In most cases the director of a company will not be held personally liable for the company’s breach of an employment contract as, by operating through a limited entity (i.e. a company or limited liability partnership or “LLP”), management is protected from such claims. However, the circumstances in Antuzis v DJ Houghton (2019) meant that the senior management did not have this protection and were found them to be personally liable for failing to pay their employees in line with the minimum wage.
Antuzis v DJ Houghton (2019)
The claimants, who were all Lithuanian nationals, were employed by DJ Houghton Catching Services as chicken catchers and they claimed that they were employed by the company in an exploitative manner and were being paid less than the statutory minimum. The 1920 case of Said v Butt held that a director of a company is not liable for inducing a breach of contract if they are acting in the best interests of the company. Therefore, generally, company directors are not held personally liable for the breaches of employment contracts by the company.
In the High Court it was found that the defendants used “an enforcer” to ensure that the chicken catchers followed a gruelling and exploitative work regime. It was also found that the directors were operating the company in a deliberate and systematic manner in which the chicken catchers were working longer hours than they were being paid for and no records were being kept because they completely disregarded the requirements of minimum pay. Additionally, several other breaches were found including a complete disregard for entitlement to overtime and a lack of evidence to show that holiday pay was provided to the chicken catchers.
The court went on to examine the scope of Said in this case. They initially agreed with the defendants that merely procuring a breach of contract that entails a breach of statute cannot be the benchmark for deciding if the director is liable because, if this were the case, directors would regularly face personal liability in employment cases. However, ultimately, the judge found that it was beyond doubt that the directors were in breach of sections 172 and 174 of the Companies Act because they were not acting in the best interests of the company and, when exposed, the malpractices had catastrophic consequences for the company’s reputation.
Although this claim involved rights under the Agricultural Wages Act 1948 and Gangmasters (Licensing) Act 2004, the court’s rationale could easily apply where an employer is in deliberate and systematic breach of the National Minimum Wage Act or Working Time Regulations. Such a breach would certainly not be in the best interests of the company’s employees, may negatively affect the reputation of the business and would subsequently not be in the best interest of the company in the long-term.
On the one hand this is clearly a ‘win’ for exploited workers as the decision provides a remedy against deviant directors. However, directors can draw some comfort from the court’s reluctance to impose personal liability except in the most extreme of cases, and from the requirement that the breach of contract must do more than simply disadvantage the employees.