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Internal Mechanism for Dispute Resolution Does Not Override Tribunal Right

04 August 2011

Limited liability partnerships (LLPs) are a ‘halfway house’ between traditional partnerships and limited companies and are a relatively new form of business organisation.

Accordingly, we are now beginning to see the first cases coming before the courts dealing with these entities. In a case heard in March 2011, a woman who had been expelled from membership of an LLP alleged that she had been discriminated against on the grounds of sex and pregnancy and that she had suffered a detriment because she had made protected disclosures. A protected disclosure (‘whistleblowing’) is a disclosure that the employer is allowing or committing improper, illegal or negligent behaviour in the workplace. Workers who make such a disclosure are protected by law from adverse treatment by the employer because they have done so.

In the case in point, the Members’ Agreement contained a set procedure for use when dealing with any disputes arising among the members, including outgoing members, and this had been agreed to in writing by the woman concerned. However, she sought instead to take her claim to the Employment Tribunal (ET).

The partnership held that the ex-member was bound by the Members’ Agreement and sought a mandatory injunction requiring her to apply for or consent to a stay of her claims pending compliance with her agreement to abide by the firm’s dispute resolution procedure – which laid down a procedure for mediation and then arbitration.

In the view of the High Court, however, the Members’ Agreement could not be relied upon to prevent the woman from bringing her claims. Mrs Justice Slade held that the clause in question was unenforceable because it sought to preclude or limit the continuation of the claims once lodged, which goes against the relevant employment legislation. Furthermore, ‘There would be no discernable rationale for rendering unenforceable such agreements reached before proceedings have commenced but enforceable once an ET1 had been lodged’.

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