Fri 03 May 2019

Are company directors personally liable for a breach of an employment contract?

The High Court has considered whether the directors of a limited company can be personally liable for breaches of an employment contract.

Personal liabilities in employment claims seem to be becoming a bit of a theme in recent times.  Following hot on the heels of Timis & Anor v Osipov & Anor where the Court of Appeal upheld a whistleblowing claim against co-workers, the High Court has held company directors liable for inducing an employer to breach an employee's contract of employment - not something a director would normally expect to be liable for.   

However, the case of Antuzis & Others v DJ Houghton Catching Services Ltd & Others is perhaps more a cautionary tale of what can happen when you ride rough shod over employees' rights than a particularly surprising result.  The first defendant was the company, with the second and third defendants being the individual directors. The Court was required to consider whether, by their actions, the directors had induced the company to breach the employees' contracts of employment.   

The issue for the court was whether the directors were acting "bona fide within the scope of his authority" in their dealings with the employees.  It is only if they were not acting bona fide (in good faith) that the directors were at risk of personal liability for inducing the breach of contract.   

The claimants in the case were nationals of Lithuania who contended they were employed in an exploitative manner, commonly working extremely long hours and being paid less than the statutory minimum.  They were employed at various farms to catch chickens which were then transported for slaughter.  The claimants further contended that they were frequently not paid the sums which were recorded as being due to them on their payslips, which had in any event been calculated on a "fictional basis".  Payments were withheld as a form of punishment for alleged transgressions and no attempt was made to pay them holiday pay or to pay overtime at the rates prescribed in the Agricultural Wages Act.  Deductions were also made in respect of so-called employment fees and for rent in respect of premises at which the claimants were required to reside, with the rent being in excess of the maximum offset permitted for accommodation under the relevant legislation. 

In coming to its judgement the Court found that the directors "modus operandi involved flagrant disregard of the Agricultural Wages Order requirements as to minimum pay", that the evidence "shows overwhelmingly that there was a complete disregard for entitlement to overtime" and that a system was operated whereby wages were withheld for "entirely invalid reasons". There were also "enormous problems" regarding the credibility of the directors when giving evidence before the Court. 

Unsurprisingly faced with this evidence, the Court concluded that while the directors where acting within the scope of their authority, they were not acting in good faith.  It was beyond doubt that they knew the employees' remuneration arrangements were not lawful and in acting in the way that they did the directors were breaching their duties to the company under the Companies Act 2006 - specifically the duty to promote the success of the company and the duty to exercise reasonable care, skill and diligence.  The judge was left "in no doubt whatsoever" that both directors realised what they were doing was causing the business to breach its contractual obligations to the employees.  

It is not that unusual for companies to breach statutory obligations towards employees but here it was the element of bad faith - the fact the breaches were central to the modus operandi of the company - that resulted in the directors being found individually liable.  It seems likely that behaviour of this nature would also negate any directors' insurance the company may have had in place, so an expensive day in court for the individuals involved. 

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