As general medical practices continue to work hard to overcome the challenges brought about by the COVID-19 pandemic, the increased pressure on the partners in the partnership could trigger a partnership dispute.
When partners fall out, it is important that the dispute is resolved quickly to minimise any disruption to the patients, the practice and the partnership. In certain circumstances, the other partners may feel that it is necessary to remove the disruptive partner.
Here, Sana Sadiq, senior solicitor at BMA Law, explains the options available.
It may seem obvious, but the partnership will ideally have a partnership agreement documenting the terms agreed between the partners, and the options available to remove a disruptive partner. When it comes to removing a partner, prevention is far better (and cheaper) than cure. The partnership should have in place a robust, up-to-date partnership agreement. However, this is not always the case.
No partnership agreement – Partnership at Will
Without an up-to-date partnership agreement, the partners will have to rely on the default provisions in the Partnership Act 1890. This does not provide any mechanism for the removal of a partner. Click here for more information on why this is an unfavourable position.
The only option available to the partnership to force the removal of a partner, under the Partnership Act 1890, is to dissolve the partnership with a view to starting again without the disruptive partner. Though, in these circumstances, the risk is that NHS England refuses the transfer of the practices’ NHS contract to the new partnership, resulting in the loss of the NHS contract.
The only other alternative would be to negotiate and reach an agreement with the disruptive partner under which they will agree to leave the partnership. Whether this is achievable will depend upon their willingness to leave the partnership. Such agreement should be recorded in a written agreement, and this is something that BMA Law can help with.
Express Power in a partnership agreement: What are your options?
1. Expulsion and Green Socks
The power to expel another partner arises only where such express power is provided in the partnership agreement itself.
A power of expulsion entitles the partnership to bring an end to the relationship with a partner, who will immediately cease to be a partner in the partnership, usually on one or more specified grounds.
The partnership agreement should set out the specific grounds for expulsion and the procedure for making the decision to expel a partner, including any voting requirements and how to deal with the payment of the relevant partners’ share in the property.
Due to the potential difficulty in justifying specific grounds for serving notice of expulsion on a partner, it may be desirable to include a green socks clause in the partnership agreement. A green socks clause provides an alternative means of expelling a partner for no reason at all – simply because you do not like the colour of their socks!
The inclusion of a green socks clause is considered sensible, because it can act as a measure to avoid disruption. The partners will be aware that they could benefit from the clause, but also suffer from it.
2. Suspension and Garden Leave
As with expulsion, the power to suspend or place a partner on garden leave, arises only where there is an express power in the partnership agreement.
A power of suspension is normally tied to the power of expulsion, allowing the partnership to place a partner on suspension, while alleged grounds for expulsion is investigated and will involve a complete exclusion of the partner from working in the practice for a reasonable period of time, which is necessary for the partnership to carry out the necessary investigations.
A garden leave clause is normally tied to the green socks clause, under which the partner must remain absent from the practice for a specific period, usually where working relationships between the partners have broken down completely, during which time a reconciliation process is followed.
During the period of suspension or garden leave, the partners entitlement to profit share is usually maintained. Depending on the outcome of the investigation or the reconciliation process, following the period of suspension or garden leave, the Partner can be reinstated, or expelled under either the expulsion or green socks clause.
3. Compulsory Retirement
Again, an express power to bring about a partner’s compulsory retirement, arises only where there is an express power in the partnership agreement.
A compulsory retirement clause allows the partnership to bring about a partner’s retirement after the expiry of a set period, without any grounds being given. This usually arises in circumstances where:
a partner fails to return to their full partnership duties after their agreed date of return following a period of maternity, adoption, paternity or parental leave;
where a partner’s period of absence arising as a result of sickness exceeds the maximum periods permitted in the partnership agreement; or after any court has made an order or appointed a deputy under section 16 of the Mental Capacity Act 2005.
You should be looking to regularly review your partnership agreement as necessary, each time there is a change in the partnership or at least every three years, to ensure that the terms reflect the way you operate the practice. This is very important so it can serve as a vital reference point when things go wrong.
It is always advisable to take legal advice before taking any action or serving any notice. This will ensure that it is served correctly in accordance with your partnership agreement, and avoid any exposure to a challenge.
We have a wealth of experience in drawing up and reviewing partnership agreements. We can draft sector specific and bespoke agreements, and advise on the removal of a partner. If you require assistance with any of this, we would be very happy to assist.
For more information on how BMA Law can help you, please contact us