Directors’ personal liability for breach of employees’ contracts

The High Court has recently ruled that company directors can, in certain circumstances, become personally liable to employees if they cause their company to operate in breach of contractual and regulatory requirements.  

Facts

In that case, the claimants were Lithuanian nationals who alleged that they were trafficked to the UK by promises of decent work. The claimants’ evidence was that they were employed in an exploitative manner, routinely working extremely long hours (many more than the hours recorded on their payslips) and were paid less than the statutory minimum wage. Payments were often withheld as a form of punishment, they did not receive holiday pay and were subject to other unlawful deductions from pay, for ‘employment fees’ and for rent in excess of the maximum permitted under legislation.

Claim

The claimants brought claims in the High Court based on the company’s unlawful actions and sought to make the company’s sole shareholder and director, and the company secretary, personally liable for inducing the company to breach their employment contracts.

High Court decision

The High Court ruled that the director and company secretary could be held personally liable to the claimants for the breaches of contract that they had induced. They did not honestly believe that they were paying the minimum wage, overtime and holiday pay or that they were entitled to withhold payments. They had induced their company to commit statutory breaches of employment law because they wanted to maximise the company’s profits from which they benefitted. As a result of their actions, the reputation of the company was ruined, it lost a gangmasters’ licence which it needed to employ the workers and the company was brought close to ruin.

In these circumstances, the director and company secretary were in breach of their statutory duties to the company under  s 172 of the Companies Act 2006 that requires directors to act in good faith to promote the success of the company and in so doing to have regard to the consequences of any decision in the long term, the interests of the company’s employees and the reputation of the company.

Antuzis v DJ Houghton Catching Services Ltd & Ors [2019] EWHC 843 (QB)

Implications

Directors will not be personally liable for breach of contract claims from employees (or other third parties) if they act bona fide within the scope of their authority. However, if directors do not act in good faith, bearing in mind their statutory duties to the company (among them a duty to promote the success of the company and to exercise reasonable care, skill and diligence: ss.172 and 174 of the Companies Act 2006), and induce the company to breach their employees’ employment contracts, they may find themselves personally liable for the employees’ claims. 

Warning: this news item is not a substitute for legal advice. The information may be incorrect or out of date and does not constitute a definitive or complete statement of the law. This news item is not intended to constitute legal advice in any specific situation. Readers should obtain legal advice and not rely on the information in this article.

 

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