Mr E Biba v Lion Capital LLP and Mr F Zappaterra: 2201523/2024

EMPLOYMENT TRIBUNALS

Case No 2201523/2024

Between

Mr E BibaClaimant

Lion Capital LLP and Mr F ZappaterraRespondent

Before

Employment Judge Nicolle

In person for claimant

Ms S Berry (instructed by counsel.) for respondent

Date 24 October 2024

JUDGMENT

[1]The claim that the Claimant was an employee within the meaning of section 230 (1) of The Employment Rights Act 1996 (the ERA) fails and is dismissed.

[2]The Claimant was, however, a worker within the meaning of section 230 (3) (b) of the ERA.

REASONS

[1]Oral reasons were given to the parties. Either party may request written reasons within 14 days of this judgment being sent to them. Case Number: 2201523/2024 EMPLOYMENT TRIBUNALS Claimant: 1st Respondent: Lion Capital LLP Mr E Biba 2nd Respondent: Mr F Zappaterra OPEN PRELIMINARY HEARING AT LONDON CENTRAL Heard by CVP 22 & 23 October 2024 Before: Employment Judge Nicolle For the Claimant: In person For the Respondent: Ms S Berry of Counsel.

[1]The claim that the Claimant was an employee within the meaning of section 230 (1) of The Employment Rights Act 1996 (the ERA) fails and is dismissed.

[2]The Claimant was, however, a worker within the meaning of section 230 (3) (b) of the ERA.

[3]Oral reasons were given to the parties. The Claimant requested written reasons which are set out below.

The hearing

[4]The open preliminary hearing had been listed to consider whether the Claimant was an employee of the 1st Respondent pursuant to 230 (1) of the Employment Rights Act 1996. There is a subsidiary question as to whether in the alternative he was a worker within the meaning of s. 230 (3) (b) of the ERA.

[5]The hearing took place over two days. The Claimant gave evidence and Amaury Leyre, who is part of the Investment Team and an Associate and then Principal (Mr Leyre), Mr Graham Tester, Chief Financial Officer (Mr Tester) and Mandic Panesar, Head of Tax and Compliance Manager (Mr Panesar) gave evidence on behalf of the 1st Respondent. There was a bundle comprising of circa 909 pages. Ms Berry provided skeleton arguments.

[6]Whilst there have been various other issues which had been listed to be considered, to include an amendment application from the Claimant and an application from the 1st Respondent that certain elements of the claim should be struck out as being out of time, there was insufficient time to consider these applications and they will, to the extent that they remain applicable, be dealt with at a further hearing.

Findings of Fact

[7]The 1st Respondent is a private equity firm and it engages approximately 35 staff. The 1st Respondent sees a distinction between those who are regarded as members and those who are employees. LLP Deed dated 16 July 2015 (the Deed)

[8]The Claimant was not provided with a copy of the Deed during his engagement and it was not until after his expulsion on 1 August 2023 that the 1st Respondent acquiesced in his request for the Deed.

[9]The Deed contains various potentially relevant provisions to include: S.4 capital contributions; S .14 sets out members’ obligations; and S.14.7 says that a member is entitled to his fixed share for the first 180 days in aggregate in any calendar year of any absence due to illness or other incapacity. The Claimant continued to receive his fixed share drawings during a relatively short period of absence in March 2023. Employee handbook

[10]This was provided to the Claimant and he says that it is indicative of his being considered to be an employee. The opening welcome section states that the term employee in these policies means both employees and members and goes on to say that certain policies are applicable only to employees and not members and where this is the case it is marked at the beginning of the policy and the term employee in these policies means employees only. Pre-recruitment negotiations

[11]The Claimant referred to the process of negotiation for a potential role with the 1st Respondent. This took some time before he finally commenced his engagement on 16 May 2022. Offer letter to the Claimant from the 2nd Respondent dated 22 November 2021

[12]The Claimant places considerable reliance on an offer letter dated 22 November 2021. This provides that on behalf of the partners of 1st Respondent, I am pleased to offer you a position as an Associate with the 1st Respondent as an Associate. The job description is that of Analytical and Functional Support to the Partners and senior professionals of the Firm in relation to acquisitions and investments financed by current and future funds or other investment vehicles managed or advised by the 1st Respondent.

