aka one that takes place in a virtual environment). As such, virtual training could also imply that a learner and an instructor are physically at the same location, utilizing technology to go through virtual scenarios (a popular practice in the sales and customer service industries).

In this post-COVID world we’re living, though, the terms “remote training” and “virtual training,” as well as the term “online training,” have become somewhat synonymous.

Benefits of virtual training 

Companies that are considering investing in virtual training have several things to consider. For starters, virtual training (that also implies a physical distance between learner and instructor) adheres to social distancing rules and is much safer for the health and wellbeing of all involved than real-life training.

But what are some of its other benefits?

Virtual, instructor-led training offers a seamless transition from the classroom (or any physical training space) to an online environment. Videoconferencing sessions are particularly comforting to employees who were used to face-to-face interaction. But they are also suitable for the younger generation of employees — whose inherent need for mobility and flexibility means that being able to attend a lecture on their mobile phones makes it less likely to disengage or drop off from training.

A Training Mag survey on graduates of both the virtual and classroom course found that virtual training is equally, if not more, engaging than its real-life equivalent: 86% of virtual training participants rated the experience “just as engaging” or “more engaging than” classroom training. And there is a well-established link between feelings of engagement and information retention: humans tend to learn faster if they find the subject interesting. This is further supported by findings in the same survey, that see participants averaging a score of 90% on a skill mastery test, which is 1% higher than average scores in traditional classroom sessions. So employees will be more engaged and will retain information better during virtual training — 80% of information, to be precise (according to research by Harvard Business Review).

What about other factors besides engagement and information retention? 

Cutting back on travel costs is also one of the reasons virtual training is gaining momentum. Booking experts to give lectures on-site involves covering travel costs (and quite possibly accommodation) plus all the administrative costs of organizing a real-life session: seating, stationery, food, and beverages, etc. Taking the learning process online allows companies to scale back on all these costs, and instead invest in the things that will really move the needle, like offering reskilling and upskilling training for their employees.

A TalentLMS survey conducted this year shows that 42% of companies stepped up their reskilling/upskilling training efforts after the coronavirus outbreak.

Virtual training best practices 

Like with any new tool or process, virtual training will yield optimal results when best practices are followed. Companies interested in virtual training should consider the following:

The need to cater to learners’ decreasing attention span

Learners can no longer be expected to sit through a 2-hour lecture that doesn’t change modalities frequently. One of the realities of remote working is that employees often multitask — and they may be tempted to do so during a videoconferencing, instructor-led course that drones on for too long. Switching gears frequently by keeping learning segments short and encouraging feedback and conversation in between is key.

The need to decrease screen time

Learner fatigue has become a serious problem, exacerbated by the fact that so much of employees’ time is currently spent in front of computer screens. Keeping virtual training sessions shorter, with breaks in between, combats that phenomenon.

The need for interactivity

We’ve already seen some of the benefits for VILT. However, relying solely on live, video-based learning robs learners from an interactive experience, assigning them to a passive role instead. And yet, interactivity is one of the critical factors that have made classroom learning so useful and practical to humans. Virtual training should therefore comprise different delivery methods, from quizzes and polls to interactive multimedia.

The need for frequent evaluation and data analysis

At the end of the day, a successful virtual training program is one that allows companies to have a clear look at insights regarding learners’ progress. A robust data analysis helps companies identify potential hurdles before they become severe issues and adjust the learning approach accordingly. That’s why investing in the right LMS is crucial to embarking on a successful virtual training journey.

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