Tuesday, November 20, 2018
Tom Rutledge posts the following over at the Kentucky Business Entity Law Blog:
LLC Members Are Not the LLC’s Employees
There is now pending before the Eighth Circuit Court of Appeals of a suit that may turn on whether the relevant question, namely whether an LLC member is an employee of the LLC, has already been determined by a state court. In that underlying judgment, the Circuit Court of Cole County, Missouri, issued a judgment dated October 9 18, 2017 in the case Joseph S. Vaughn Kaenel v. Warren, Case No.: 15 AC-CC 00472. That judgment provided in part:
As an equity partner of Armstrong Teasdale, LLP, [Kaenel] is not a covered employee protected by the Missouri Human Rights Act.
I am curious as to which case this is that is pending. Tom knows his stuff and knows (and respects) the differences between entities, so I assume there is more to than appears here.
For example, the fact that a state court determined that an LLP equity partner is not an employee does not inherently answer the question of whether an LLC member is an employee. It could, but it does not have to do so.
In addition, I'd want to know more about the relationship between the LLC member and the entity. I am inclined to agree that an LLC member is not generally an employee merely by virtue of being a member. But I am also of the mind that an LLC member could also be an employee. In fact, there are times when counsel would be wise to advise a client who is an LLC member to also get an employment contract is she wishes to get paid. I am assuming there is not an employment contract here for the Eighth Circuit case.
However, suppose in the operating agreement all the members agree to pay one member for certain services. Or perhaps the compensated member gets priority payouts because of her agreement to do certain work for the entity. That would, as far as I am concerned, at least muddy the waters.
I'll be interested to see where this one goes (and, perhaps, what I have missed). But as far as I am concerned, LLC members can also be LLCs employees, even though the general answer is that they are not.