[13]The letter was drafted by Katie Calver, an administrative member of staff (Ms Calver), but was signed by the 2nd Respondent who is a Partner of the 1st Respondent. The Claimant says that the letter is clear evidence that he was regarded as an employee. The 1st Respondent’s witnesses say that the contents of the letter was an oversight by an inexperienced administrative member of staff who had used a template letter and had not adapted it appropriately. Further, the term Associate is not necessarily inconsistent with being a Member. They say that providing support to Partners indicates a senior role rather than being something which is substantially different i.e. that of an employee. Email exchange on 16 May 2022

[14]On 16 May 2022 there was an email exchange between Ms Calver and Mr Tester, copied into Mr Panesar and Mr Sales, in which she says that the Claimant had just asked her whether there is a contract for him to sign for Lion to which she had said no as she understood technically he is not an employee he is a Member. She went on to ask if there was anyone he could talk through about being a Member and how the funds work. Video call between the Claimant and Mr Tester on 27 May 2022

[15]The Claimant refers to video call he had with Mr Tester on 27 May 2022 in which he says that Mr Tester told him that the documentation provided was designed to provide tax benefits and reassured him that he was treated as an employee and protected by the Employee Handbook.

[16]Mr Tester subsequently sent an email at 1224 that day to Paul Topman (Mr Topman) saying that he had given the Claimant an outline of the team and carry and SBS. He asked Mr Topman to introduce himself to the Claimant. Admission of the Claimant as a Member of the 1st Respondent

[17]A sequence of documents was then provided by external lawyers for the admission of the Claimant as a member of the LLP. That included a Deed of Adherence.

[18]As part of that process the Claimant in an email of 18:44 on 9 June 2022 asked Mr Day, quick question am I a “designated Member” referring to part 3 of the APO1 PDF and Mr Panesar responded by saying, good question Lyndon and Robert are the Designated Members and you will be a Member.

[19]An email from Mr Day to the Claimant at 1154 on 9 June 2022 referred to Lion wishing to admit him as a member of the LLP as soon as possible and asking him to complete various forms. Attached to that email chain were communications with Kirkland and Ellis International, the 1st Respondent’s solicitors, regarding the forms required and the process to be followed. The Claimant’s evidence was slightly ambiguous as to whether he had seen these documents with his position ultimately being that while they may have been attached to the email chain he did not pay them any particular attention, I find that someone in the Claimant’s position receiving that email chain would almost certainly have seen the documents and read them, or at least would have reasonably been expected to, and it would therefore have been evident to him as to what issues were being addressed.

[20]The Claimant signed various documents on or about 9 June, to include the Deed of Adherence to the LLP Deed pursuant to which he agreed to observe and be bound in all respects by the provisions of a limited liability partnership deed as adopted by resolution of the Managing Partner, (that is the LLP Deed dated 16 July 2015). He also signed an acknowledgment of the policies and procedures contained in the Compliance Manual as a material condition of his employment or status as a partner or member of Lion and acknowledging that any violation of those policies would be a ground for termination.

[21]Forms were completed for Companies House registration of the Claimant as a Member of the 1st Respondent. The Claimant did not himself sign those documents and they were signed by a Designated Member or someone acting on their behalf.

[22]Documentation regarding a capital loan provided to the Claimant showed it as held in a Barclays account as a Member contribution. The Claimant said he was not materially engaged in that process. This appears correct as was not was using his own monies to provide the contribution nor had he obtained a loan from a bank but rather a capital contribution was made on his behalf.

[23]On 9 August 2022 a Members’ resolution approved the admission of the Claimant as a new Member of the LLP. It was signed by Mr Tester on the First Respondent’s behalf. The Claimant joined the 8 existing Members. The demarcation between Members and employees

[24]The 1st Respondent says that approximately 20% to 25% of its staff are Members. Membership is conferred on front office investment professionals and occasionally someone in an operational capacity, for example, Mr Panesar was offered the opportunity to become a Member in 2019 and in order to do so first resigned as an employee. He subsequently left the 1st Respondent’s employment but then rejoined as an employee. He said that becoming a Member was a considerable endorsement and enhancement. The Claimant’s remuneration

[25]The Claimant throughout his relatively short tenure received a fixed share of drawings of £100,000 per annum, approximately £8,333 per month. Whilst he had potential entitlements pursuant to carried interest, SPS and a discretionary bonus no such additional payments arose as a result of generic factors or in respect of the discretionary bonus as a result of the 1st Respondent’s opinion that his performance did not warrant it.

