Directors can be Personally Liable for Breaches of Employment Contracts

17 May

One of the main benefits of trading as a limited company, rather than a sole trader or partnership is that it is a separate legal entity and therefore, in most cases, claims are made against the company rather than individuals.

There are exceptions to this general rule (e.g. whistleblowing claims) and following the recent Antuzis v DJ Houghton case, in certain circumstances directors of a limited company can also be held personally liable for the company’s breaches of an employment contract.

In this case, the Lithuanian claimants (who were transported to work at various farms across the UK to catch chickens, which were then sent off for slaughter) employed by DJ Houghton Catching Services Limited alleged a host of failings, including:

  • Being paid below the statutory minimum wage for the agricultural sector
  • Having payments due to them withheld
  • Being made to pay excessive rents for tied accommodation
  • Being made to work excessively long hours
  • Not receiving their holiday or overtime pay

Although directors are not generally liable for inducing a breach of contract where they ‘act in good faith’ in accordance with their duties as directors to the company, the High Court found that the directors knew the claimants were being paid less than the minimum and that they were not being paid for overtime or holidays. They also knew that they were not entitled to withhold payments from them as they had been doing.

As a result, the directors did not ‘act in good faith’ and were held personally liable for the breaches of contract and will now have to pay substantial damages to the employees.

This case is a useful reminder that whilst a company can indemnify directors against third party claims and purchase insurance to limit the risks associated with carrying out director duties, there are still situations where personal liability for directors cannot be excluded.

For further information, please contact