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Directors can be personally liable for breach of an employment contract

The High Court has recently decided that officers of a limited company can be personally liable for its breaches of an employment contract.

In a claim for damages for exploitative labour, the claimants, who worked exceedingly long hours for less than the statutory minimum wages, brought an action for unpaid wages and unlawful deductions from their income. The claimants were also frequently not paid the sums that were due to them from their employer and payments were also often withheld. Additionally, there was no attempt by the employer to pay the claimants holiday pay or overtime.

Generally, an officer of a company is not personally liable for a breach of contract by that company if the officer is acting bona fide within the scope of his/her authority on behalf of a company.

However, in this particular case, the focus by the court was on the officers’ conduct and intention in relation to their duties towards the company, not towards the third parties (the employees). Mr Justice Lane concluded in this case that the officers of the company – a director and a company secretary – were jointly and severally liable to the claimants for inducing the breaches of contract by the company, as they did not honestly believe that they were paying the minimum wage, overtime and holiday pay nor that they were entitled to withhold payments.

The decision of Mr Justice Lane is an important decision due to its wide-reaching implications for officers of a company. Legal decisions that are made by judges in higher courts, such as the High Court, remain as a precedent, so the decisions made by lower or equal courts in future need to follow the earlier decision made in the higher courts.

This is a binding decision, however it could be subject to an appeal in a higher court.