You’ve been offered membership of an LLP – what do you need to know?

First, you should know that you will lose many of your employment rights. If you have been an employee for at least two years, you currently have the right not to be unfairly dismissed; a right that can be worth, depending on your losses, up to approximately £80,000. Members of LLPs simply don’t have that right and you should ensure that you are adequately compensated for not doing so, whether that is by way of higher earnings or a longer notice period.

You also won’t have any statutory family friendly rights – maternity leave, paternity leave, shared parental leave etc. If this is likely to be an issue, you should check whether any of these rights are replicated in any way in the LLP deed and, if not, what the LLP has done in practice for other members.

You may have heard of employees walking out of their jobs, without serving notice or having to honour any subsequent restrictions, claiming constructive dismissal because they have been treated badly by the employer; well, guess what? It’s not available to members of LLPs.

Do your fellow partners have to treat you fairly? No, not unless there’s an express term in the LLP deed saying that they do.

There is a provision of the Companies Act which can apply to LLPs, allowing those with minority interests to petition the court if the are suffering ‘unfair prejudice’ at the hands of the majority. While this right is always available to minority shareholders in companies, the corresponding right for LLP members can be excluded in LLP agreements. Needless to say, it usually is.

You will have some rights… It is unlawful for an LLP to discriminate against its members on the grounds of age, disability, pregnancy, race, religion or belief, sex or sexual orientation. It is also unlawful to treat a member less favourably because he or she has blown the whistle on some wrongdoing. Members also can claim the protection of the Working Time Regulations, which include the right to paid holiday.

Next, you should know that it will be easier for the LLP to enforce onerous post-termination restrictions on you. Lengthy non-competition restraints or prohibitions on soliciting or dealing with clients which would be unenforceable against employees, may well be enforceable against members of an LLP.  This will be the subject of a future post; for now, just don’t sign anything you would not be prepared to abide by and certainly don’t sign anything on the assumption that it will be unenforceable.

The final thing you should know is, not only is the LLP able to avoid liability for unfair dismissal and enforce more onerous restrictions, it is also saving 13.8% employers’ national insurance on your salary while doing so. For the LLP, categorising staff as members is win-win-win.

With this is mind, you need to make sure that the deal is correspondingly fair to you…