Chickens come home to roost - Personal liability of company directors

I have to rewind to the year 2006 when I studied mercantile law in my second year at university for the roots of my knowledge of company law. Having missed out on a seat in our corporate team during my training, I am not ashamed to admit that those “halcyon days” at university form the sum total of my corporate law knowledge. I recall being lectured on the circumstances where it is possible to “pierce the corporate veil” and when a company director could be personally liable. Phrases such as corporate manslaughter and health and safety breaches done with consent, connivance or neglect ring some hazy bells.

As an employment lawyer, personal liability of directors isn’t something with which I’ve had much cause to grapple other than in the context of a director being named as a respondent in a discrimination claim where he or she is the alleged discriminator.

Directors who induce breach of contract
A couple of recent cases caught my eye in this context of personal liability of directors. The most recent of which was decided earlier this month by the High Court in Antuzis v DJ Houghton. The employees, in this case, were of Lithuanian origin and were employed to catch chickens. They were treated quite shabbily, regularly working long hours, regularly being paid less than the statutory minimum for agricultural workers, frequent late payment/withholding of wages and no pay for holidays or overtime.

The general rule is that a director of a company is not personally liable for inducing a breach of contract by the company if he is acting bona fide within the scope of his authority. In this case, however, the directors were held personally liable. They were not acting bona fide because they did not have an honest belief that the company was, in fact, paying the required statutory payments.

Last year, the Court of Appeal decided the case of Timis v Osipov. Mr Osipov was briefly employed as the CEO of an oil company. He made various protected disclosures (i.e. he blew the whistle) about the company’s governance and their compliance with foreign laws (they operated in Niger). He was shortly thereafter dismissed. He brought claims in the employment tribunal against the two non-executive directors who had decided to dismiss him. The company was insolvent which was why Mr Osipov sought to pursue the directors personally.

Whistleblowers are protected in law both against being dismissed and from being subjected to any detriment because they blew the whistle. Strangely, a dismissal claim can only be brought against the employer (a company here) whereas, like discrimination law, a detriment claim can be brought against individuals. This case has widely opened the doors for future claimants to pursue personal claims against directors for whistleblowing detriments - even where the detriment ultimately leads to a dismissal (as in Osipov). Remember too that in a detriment case (as opposed to a dismissal case) the tribunal can also award for injury to feelings. In Osipov, the two directors were held personally liable for in excess of £2m.

In summary, while the general rule is that a director is not personally liable for the acts of the company, where there are flagrant breaches of employment law carried out with the directors’ knowledge, they could face personal liability. Directors should not count their chickens…

If you are a director and have concerns about personal liability, please contact a member of our team.