Directors' liability

13 May 2019

The High Court has recently looked at whether directors can be liable for a company's breach of employee contracts.

Directors are governed by the Companies Act 2006, which requires them to act in good faith in the best interests of the company, taking into account the interests of employees. Directors must also exercise reasonable care, skill and diligence in their duties. A director will not be liable for a breach of contract if they are acting in good faith and within the scope of their authority.

In Antuzis v DJ Houghton, the employees were chicken catchers on a farm. They worked extremely long hours and were regularly underpaid. They were not paid holiday pay and underpaid in relation to overtime. Pay was sometimes withheld as a punishment. Were the directors liable for those breaches of contract, as well as the company?

The directors' evidence in the High Court showed that they knew about the breaches of contract. Both directors were described as entirely unsatisfactory witnesses who were trying to cover their backs. They had not complied with their general duties under the Companies Act. They were not acting in good faith or in the best interests of the company. They induced the breaches of contract purely for financial gain. The High Court found that they were liable for the breaches of contract, together with the company.

The facts of this case make for difficult reading. The employees were clearly treated very badly. Most directors do not behave in this way. However, directors must ensure that they fully understand their duties under the Companies Act and ensure they always act honestly and in the company's best interests. Not doing so can be costly.


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