A partner may ‘walk like a duck,’ but don’t be fooled. For a partnership to be clear in legal terms, there must be a co-venture linked to profits created by the venture, plus a distribution of those profits
There is an oft-cited adage that goes like this.
“If it walks like a duck and talks like a duck, it must be a duck.”
Adages are not always true, that’s why we love them. The same might be said of our general understanding of what constitutes actual ‘employment’; what otherwise appears on the surface to be employment may not be treated in law as employment at all.
In a former column (BIV Issue 780, October 5-11, 2004), we examined the role of independent contractors, whose employment status can certainly take some unravelling.
Partnership is another sticky area of employment law.
A partner in a business or venture often appears at first glance little different from what one would expect of an employee. He or she appears at the workplace like everyone else, performs work, takes home pay, interacts with employees with regard to work issues, and seems to be bound by the rules of the workplace in general.
But a true partner is not considered by law to be an employee of the partnership. The import of this becomes more obvious when one realizes that the core rights of employees – such as the right to statutory benefits like employment insurance and the implied right upon dismissal to reasonable notice of such dismissal – are typically not available to true partners.
Shareholders in an incorporated entity are not considered to be partners.
Even though a shareholder, like a partner, obviously owns equity of some sort in the corporation and through that means participates in the profit of the venture and, if enough shares are owned, can control the corporation, a shareholder can be an employee of the corporation. In the shareholder/employee situation, the “talks, walks like a duck” adage usually applies.
Who, then, is a partner?
Partnership is defined in the British Columbia Partnership Act as being “the relation which subsists between persons carrying on business in common with a view of profit.” The Partnership Act says a basic presumption of partnership arises when a person receives a share of the profits of the business. The common law on the topic says that participation in profits causes a strong presumption of partnership to arise. So, by statute law and common law, the fact of sharing in profits allows the initial presumption of partnership to arise.
There are cases and fact patterns where the participation in profits alone will suffice to prove the partnership status of the person in question. At this point, things seem clear enough.
Receipt of a share of profits alone, however, may not be sufficient to establish the fact of partnership beyond the initial presumption of partnership.
Both the Partnership Act and the common law require additional tests to confirm the conclusion of partnership. The common law points to the contract and the real intention of the parties in question.
Both the contract and the real intentions are typically discerned through a factual review of the history between the parties.
Understandably, each case will turn on its own facts. And the law on the topic, while not overflowing with cases, is somewhat confusing.
Even in cases where the partners seem to walk like ducks and talk like ducks, and are referred to by the court as partners, where the facts contain twists and turns the result may lead to a finding of employment, not partnership.
A recent BC Court of Appeal decision has indicated that fixed fees split equally between three apparent partners in a joint venture are not necessarily a distribution of profits that create a presumption of partnership.
Some partnership settings are well established, such as lawyers, accountants and other professionals sharing in the profits and expenses of the overall undertaking.
Where partnership is not spelled out in a classic arrangement or a partnership agreement, the analysis of whether a partnership exists is highly contextual, based on the facts of the actual relationship in question.
Robert Yeager (email@example.com) is the principal at Brister Yeager Law Corp. in West Vancouver (www.dismissal.ca).