When partnerships go bad
Mounting pressures in general practice are leading to more disputes among partners. Ross Clark and Robert McCartney give some legal opinion on your options if it happens to you.
GP partnerships are facing increased difficulties with finances becoming tighter and the rising pressures of delivering services.
These conditions have the effect of highlighting problems and weaknesses within a partnership which in better times may not be as apparent.
This is resulting in increasing numbers of disputes between partners. These are highly emotional and complex and often result in disrupting the running of the practice.
Partnership disputes are often sensitive, time consuming, and costly. They are stressful and destabilising for people involved because they have often been in close professional relationships for many years.
It is best to avoid a dispute by taking proactive steps where possible but if this cannot be achieved, what are the options available to a partnership and how should they manage these scenarios?
Identify the cause of the dispute
There are multiple reasons why disputes arise and it may not always be clear. Some issues may be clearly understood, such as long-periods of absence, health and addiction issues and unacceptable behaviour.
More often the issues fit into a grey area. It is not uncommon to hear opaque phrases such as their heart is not in the practice anymore’ and ‘they’re not pulling their weight’.
There are times when eccentric or strange behaviour has been seen as ‘that is just the way they are’ but trips over into the
category of unacceptable, especially to newer team members. But these do not necessarily provide sufficient grounds to remove a partner.
So it is important to review the issues and to properly define them. Identifying the root causes and collating evidence of issues must be done before the dispute can be resolved.
Understand the partners’ legal position
It is essential to understand the legal framework the partners are working within as these will shape the options available and the processes to be followed to resolve the dispute.
The most important query is whether the partners have any partnership agreements /deeds.
Without agreement the partnership is subject to the Partnership Act 1890. This legislation lays down the following key principles which apply to all partners unless otherwise agreed:
- All partners are entitled to share equally in capital and profits
- No person can be introduced as a partner without the consent of all partners
- Matters are to be determined by a simple majority decision
- Any partner may determine the partnership at any time simply by giving notice to the other partners
- A partner cannot be expelled from the partnership (instead, the partnership must be dissolved, unless otherwise agreed).
The last two of these are particularly concerning because, where there is a ‘partnership at will’ (where there is no partnership agreement in place) any partner can dissolve the partnership upon giving notice, which can be served and take effect immediately.
Given the other partners have no right to expel them, the partner in a dispute has a significant negotiating leverage.
However, a partnership deed can replace these provisions. So it is vital for partnerships to have a robust partnership deed in place, ensuring it includes provisions to address disputes.
Importantly, a new deed (or a deed of adherence) should be signed by all partners each time a new partner is admitted, effectively creating a new partnership. Without this, the existing terms may not apply, and although it can be argued they were adopted by implication, this is fertile ground for dispute.
Partnership deeds should include a range of terms agreed between the parties which will help to narrow areas of dispute.
The deeds can provide certainty and clarification in areas which may lead to disputes such as confirming entitlement to drawings, the extent of personal liabilities, annual leave entitlements and potentially specific additional duties and obligations individual partners may commit to provide.
When disputes do occur the most important clauses to refer to are the dispute resolution clauses and expulsion provisions. These will govern how to manage the dispute and the options available if the partners believe they need to remove the partner.
Understand the dispute resolution procedure
Legal proceedings should be the option of last resort and there are alternative options available.
The first is to consider entering facilitated discussions. Having a third party facilitate will help to keep the focus and to control the emotional elements of the situation. The LMC may be able to assist with this process. Some have significant experience of disputes while remaining impartial.
Facilitation will also help the partners to avoid saying things they later regret or from taking actions which are not appropriate.
The second option which is often included in partnership deeds is the use of mediation. A mediator is an experienced facilitator who will liaise between the partners and work on finding a common ground and resolution to the dispute.
Mediators cannot make determinations in favour of one party over another but can help the partners to find common ground. If possible, they will enter agreements binding on the partners.
If the matter is more complicated and the partners are seeking a definitive finding there are two options frequently used and referred to within partnership deeds. The first is arbitration and the second is expert determination.
Arbitration is a formal process which can be expensive and time consuming but the outcome is a decision binding on the parties. This process is frequently the preferred alternative to court proceedings and is used in the most serious disputes.
