By Saleha Hamid-Drew - 24 Jul 2023
Don't be fooled - you may not always be able to rely on the
protections of a limited liability company for employment law
breaches. If you are the director of a company or a person who
holds significant influence over the management or administration
of a company (such as a person in senior leadership), you could be
held personally liable in the following circumstances.
Breach of employment standards
Where your company is found to have breached minimum employment
standards (obligations concerning the likes of minimum wage,
holiday pay and sick leave), you could be held personally liable to
penalties and outstanding entitlements where you are found to be
'involved' in the breaches.
According to s 142W of the Employment Relations Act 2000
(Act), a person is involved in a breach if the
breach is a breach of employment standards and the person:
- has aided, abetted, counselled, or procured the breach;
- has induced, whether by threats or promises or otherwise, the
breach;
- has been in any way, directly or indirectly, knowingly
concerned in, or party to, the breach; or
- has conspired with others to effect the breach.
In 2021, former directors of a Dunedin taxi company were
considered personally liable for payment of almost $80,000 for
unpaid wages, holidays and rest breaks, despite it being accepted
that they genuinely considered that their drivers were independent
contractors and not employees and were not knowingly breaching
employment laws.
In considering the level of knowledge required to establish
liability for a person 'involved in a breach', the Court of Appeal
held that personal liability depends on whether the person had
'knowledge of the essential facts' that established the breach.
As such, a genuine belief that an employer is acting in line
with the law is not enough to avoid personal liability, unless the
defences in s 142ZD of the Act apply. That is where:
- a person's involvement in a breach was due to a reasonable
reliance on information supplied by another person; or
- the person took all reasonable and proper steps to ensure
compliance by the relevant entity.
Breach of employment agreements
When dismissing an employee, you could be personally liable to a
penalty if you are found to have deliberately breached express and
implied terms in an employee's employment agreement.
Section 134(2) of the Act states that every person who incites,
instigates, aids, or abets a breach of an employment agreement is
liable to a penalty imposed by the Employment Relations Authority
of up to $10,000.
In the case of Nicholson v Ford [2018] NZEmpC 132, the
employee was unable to pursue a personal grievance for unjustified
dismissal because the company was in liquidation. As such, the
employee sought a penalty against the company's CEO for instigating
breaches of his employment agreement.
The Employment Court found that the CEO had deliberately
breached the employee's employment agreement by undertaking a
flawed redundancy process. The CEO was found personally liable to a
penalty of $7,500, 75% of which was to be paid to the employee.
Personal liability is a daunting prospect. Contact our employment
law team to get legal advice before issues arise.
Contacts
Saleha
Hamid-Drew
Kathryn
McKinney