Directors’ liability – when will things turn personal?
In the recent case of Antuzis v DJ Houghton Catching Services Limited, a director and company secretary were found personally liable for the company’s breaches of its employment contracts.
DJ Houghton Catching Services Limited employed the claimants, who were Lithuanian nationals, as agricultural workers at its various farms to catch chickens which were then taken to slaughter. The claimants raised proceedings against their employer, alleging a host of failings including:
- being made to work unreasonably long hours;
- not being paid their statutory minimum wage entitlement for the agricultural sector;
- not being paid their holiday pay or overtime pay;
- having their payslips doctored in a “deliberate and systematic manner” to show much reduced hours from those actually worked;
- being made to pay excessive rents for tied accommodation; and
- withholding payments to which they were entitled on a weekly basis without cause.
By the time the case reached the High Court the company’s operations had shrunk significantly and it seemed likely that even if they won their claims the claimants would receive nothing. Therefore, a director (the sole owner of the business) and the company secretary were joined as defendants to the claim.
Directors’ duties and liability
Directors of limited companies have a statutory obligation under the Companies Act 2006 to act in good faith to promote the success of the company for the benefit of its members as a whole (including having regard to the interests of the company’s employees and the desirability of the company maintaining a reputation for high standards in business conduct). They are also obliged to exercise reasonable skill, care and diligence when carrying out their duties.
The High Court also considered the general principle that company directors are personally liable for the wrongdoing of their company, if such wrongdoing is committed “at their direction”. However, where a director has induced a breach of contract by the company, they will not be liable if acting bona fide within the scope of their authority.
The nature of the breach is relevant in assessing whether in any particular case a director has complied with their obligations to the company. Has the breach destroyed the company’s business reputation? Does the breach show a blatant disregard for statutory requirements (such as minimum rates of pay)?
The High Court heard extensive oral evidence from all parties; it found that the claimants had been subjected to exploitative behaviour and practices by their employer. The named company director and secretary were jointly and severally personally liable to the claimants for the company’s breaches of the employment contracts (the company secretary being deemed to have comparable duties to that of a director). They will have to pay damages for the total amount of underpayments and unlawful deductions directly from their own funds.
The Court concluded that there was “no iota of credible evidence” that either the company secretary or director had an honest belief that their actions were not causing the company to breach its obligations. Emphasis was placed on the fact that both individuals had “actually realised” that their actions were causing the contractual and statutory breaches and that the way they were acting was unlawful.
Personal liability could be attributed to the company director and secretary as their actions destroyed the company’s reputation. Although they were acting within their authority, the good faith element required to protect them from liability was not there.
The floodgates to personal exposure for directors in situations where a company breaches an employment contract should not be opened by this case, even if the breach of contract is also a breach of a statutory obligation such as minimum wage, holiday pay or rest breaks. Potential exposure is limited to deliberate unlawful breaches which have damaged the company.
Minimum wage for agricultural workers
The claimants in this case were agricultural workers. The statutory minimum rate of pay for agricultural workers depends on where they work:
- Scottish workers are entitled to the rates set annually by the Scottish Agricultural Wages Board (see here for the rates applying from April 2019).
- Agricultural workers in England must be paid at least the national minimum wage and (in most cases) are not entitled to a specific agricultural wage. However, if they were employed before 1 October 2013 and their contract provides that they are entitled to the Agricultural Minimum Wage, they will be entitled to this (at the rates set out here on the government website or the national minimum wage – whichever is higher).
- Agricultural workers in Wales must be paid at least the national minimum wage or the Agricultural Minimum Wage set by the Agricultural Advisory Panel for Wales (set out on the Welsh government website) – whichever is higher.
In this case, the claimants were all required to live in the employer’s properties in order to get regular work. If tied accommodation is to be provided as part of employment and charged for, it is important to consider how such a benefit in kind and the required accommodation offset affects your minimum wage obligations.
Compliance with employment legislation
A key point from this case is the importance of being up to speed with the statutory obligations owed to employees. It was the directors’ deliberate disregard of their employment law obligations, acting against the interests of the employees and the company, which led to the imposition of personal liability.
Employers with access to our online HR Portal, BResourceFull Workbox, can view detailed information on all employment law obligations, including minimum wage requirements. For or up to date information on key changes for 2019 see our blog and our HR and Employment ‘to do list’.
If you would like to discuss anything raised in this blog, please get in touch with your usual Brodies contact.
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