Partnership and Employment

Column: “Employment Issues” - Legal Matters Issue 871

Written By: R. Yeager

June 16, 2006

There is an often cited adage that goes like this. “If it walks like a duck, and it talks like a duck, it must be a duck.” Adages are not always true, that’s why we love them. There are forms of what otherwise appear on the surface to be employment that are not treated in law as employment at all. In a former column, it was stated that an independent contractor may walk and talk like a duck, but may not end up being a duck after all. It was said that employees and independent contractors are opposite poles, and that there is a spectrum from employee to independent contractor, with a large middle gray area. At the ends of the spectrum, it is clear whether one is an employee or an independent contractor. In the middle area of the spectrum, it is not always so clear, and a number of factors must be analyzed and assessed for their impact one way or the other on the location of that person within the spectrum.

Partnership is another such area of employment law where the person can appear to walk and talk like a duck, but does not necessarily end up being a duck. The partner in a business or venture often appears at first glance little different from what one would expect of employees. He or she appears for work like every one 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.

Defining The Partnership Under Law

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.

However, receipt of a share of profits alone 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.

Being Called a Partner, Doesn't Mean You Are

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 British Columbia Court of Appeal decision has indicated that fixed fees split equally to three apparent partners in a joint venture, are not necessarily a distribution of profits that create a presumption of partnership. The facts in the case are somewhat twisted, and involve at least two levels of incorporation and a verbal profit-splitting arrangement relating to management fees. The point is that for a partnership to be clear, there must be a co-venture linked, probably directly, to profits created by the venture, and a distribution of those profits. An intervening incorporation that relates to the partners and the overall venture may confuse the fact pattern, and may lead away from a conclusion of partnership and toward an employment relationship.

Next time you visit the duck pond, look closely. Even where that critter walks and talks like a duck, that does not necessarily make it a duck.


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