Expert determination uses subject experts to help decide complicated matters. Disputes relating to accounts are frequently referred to accountants and property issues may be referred to surveyors.
Where arbitration is not a requirement, the final option would be to issue proceedings at court, or a tribunal may have jurisdiction.
This would require sufficient grounds which would be a hurdle that many disputes may not satisfy but could be suitable in some circumstances. Financial disputes or discriminatory behaviour may give grounds for taking such action.
By identifying the options available the partners can develop a plan as to how they will address the dispute.
Understand the grounds for expulsion
In the most serious circumstances there may be no alternative option other than to expel the partner. A well drafted partnership deed contains three separate clauses to permit the compulsory retirement or expulsion of a partner if a dispute cannot be resolved:
- Long term sickness: this enables the partners to compulsorily retire a partner who has been on long term sickness. Typically, this applies when a partner has been absent for a significant period, for example a period of 12 consecutive months or a cumulative absence of 12 months in, say, three years.
- With cause expulsion: this permits the immediate expulsion of a partner due to a material breach of the partnership deed, a criminal conviction, misconduct seriously and adversely affecting the practice, being struck off by the GMC, or breaches of the ethics of the medical profession.
However, many of these clauses are subjective and can therefore be contested. For example, what counts as ‘misconduct seriously and adversely affecting the practice’? Have they been found guilty? If so, who by, and how was that judgment made? And so on.
The burden of proof lies with the expelling partners and they need to establish clear evidence to substantiate the basis for the expulsion.
Without cause (or ‘green socks’) expulsion: this happens when the other partners simply decide they no longer wish to continue in partnership with the relevant partner. So, there is no need to establish a cause for the expulsion, which makes it difficult to contest (subject to the duty of good faith and following the correct process – see below).
The simplicity of this clause can be concerning, but we always recommend including it in contrast with the difficulty and
burden of a ‘’with cause’ expulsion.
It is commonly referred to as a ‘green socks clause’ due to a popular myth that a partner was expelled for no other reason than he always wore fluorescent green socks to work and this drove his partners mad!
The duty of good faith
Partners are also subject to several fiduciary duties, the principal one being that each partner must always act in the utmost good faith to his or her partners. This applies in every dealing between partners but particularly where there is a dispute. It does not prevent addressing issues with or expelling a partner but ensures a fair process.
The expulsion process
It is vital to comply with any dispute resolution or expulsion processes set out in the partnership deed and to follow the rules of natural justice.
Expulsion provisions may allow the partner concerned to make their case before a final decision is made, and the rules of natural justice support this. The other partners must take care not to appear to pre-judge their decision, as any evidence to this effect can cause the process to be contested for a breach of the duty of good faith.
Failure to apply a reasonable process may provide grounds for the partner being expelled to seek damages and to secure significant settlement against their former partners.
How can a dispute be avoided?
The best defence is an up-to-date and binding partnership deed that includes:
- A mechanism to address the main causes of disputes and to try and resolve them early. This could include processes to address performance or behavioural issues, such as regular performance reviews and actionable improvements; progress reports; and a clear escalation and disciplinary process.
- ʻWith cause’ compulsory retirement provisions that link to the performance review and disciplinary procedures, giving an ultimate right of expulsion if the issues are not resolved.
- ʻWithout cause’ expulsion provisions. However, if a performance review procedure is in place and being followed, partners can be accused of not acting in good faith if they expel under the without cause provision.
Key considerations
Remember the risk of being a ‘partnership at will’, as this gives a partner the power to dissolve a partnership without notice if a dispute arises.
Whatever is done, do not ignore the underlying causes of a concern, or hope that it will simply disappear or resolve itself in time. Even with a binding partnership deed, legal advice should be sought as soon as the possibility of a dispute
arises.
Primary care law experts can advise partners on the key issues and best approach to resolve the dispute as quickly and painlessly as possible in the circumstances. Even if the result is a partner leaving the partnership on agreed terms, avoiding the need for a forced exit, this is significantly easier, cheaper, and less stressful for everyone.
First published in AISMA’s Winter 2024 edition.