UK: Personal Liability Of Directors For Breaching The Terms Of Employment Contracts

Background

The Lithuanian workers were employed by DJ Houghton Chicken Catching Services to work at various farms across the UK as chicken catchers. They were subjected to appalling conditions, paid less than minimum wage and often had pay withheld or docked for unknown reasons. No attempt was made to pay their holiday pay or overtime and they were prevented from taking holidays and bereavement leave. The modern slavery aspect of this case was decided back in June 2016 and the High Court ordered the company to compensate the workers to the tune of £1 million.

Update

Two of the directors of the company have now been held personally liable for breaches of the employment contracts. The High Court concluded that they were personally liable for the company's breaches of contract including statutory claims, in particular in relation to unpaid wages, unlawful deductions and fees and lack of holiday pay.

The court found that the directors knew that their actions were not in the best interests of the company and in breach of their fiduciary duties as directors. They acted outside of their authority and to the detriment of the company. It was found beyond doubt that they did not believe that the employees' pay arrangements were lawful and were therefore found to be personally liable for damages.

As a general rule, a director will not be held personally liable for a breach of contract by the company of which they are a director so long as they are acting within the scope of their authority. To determine whether a director's actions are bona fide, the courts will look to focus on the director's conduct and intention in relation to their duties towards the company – not towards a third party.

Company law also imposes certain duties on directors, among them a duty to promote the success of the company and to exercise reasonable care, skill and diligence.

Comment

While companies can, and often do, indemnify directors to limit the risk associated with director duties, this case is a useful reminder that personal liability of directors cannot be completely excluded in some circumstances.

However, this case highlights that, in order for there to be a risk of personal liability, there must be some unlawful deliberate action which is detrimental to the company.

It should also be noted that, in this case, it was beneficial to the workers to pursue the individual directors because, at the time the claims were brought, the company was in serious financial difficulty and therefore it would potentially have been difficult for the workers to recover any compensation directly from the company. The claims against the individual directors provided an alternative means of securing the financial compensation.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.