Can the directors of a limited company be personally liable for the company’s breaches of an employment contract with its employees?
Kuldeep S. Clair looks at an interesting recent case:
The basic principle is that the company is a legally distinct and separate entity from those individuals that own and direct the company. That is precisely why business people set up as companies at all – i.e. to avoid unlimited personal liability.
There are exemptions to that principle where that rule can be overrriden. For instance, if the company has become insolvent and has been trading whilst obviously unable to be able to pay its debts, the directors may be found to be personally liable for debts, and indeed even criminally liable, under the provisions of the Insolvency Act 1986. That is known as either wrongful trading or fraudulent trading. I am not going to examine those concepts here, but can advise on that if you contact me.
The High Court very recently decided that directors in the case of Antuzis v DJ Houghton (2019) were personally liable because the company employed the employee claimants in a very exploitative manner, working extremely long hours, working less than the minimum wage, and frequently not being paid sums due at all. Payments due were often withheld, and holiday pay /overtime was not paid.
Usually, directors are not liable for inducing breaches of contract by the company where they are acting bone fides vis a vis the company. But where the breach of contract has a statutory element, that suggests a failure of the part of the director to comply with his duty to the company, potentially making them liable to a third party.
The court found that this was what had happened here. The directors had not acted honestly in what they did, which was a breach of statutory duty. They were personally liable for those breaches of contract which they had induced.
So – what is the lesson for business-owners and directors from this case?
I would say that those who run their businesses honestly and in good faith have little to worry about.
This case should only be of concern to those businesses operating at the shady edge of the spectrum, who do not worry about basic statutory requirements. If you are not sure about any statutory requirements for your business, please arrange a consultation and detailed advice from me – it may prove to be well worth it!