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Paid Employee or Equity Partner? High Court Guidance

The sometimes blurred distinction between paid employees and equity partners can store up trouble for the future and that is one reason why it is important to take legal advice so that clarity can be achieved and everyone knows where they stand. That point could not have been more clearly made than in a High Court case involving a son who joined his father’s thriving food business at the age of 16.

The son left his senior position within the business after falling out with his father. He claimed that he had been a partner in the business and that his father had ousted him in breach of his fiduciary duty. He argued that he was entitled to compensation and to trace his partnership share into the assets of the business.

It was submitted that, at his father’s express request, he had given up his hopes of going to university in order to start working in the business as a school leaver. Over a period of more than 30 years, he had become the driving force of the business, effectively taking on the role of a chief executive.

In striking out the son’s claim, however, the Court found that he had been a paid employee of his father’s business, in which he had never been a partner. It noted that he had been well remunerated for his work, also receiving generous benefits. No relevant promises or assurances had been given to him by his father and he had not acted to his detriment. The circumstances in which he resigned from the business did not in any way reflect the conduct of a wrongly excluded partner.