A partner who doesn’t pull their weight can cost the partnership dearly in terms of profit. It can severely damage morale among other partners and more junior staff. Dealing with a partner who is not reaching financial or other targets can be tricky for a number of reasons which we explore below. It’s critical that any process to manage the underperforming partner is handled sensitively. Importantly, issues around disability protection law must be borne in mind (is the underperforming partner suffering from mental ill-health?). Likewise, it’s essential to follow the terms of any partnership agreement. Nath Solicitors in London offers specialist advice on partnerships and partner disputes. In this article we look at some of the issues that arise when one partner’s underperformance jeopardises the smooth operation of the partnership as a whole.
EMPLOYMENT STATUS OF PARTNERS
The relationship between partners is unique.
Unlike other employment relationships partners are often on an equal footing. Partners may be of equal age, experience and seniority in the business. There is no employer/employee dynamic that can make raising performance issues more straightforward. This means the issue of under performance by a partner must be handled in a nuanced and thoughtful way.
Partners, because of their employment law status, don’t have all the remedies available to employees of a business. Their ability to make a claim for unfair dismissal for example is limited. However a disgruntled partner (whether in an LLP or in a traditional partnership) does have some well-established legal remedies such as the ability to bring a claim for discrimination to the Employment Tribunal on the grounds of their age, sex, race or nationality, religion or belief, sexual orientation or disability (Equality Act, 2010).
To avoid the upheaval, expense and negative publicity of such legal proceedings, any formal performance management process or discussions aimed at securing the partner’s exit from the partnership must be carefully documented and handled appropriately. Consider the Employment Appeal Tribunal case of Fennel v Foot Antsey(2016). There, documentation maintained by the partnership during the removal process was key to its successful defence of an age discrimination claim brought by a partner who had not been offered a new partnership when the business was restructured.
SUPPORTING AN UNDERPERFORMING PARTNER
Not all partners will react badly to criticism. For some, having their poor performance – and the reasons for it – out in the open may come as a relief. Where a member of the partnership is prepared to accept support, the partnership should provide some kind of performance management structure. This may involve:
- Setting clear objectives, for example specific billing targets
- Appointing a partner who is performing well as a mentor
- Providing continuing professional development
- Arranging career coaching
- Allowing the underperforming partner to take a short leave of absence to deal with any personal issues that may be affecting performance
Failure to provide help of this nature could suggest to any subsequent employment tribunal that the alleged underperformance was being used as some kind of excuse by the partnership to remove a partner for other reasons.
NEGOTIATING A PARTNER EXIT
Where the kind of support mentioned above fails to achieve any positive results, it may be necessary to move toward removing the underperforming partner from the business. Most partnership agreements will contain clear provisions on expelling a partner or serving notice of compulsory retirement. However, where a long-serving partner is underperforming, heavy-handed use of such powers is often ill-advised. In many cases, it’s more effective to discuss the issues openly and informally with the partner to see how an exit can be managed amicably. By treating an underperforming partner with sensitivity and respect, the chances of a smooth, uncontentious exit increase. At the same time the possibility of the exiting partner taking legal action against the partnership is reduced.
WHEN DISCUSSIONS BREAKDOWN: TERMINATING THE PARTNER RELATIONSHIP
What if no agreement can be reached with the underperforming partner about how to improve performance or a negotiated exit proves impossible? There is then little choice but to examine the partnership agreement to establish the mechanisms that apply in these circumstances. Normally, there will be a prescribed process for expulsion or compulsory retirement. To avoid the possibility of legal action against the partnership these procedures must be followed to the letter and the grounds for expulsion or compulsory retirement must be clearly set out. A fair process will usually entitle the underperforming partner to be given adequate notice of the partnership’s concerns and to make a full defence to these concerns before any final decision is made.
It’s worth remembering that while there are guidelines on the level of discrimination compensation in the UK, there is no formal limit. If a partner develops ill-health as a result of expulsion or compulsory retirement and makes a successful claim, the partnership could face a significant financial penalty. This is one reason why it’s worth investing in legal advice before moving to expel or retire a partner to ensure you approach the process in the correct manner and minimise the risk of your decision being challenged.
CONTACT US
For advice on partnership law, including the performance management of individual partners please contact Shubha Nath at Nath Solicitors on 44 (0) 203 983 8278 or get in touch with the firm online.
