Expulsion in partnerships: navigating litigation risks and key lessons

When tensions reach a tipping point, or behaviour breaches acceptable standards, expulsion may be considered a necessary step. For GP and dental partnerships, the legal framework around expelling a partner is narrow, and the litigation risks substantial. Whether you're a GP or dental partner dealing with capacity concerns, navigating poor behaviour or concerns relating to clinical skills, it's critical to understand the limits of the law and the importance of process.

Expulsion in partnerships: no deed, no power

The right to expel a partner does not exist at common law. 
Section 25 of the Partnership Act 1890 confirms that an expulsion power does not exist without express agreement. This means that unless a partnership deed explicitly includes a power to expel, it may be very difficult to successfully argue that such a right exists.

This presents challenges, as many practices operate under outdated or incomplete deeds, or lack a formal deed altogether. Without a clear expulsion power, attempts to remove a partner without unanimous agreement are likely unlawful, exposing the practice to claims for breach of the partnership agreement, loss of earnings, or even dissolution.

Green socks clauses

A 'green socks clause' is the colloquial term for a provision in a partnership deed that allows the remaining partners to expel a partner without them being at fault in any way.  Technically, you could expel for something as mundane as disliking your partner's green socks. While these clauses offer flexibility, they must be exercised in good faith and not arbitrarily or discriminatorily.

In GP and dental partnerships, mishandling an expulsion under a green socks clause could breach the duty of utmost good faith, leaving the decision open to legal challenge. 

Common grounds for dispute

Expulsion clauses are most frequently invoked when trust has broken down; often after months or years of growing resentment.

Common triggers include:

• Performance concerns: clinical issues, failure to meet targets, or non-engagement with practice initiatives.
• Behavioural issues: rudeness to patients, inappropriate conduct, or undermining colleagues.
• Financial disputes: disagreements over profit shares, drawings, or capital contributions.
• Strategic divergence: opposing mergers or investments in new premises.

While deeds may provide a route to expulsion, these actions carry risks, including financial and reputational consequences. For fault-based expulsions, evidence substantiating allegations is critical.

Procedure is critical

Procedural compliance with the partnership deed is essential. Courts and arbitrators expect:

• Right to reply: consider whether the partner being expelled should be told in advance that you are considering expulsion, and given the right to reply.
• Proper notice: ensure written notice is given in accordance with the deed's timescales.  
• Voting requirements: many deeds require a supermajority or unanimous vote (excluding the affected partner).
• Timeliness and clarity: allegations should be recent, documented, and substantiated.

Errors here can be fatal.

Where process is mishandled or where the deed is unclear, the expelled partner may seek an injunction to prevent their removal, damages, a declaration that the expulsion was invalid and/ or dissolution of the partnership. 

Practical lessons for partnerships

To reduce risks and protect the practice, consider the following steps:

1. Review and update your partnership agreement regularly, especially after changes in partners or associated businesses.
2. Ensure the expulsion clause is clear and specific, with agreed procedures and time limits and that all partners are happy with it.
3. Keep records of meetings regarding performance, conduct, and partnership decisions. These may be critical if disputes arise. 
4. Take early legal advice when tensions arise. Attempting to exclude a partner informally or "off the record" can make things worse.
5. Plan for succession to ensure continuity of services after an expulsion or retirement.
6. Review insurance cover to ensure it includes partnership dispute claims and promptly notify your insurer of potential claims. 

Conclusion

Where serious disputes arise in GP and dental partnerships, the stakes are high: financially, professionally and operationally. A poorly executed expulsion can derail the practice, while a well-managed process, grounded in a robust deed and conducted in good faith, can allow the decisive action needed to move forward.

It is important to seek specific legal advice tailored to individual circumstances if a practice finds itself in a difficult situation and/or considers that a health check of their partnership agreement may be required. 

For more information or advice, please contact Rachel Crean or Hannah Land in our Healthcare Litigation team.