Avoid falling out with your partners

Keep It Legal.

Partnerships in private practice – be it through groups of consultants or GPs – have been growing over the last 15 years. And with them has come a rise in disputes.

Partnership dispute expert Ross Clark looks at the main causes of disagreements, the importance of a good partnership deed, the three principal expulsion provisions and expulsion process, and what can be done to safeguard your partnership and avoid a dispute escalating.

Partnership disputes are often sensitive, time-consuming, complex and and costly. They are stressful and destabilising for those involved because those people have often been in close professional relationships for many years.

It’s best to avoid a dispute by taking pro-active steps where possible.

Partnership disputes can arise for many reasons, but the most common I deal with in turn below.

Performance issues

If a partner only committed a clear and substantial breach of his or her duties, expulsion would be easy. But this is rarely the case and, instead, it is usually a feeling that is hard to define that leads partners to decide they no longer wish to continue with a colleague. 

We often hear opaque phrases such as ‘their heart is not in the practice anymore’ and ‘they’re not pulling their weight’. 

In the absence of a binding ‘without cause’ expulsion provision – explained below – finding grounds to expel can be difficult. However, failing to address these concerns early results in a slow and painful escalation of the issues and associated stress and frustration.    

   

Behavioural issues

As in life, members of a partnership are diverse individuals whose differences can manifest in attitudes or behaviours that the other partners find increasingly difficult to accept. This can be enhanced where a partner has a condition, such as autism, that leads to certain behaviours that can be misunderstood. 

That can be difficult to navigate, as there is a distinction between behaviours and personalities that simply clash with others and behaviours which affect performance and cause problems with patients and staff.

Addiction

We have seen a marked increase in disputes based on addiction, principally alcohol and drugs, in the past few years. Addiction can affect a partner’s personality, – though some hide it well –  as well as their ability to perform their duties.

Surprisingly, the addiction itself is not usually the issue. We acted for a partnership in the expulsion of a partner who, when pressed to explain his erratic and unusual behaviour, confessed he had been taking cocaine for over two years. 

The addiction itself was not the reason the partners lost faith and wanted to expel him, but that he had hidden it despite their repeated expressions of concern. 

It was this breach of trust and confidence that led them to their decision, and had he disclosed his addiction earlier, they would have supported him in his recovery and continued the partnership.

Long-term absence

Long-term illness is perhaps a surprising basis for a dispute and one that usually causes real distress and difficulty, as partners are inherently altruistic and want to support each other in difficult times. 

However, the stress associated with running a practice while a partner is absent for a long period, and the difficulty of addressing the sensitive issue of retiring an ill partner, is one of the most common causes of disputes.  

The importance of a partnership deed

The Partnership Act 1890 lays down key principles that will apply to a partnership, except to the extent that the partners agree otherwise. These include:

 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 terminate 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 wound up.

The last two of these are particularly concerning, as where there is a ‘partnership at will’ – that is to say, there is no partnership deed in place – any partner can dissolve the partnership upon giving notice, which can be served and take effect immediately. 

Given that 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. Accordingly, it is vital that partnerships of independent practitioners 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 though it can be argued they were adopted by implication, this is fertile ground for dispute.

The three main expulsion provisions

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:

1 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 any 36-month period.

2 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, and the like.

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, by whom 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. 

3 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.

Expulsion provisions usually allow the partner concerned to make his case before a final decision is made. The other partners must take care not to appear to prejudge their decision, as any evidence to this effect can cause the process to be contested for a breach of the duty of good faith.

We dealt with a good example of this recently. A partner had been arrested by the police, but not charged, for misfeasance in a public office – a misuse or abuse of power or authority – on the basis that he had had a relationship with a (possibly vulnerable) patient at a previous practice. 

Though he expressed his innocence to his partners, they expelled him from the practice. 

During our review of the partnership agreement, we found good grounds for expulsion, should the allegation be substantiated, as such a relationship is clearly prohibited by the GMC’s Good Medical Practice guidance.

However, we were able to challenge the expulsion on these following grounds:

 The partners had prejudged his guilt and had not awaited the outcome of the police investigation. The police subsequently confirmed that the allegation had been withdrawn and no further action would be taken. 

 They handled the expulsion process without legal advice and failed to comply with their partnership deed. They stated loss of trust and confidence as their reasons for expulsion, but these were not specific grounds for expulsion in the ‘with cause’ provisions of the deed. 

 The deed also required a right to appeal before final judgment, but they gave him notice of the appeal meeting at the same time they served notice of expulsion on him.

We obtained a significant settlement for our client because of his wrongful expulsion. But the partners could have avoided this had they followed the correct process.

Ross Clark (right) is a partner and specialist in independent practitioner work at Hempsons solicitors and specialises in partnership dispute work