[26]The 1st Respondent says the Claimant could potentially have been liable to make repayments of his drawings. The 1st respondent says, Mr Tester in particular, is that the opportunity to earn carried interest and SPS in a private equity house are well known to investment professionals, and that the level of explanation which the Claimant contends should have been provided to him, was unnecessary for someone who had significant experience in the financial services sector. The Claimant’s directorships

[27]As part of his role as an investment professional the Claimant was required to become a director of companies for whom he had responsibility namely Leopardi Holding Midco Limited and Lion Leopardi Topco Limited and in respect of both he was appointed a director on 29 August 2022. The Claimant’s performance and expulsion

[28]Whilst not relevant for the purposes of the determination I have to make the Claimant’s performance was deemed as unsatisfactory by the 1st Respondent and he was served a notice of expulsion letter on 25 May 2023 in accordance with clause 12.1 (b) of the LLP Deed.

[29]The Claimant contended that this was unfair and he sought to appeal against that decision contending that he was also a de facto employee of the 1st Respondent. The 1st Respondent refused his appeal on the basis that it was not applicable to Members. Reference letter

[30]A reference letter dated 25 July 2023 was sent by Mr Zappaterra on behalf of the 1st Respondent to who ever it may concern as confirmation that the Claimant had been employed by Lion Capital from 16 May 2022 to 25 August 2023. The 1st Respondent says that this was a typographical error and it should not be regarded as evidence that he was anything other than a Member. Californian legal proceedings

[31]The Claimant referred to a legal deposition made on behalf of Lion Capital in Californian legal proceedings regarding Bumble Bee Investment. He says that at paragraph 9.21 there is reference to three individuals, Mr Chang, Mr Capps and Mr Lindberg who are seen as both Members and employees. I do not place any particular significance on this as the LLP in the US is a separate legal entity, and I am looking at the position solely from a UK perspective.

The Law

[32]The relevant sections of the ERA is 230(1). Employees, workers etc. (1)In this Act “employee” means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment. (2)In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing. (3)In this Act “worker” means an individual who has entered into or works under (or, where the employment has ceased, worked under)— (a)a contract of employment, or (b)any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly. Factors relevant to determining the existence of an employment relationship

[33]Criteria potentially relevant for determining the existence of an employment relationship include the multifaceted factors set out in cases such as Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance

[1968] 2 QB 497

. These criteria include:• whether the servant engages their own skill;

• the degree of control;

• the level of integration within the year putative employers business;

• the terms of the contract; and

• whether there is a mutuality of obligation involving an irreducible minimum of obligation.

[34]The Claimant argues that I should look behind the label the parties placed on the working relationship. He refers to Autoclenz Ltd v Belcher

[2011] UKSC 41

as authority for courts and tribunals looking at the reality of the situation and what may be a true agreement gleaned from all of the circumstances and where a written agreement may only be part of the picture.

[35]In Snook v London and West Riding Investments Ltd 17 Jan 1967

[1967] 2 QB 786

, CA it was held that it was only possible to look behind the written terms of a contract if the parties had a common intention to mislead. It is arguable that this authority may no longer have full applicability post Autoclenz Ltd v Belcher. However, the basis of the relationship between the parties and their relative bargaining position are relevant factors to take into account. The LLP Act 2000

[36]It is necessary to consider the relevant legislation regarding LLPs, and specifically s.4(4) of the LLP Act 2000 which provides that a member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership, unless if he and other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.

[37]Ms Berry referred to the judgment of Lady Hale in Bates van Winklelhof v Clyde & Co LLP

[2014] ICR 730

and in particular: “Whatever the position would be were the LLP members to be partners in a traditional partnership then the position is the same in an LLP. I would hold, therefore, that is how s.4(4) is to be construed”.

[38]And at paragraph 23: “The question for us is whether employed by in s.4(4) bears a wider meaning than that and also covers those who undertake to do or perform personally any work or services for another party to the contract. In my view it does not”.

