Can Directors be liable for breach of an employee’s contract of employment?

Being a director of a company brings with it a high degree of responsibility and the risk of personal liability. The general principle is that a director will not be personally liable for inducing a breach of contract by their company, so long as they acted in good faith, in the best interests of the company and within the scope of their authority.

However, the High Court decision in the recent case of Antuzis v DJ Houghton Catching Services Ltd & Ors [2019] shows how directors can be held personally liable for causing an employer to breach a contract.

Companies Act 2006 - Legal Overview

Under the Companies Act 2006, Directors must oblige by a number of duties including but not limited to the following: 

• "a director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company" - this also includes a list of non-exhaustive factors which the directors must consider:
  • the likely consequences of any decision in the long term;
  • the interests of the company's employees;
  • the need to foster the company's business relationships with suppliers, customers and others;
  • the impact of the company's operations on the community and the environment; and
  • the desirability of the company maintaining a reputation for high standards of business conduct"
• "a director of a company must exercise reasonable care, skill and diligence…"

These elements form part of the Companies Act 2006, which summarise the principle common law and honest duties of directors - although not in any way exhaustive.

Antuzis v DJ Houghton Catching Services Ltd & Ors [2019]

In the case of Antuzis v DJ Houghton Catching Services Ltd & Ors [2019], it was highlighted that directors can be held personally liable if they cause their company to operate in breach of contractual and statutory obligations.

Mr Antuzis was one of several Lithuanian immigrants employed by DJ Houghton Catching Services Ltd. Upon arrival in the UK, the workers were transported to houses owned by the company’s directors, company secretary and associates.

The employees lived and worked in dreadful conditions. They shared cramped accommodation, were paid below the National Minimum Wage and had wages withheld or delayed as a form of punishment. Their working hours exceeded 48 hours per week, they were prevented from taking rest breaks, had to urinate in bottles and were prevented from taking annual leave. When they attempted to query the employment conditions, they were subjected to threatening and intimidating behaviour.

The workers brought various employment and personal claims including compensation for unpaid wages, distress, personal injuries and consequential loss. The High Court ruled that the company was liable for serious contractual and statutory breaches. Furthermore, a director and the company secretary were held to be personally liable for inducing the breaches of contract. The workers still have a range of outstanding claims against the company and its officers for issues, including claims for personal injury and harassment.

Why were the director and company secretary held personally liable?

The Court held that these individuals were personally liable because they had knowingly caused the company to act in breach of contract. They knew that their actions amounted to a clear breach of their statutory duties, as officers of the company, to promote the success of the company and to exercise reasonable care, skill and diligence. They did not honestly believe that they were paying the minimum wage, overtime and holiday pay, nor that they were entitled to withhold payments. Their actions had ruined the reputation of the company.  

The High Court judge stated "I am in no doubt whatsoever, having heard the evidence, that both of them ‘actually realised’ that what they were doing involved causing [the company] to breach its contractual obligations towards the claimants." As a result, they were found to be personally liable for inducing the company to breach the employment contracts of the claimants.

Whilst the facts of this case are extreme, the decision highlights an important principle that directors can be personally liable if they cause their company to operate in breach of contractual and statutory obligations.

Next steps?

If you need to discuss these issues further please do not hesitate to contact a member of our Employment team on 0161 941 4000, or by email lawyers@myerson.co.uk