The High Court handed down a very important decision yesterday (08/04/19) which has implications for employers and employees, those concerned with modern slavery offences and also for understanding when officers of a company may be held personally liable for the wrongdoing of (and damages owed by) a company.
The High Court confirmed that the officers of a company (which included not just a director but also a company secretary) may be personally liable to pay damages if they cause (induce) their company to operate in breach of contractual or statutory requirements, creating significant reputational and financial damage to their company. This is an important departure from the general proposition that officers of companies could not be held personally liable for breach of contract claims against a company.
The brief facts of the case are that a group of men, from Lithuania, were employed by DJ Houghton Catching Services Ltd (“DJ”) catching chickens on client’s farms, and DJ was found not to be paying National Minimum Wage or holiday pay and numerous unlawful deductions were made from wages (for ‘offences’ such as leaving a cup in the sink or being new to the job). DJ and its sole director, Darrell Houghton and company secretary, Jackie Judge, appeared to get away with their actions for so long because their employees were seasonal and foreign and would return to their home countries, either unaware they had been mistreated or without any means to do anything about it.
The High Court ruled yesterday that Houghton and Judge, as officers of DJ, were not acting in the best interests of DJ by underpaying workers - which may seem odd at first glance given that if the employees were paid less, this would maximise the profits of DJ. Is this not acting in the best interests of one’s company? The Court were emphatic on this point – as the avaricious measures of the officers had resulted in DJ losing its gangmasters’ licence and now facing insolvency (as a reaction to the damages claims it faced) and suffered, as a corporate body, reputational damage, the officers did not act in the best interests of the company. In the judgment the Honourable Mr Justice Lane said:
“What they [the officers of DJ] did was not in the best interests of the company or its employees. On the contrary, as I shall explain, they wrecked its reputation in the eyes of the community.” [para 124]
It was the Court’s additional conclusion that the officers of DJ had ‘induced’ the company to breach its contractual obligations that was ultimately most significant. Unsurprisingly, given the facts of the case, the employees did not have written contracts of employment but the Court were satisfied that the statutory obligation to pay at least National Minimum Wage (and to pay holiday pay) was implied into the verbal contract of employment in force, and that contract had been breached by DJ as a result of the inducement of its officers.
In providing the claimants in this case with the prospect of financial redress now that the officers of DJ have been made personally liable (on a joint and several basis with the company), the High Court have delivered a warning to all officers of companies that they may be personally liable for breach of contract claims brought by employees or former employees and, potentially, any party to a contract with their company.
For further reference, please see the case here.
For further information, please contact our Employment team on 01603 281153 or email email@example.com.