Can a director of a company be held personally liable for their company’s breaches of statutory employment rights?

Lauren Wilson
16th Apr 2019

By Lauren Wilson, Trainee Solicitor.

 

Yes, says the High Court, if the directors did not act in good faith and induced the company to commit such breaches.

 

The claimants were Lithuanian nationals who worked at various farms, catching chickens to be transported in vans to be slaughtered. They claimed that the company had failed to comply with requirements of the employment legislation applicable to agricultural workers including a right to a minimum rate of pay, minimum rate of overtime, minimum daily rest breaks and maximum weekly working time.

 

The Court found that the payslips issued by the company drastically under-recorded the number of hours the Claimants had actually worked and that no paper records of working hours were kept. The Court decided that the directors knew that the wages being paid to the claimants were likely to be far less than what was actually due to them.

 

The judge issued summary judgement in the Claimants’ favour as he held that the Defendants had no prospects of success in defending the claims in respect of underpayment of wages, the charging of employment or work-finding fees, the deduction of accommodation fees, withholding wages for invalid reasons or the non-payment of holiday pay.

 

In considering the question of whether the directors should be personally liable for the breaches by the company, the judge accepted that if a director acting in good faith and within their authority induces the company to breach a contract between the company and a third party, the director will not be liable for any resulting action. The judge found that neither director had acted in good faith as neither ‘honestly believed’ that they were paying the chicken catchers minimum wage, the required overtime or holiday pay, or that they were entitled to withhold the payments which they withheld.

 

Overall, the judge found that the directors could be held jointly and severally liable for the breaches by the company since they were aware that what they were doing caused the company to breach its statutory obligations to its employees.

 

This case shows that company directors will not always be protected by the corporate veil created by incorporation. While it will still be a rare case in which a director incurs personal liability, deliberate disregard for statutory employment rights might in a serious enough case be sufficient to render a company director liable for his organisation’s default. You can read the full case here: https://www.bailii.org/ew/cases/EWHC/QB/2019/843.html

 

If you have any questions about this update, or you would like support or guidance on any other employment law matter, please do not hesitate to contact a member of our legal team on 0141 331 5150.

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