As a general principle, a director won’t be personally liable for inducing a breach of contract by their company if they act bona fide, or in good faith, within the scope of their authority (Antuzis v DJ Houghton Catching Services).
However, if a director doesn’t act in good faith and induces the company to breach an employee’s employment contract, the director may find themselves personally liable.
The background of the case:
Mr Antuzis and the other claimants were Lithuanian nationals employed by the company as chicken catchers at various farms. The claimants complained that they were employed in an exploitative manner, commonly working extremely long hours and being paid less than the statutory minimum wage. Payments were often withheld as a form of punishment, and no payments were made for holiday pay or overtime. Unlawful deductions were also made from their salary for so-called employment fees and for rent, with the rent being in excess of the maximum permitted under legislation.
What did the court decide?
The High Court found the sole director and shareholder of the company, as well as the company secretary, were fully aware that it was unlawful, and therefore a breach of the employment contract, not to pay the chicken catchers the minimum wage, holiday pay or overtime to which they were entitled. They were also aware that it was unlawful to withhold payments from the employees’ wages, which amounted to unlawful deductions.
In these circumstances, both the director and the company secretary were in clear breach of their statutory duties to the company. For example, s 172 of the Companies Act 2006 (CA 2006) 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. Given that the company was practically ruined by the dishonest and self-serving actions of the director and company secretary, they had not discharged their duty of good faith and were therefore personally liable for the breaches of the employees’ contracts that they had induced.
What does this mean?
The removal of Tribunal Claim fees has put businesses under enormous amounts of pressure due to the number of claims now being made, which have in turn caused the system to become overloaded, leading to long delays in Tribunal cases being heard.
Whilst these delays don’t help, the problem itself normally rests with the company – an award can be made and the company as an entity would need to cover the cost. This case highlights the situation where the costs could be borne by the directors personally.
Whilst this may not be one of the most common occurrences when handling your staff; it is worth bearing it in mind. This relates to a contractual right that these employees would have and thus the question would be; how far would the Courts go in terms of enforcing the awards here? There will be circumstances where an employee will not pursue an unfair dismissal claim (because they don’t have two years’ service for example) but they may look for other avenues to pursue their employment rights and the cost of doing this may fall on the individual NOT the company.
Employment Law is constantly changing. It is important that you regularly assess whether your business is up to date. Our free online Health Check will provide you with an audit of your current HR systems and documents, providing valuable feedback on any areas that may require improvement.
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