[39]Ms Berry also referred to the application of what she says is settled law in cases such as Cowell v Quilter and Goodison

[1989] IRLR 392

and Tiffin v Leicester Aldridge LLP [2012) ICR 647 as authority that a partner can never be an employee of the partnership. She says the effect of s.4(4) of the LLP Act is that a member of an LLP cannot be an employee. Workers

[40]It is also necessary for me to consider the relevant law in relation to workers and although s.4(4) of the LLP Act may have that effect in terms of employee status it does not necessarily have the same effect on workers status under s.230 (3) (b) of the ERA as per Bates van Winklelhof. The relevant test for being a worker under s. 230 (3) (b) involving there being a contract for the provision of personal services, and some degree of mutuality of obligation, but at a lower level than would be the case for an employee.

Conclusions

[41]There were certain areas of potential uncertainty in the Claimant’s on boarding process. I accept his evidence that there was an initial lack of full clarity as to the basis upon which he was being recruited. Nevertheless I find that by no later than early June 2022, and arguably somewhat earlier, so in the first weeks of his engagement, it would incontrovertibly have been clear to him that he was being engaged as a Member. In particular he had sight of an extensive email exchange with Kirkland and Ellis regarding on boarding arrangements for him as a Member, he signed the Deed of Adherence and he was made a director of various companies. Further I accept the 1st Respondent’s evidence that there was a clear line of demarcation between Members and employees, for example, only Members attended the Monday business update review meetings. All members of the investment team front office were Members.

[42]I find that the Claimant’s evidence, which I consider to be selfdeprecating as to his experience and status, was not consistent with someone at his level of seniority and renumeration.

[43]I find that the Claimant would have been expected to have some level of insight as to benefits such as carried interest and SPS. I do not fully accept his evidence that these matters were either unknown to him or requiring detailed written explanation. Further, whilst there may have been some level of opaqueness regarding the capital loan I find that he would have been aware that a loan was being made.

[44]I find that whilst the Claimant may have had some concerns regarding his status that those concerns were almost certainly exacerbated as the engagement progressed and concerns were highlighted regarding his performance difficulties and he sought greater protection.

[45]There is no documented evidence that the Claimant specifically stated, I don’t want to be a Member, I want to be engaged as an employee. It is a hypothetical question as to what the 1st Respondent’s stance would have been if, for example, he had refused to sign the Deed of Adherence. On any logical reading of the Deed of Adherence it is clear that the Claimant was acknowledging the existence of the LLP Deed and being bound to act in accordance with it. There is no contemporaneous evidence that he asked for a copy of the LLP Deed nor had it been provided that it would have made any difference to his decision to accept Membership. Indeed it would have been unusual within the private equity industry for someone to refuse the opportunity of Membership and elect to be in the more junior category of employee.

[46]I therefore find that the factual matrix is consistent with the Claimant being a Member and not an employee. Further I reject the concept the Claimant alluded to of the existence of a dual engagement in other words that he could be both a Member and an employee. I accept the submission made by Ms Berry that in accordance with s.4(4) of the LLP Act and the judgment of Lady Hale in Bates van Winkelhof that this would legally impossible.

[47]There is nothing about the arrangement which constitutes a sham or as the Claimant referred to a fictitious relationship. There may have been some ambiguity in the process adopted by the 1st Respondent for the Claimant’s on boarding, where further explanation could have been provided, but there was nothing which was intended to disguise the reality of the relationship. He was engaged as a Member, and there was nothing inconsistent with that.

[48]I do not accept the Claimant’s contentions that evidence regarding matters such as control, working hours, provision of sick pay, holiday arrangements, lack of autonomy etc were indicative of an employment relationship rather than that as a Member. The 1st Respondent’s evidence, which I accept, is there are different levels of seniority amongst Members. Members are still expected to turn up in the office, work regular hours, adhere to the 1st Respondent’s Compliance and other policies. None of these factors are inconsistent with someone being a Member. You would not expect someone who is a Member, or using the analogy with law firms a partner, to have carte blanche as to when they work, when they attend the office, whether they follow procedures and so on. So there is nothing inherently inconsistent which would justify a departure from the title the parties have placed on the relationship, or at least the 1st Respondent has placed on the relationship. Worker status

[49]I do now however go on to consider whether the Claimant should be regarded as a worker and as already indicated that possibility is not in accordance with Bates van Winkelhof precluded. I find that the minimum level of obligations between the parties for the existence of a worker relationship pursuant to s. 230 (3) (b) of the ERA was satisfied.

[50]In conclusion the contention that the Claimant is an employee under s. 230 (1) of the ERA fails and is dismissed but the Claimant is regarded as a worker for the purposes of s. 230 (3) (b) of the ERA