Caselaw: Kovats vs. TFO Management
Mr. Kovat (the appellant) appealed against the decision made by TFO Management (the defendant) regarding its decision about his employment status in the LLP. The appellant joined the defendant in 2004 as a member to manage the HR team in London and Bahrain. Two years later, he signed a modified partnership agreement that contained new profit sharing ratios. The profit was to be equally distributed among eleven members of the LLP. The agreement also contained a condition that membership of any partner could be terminated if majority of the members agreed.
The following year in 2007, many issues were raised by the management regarding the performance of the appellant. The management collectively decided to send a retirement notice to Mr. Kovat. The appellant wrote back to the LLP regarding his compensation package in regards to his contract of employment to which the defendant wrote ba ck saying that he was not an employee of the LLP. There are of course different compensation packages for partners and for employees.
The appellant took the case to the EAT and claimed for unfair dismissal. He claimed that the LLP did not give him any written reasons for dismissing him from employment. The LLP argued that he was not an employee of the LLP and according to the terms of the agreement, he could be dismissed without cause.
The EAT then carried out some tests in regard with employment status. These are different from partnership tests and analysed the result to determine if Mr. Kovats was really an employee. The EAT concluded that the appellant was not an employee of the LLP because
- He had signed agreements that only members signed;
- He received a share in profit and not a salary;
- He never referred to himself as an employee until he retired from membership;
- He had full freedom/autonomy in his work profile;
- He accounted for his income tax by himself.
In regards to the facts of the case, if they were different it is possible that a member can also be an employee. This is a very important and popular case, as it was a deciding case for employee and member status in LLPs. It is important to know if a member is also an employee there are various rights, responsibilities, and liabilities are only available for employees and vice-versa.