28 May 2019
One of the fundamental principles behind the “limited liability company” is that the company has a legal identity of its own, distinct from its shareholders and directors, and as such the starting point is that only the company can be liable for its lawful actions – the directors and shareholders are protected from liability.
There are a number of general exceptions to that rule. There are cases where a court may be prepared to look behind the cloak of limited liability, and of course, directors can be held personally liable for wrongful trading in an insolvency situation. Personal liability can also exist for certain health and safety breaches. Directors might also be asked to provide personal guarantees in respect of a company’s borrowing or other liabilities.
In the employment sphere, directors can, like other employees, be held liable for certain employee claims. Discrimination claims can be brought against individual discriminators as well as against the company, and an employment tribunal can make an order of compensation against the individual director in such a case. Likewise, claims for whistleblowing detriments and even dismissals can be brought against individual decision-makers, in terms of the relevant legislation.
The recent case of Antuzis v DJ Houghton Catching Services Ltd is a reminder that the scope of personal liability for employment law breaches may be even wider than that.
The employees in this case - foreign nationals employed as chicken catchers - had a number of basic concerns about their employment, which was referred to as “exploitative”. They had to work very long hours, did not receive the minimum wage, there was no overtime or holiday pay, there were frequent underpayments of salary, and there was a general complete disregard for the requirements of the Agricultural Wages legislation. It was clear that the employer, a limited company, was in breach of its contractual obligations to these employees, many of which were imposed by statute.
The employees raised claims seeking to hold the directors personally liable for these breaches of contract. Ultimately, the High Court agreed that the directors were personally liable for the limited company’s breaches of contract, on the basis that the directors had induced (or persuaded) the company to breach the contract.
The key issue in this judgement was that the directors had not been acting in good faith in relation to the company. Directors are under a statutory duty to act in good faith in the interests of the
company. Here, the company acted through its directors. The court found that the directors knew that the company was not legally entitled to act as it was doing; they had no belief that the company was acting properly. As such, by permitting the company to act unlawfully, they were not acting in good faith in the company’s interests.
The court held that this meant they were personally liable to the employees as the directors had induced the company to act in breach of its obligations, with no good faith belief that the company was acting properly. The fact that many of these obligations were imposed by statute made it all the more inexcusable that the directors allowed the company to act in this manner.
This is a cautionary tale for directors, not to place too much reliance on the company’s limited liability, and to assume that they cannot be liable as individuals for breaches of employment law. The directors need to act in good faith, and that suggests to us that there needs to be some basis for the director believing that the company is complying with its employment law duties. That does not necessarily mean that each director must fully understand all requirements of employment law, but it is not unreasonable to expect a director to be satisfied that there are appropriate systems in place, appropriate staff dealing with these matters, and that they have access as required to expert external advice to ensure that the company is acting in line with its legal obligations.
The BTO employment law team is experienced in providing training for directors on what they need to know about employment law. Please contact any member of the team for a discussion about how we can assist.
Contact: Douglas Strang, Senior Associate email@example.com T. 0141 221 8012