More than once in Welcome to the Chippendales, Chippendales founder Steve Banerjee angrily reminds his colleague Nick De Noia that the company is Steve's and that Nick is merely an employee. To my business-disputes-lawyer brain, these outbursts are jarring because they follow scenes of Nick directing major company business decisions. Other scenes suggest a straight line from the company's ever-increasing profits to personal fortunes for both men. In other words, Nick does not come across as a W-2 employee collecting a biweekly salary and an occasional bonus for good performance. He comes across as a business owner.
For me, these scenes evoke the following questions, which are similar to questions I've helped clients tackle in the real world:
- Can you have a business partner and not know it?
- What if you consistently call that person your "employee" – will that help you later if the person drags you into court claiming to own part of the company?
The short answers are:
- Yes, theoretically.
- Yes, possibly.
The more helpful answer is: Try to not ever let things get to this point. Don't be like the fictionalized Steve or Nick. Strive for clarity in relationships with your business colleagues, get good legal advice, put your important agreements in writing, and aim to find trustworthy people to work with.
For more comprehensive answers, let's consider a hypothetical court case brought by Nick against Steve claiming they have a partnership and that Nick's rights as a partner are being violated, including his right to share in the partnership's profits. In deciding our case, the hypothetical court should look to the law on partnerships. Many states—including Virginia, where I represent clients in disputes like these—have adopted some version of the Revised Uniform Partnership Act ("RUPA"). The RUPA provides that a "partnership" is formed upon the "association of two or more persons to carry on as co-owners of a business for profit . . . whether or not the persons intend to form a partnership."
This means it should not sink Nick's case that there is no written partnership agreement. It should not sink his case that neither he nor Steve ever uttered the words "partner" or "partnership," or even conjured those words in their minds. Still, for Nick to win, he will need some evidence that the two of them got together and agreed, through their words and actions, to run the Chippendales as co-owners of a business for profit. Helpful evidence for Nick could be:
- He and Steve periodically calculated the company's profits and split them in some agreed-upon way.
- They discussed how to use partnership funds, even if the upshot of their discussion was that Nick allowed Steve to make most of the day-to-day decisions about the funds.
- For tax filings, the company identified Nick as a partner and reported its distributions of profits and losses to him.
- Nick's tax filings also show that he reported at least some of his compensation as partner earnings on an IRS schedule K-1.
- Nick didn't get paid during slow months. After all, being a partner means sharing in profits and losses. Being an employee means you get paid your salary regardless of the company's ups and downs.
- Others inside and outside the company viewed Steve and Nick as co-owners of the company and treated them as such, without objection from either Steve or Nick.
Any failure by Nick to produce this kind of evidence undermines his partnership claim. And Steve will have his own opportunity to present evidence. Going back to those scenes in the show where Steve "reminds" Nick in front of witnesses that he is his employee, Nick's silence looks like an admission. If I were Steve's lawyer in this hypothetical case, I'd subpoena those witnesses to testify.
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