Can I be held personally liable for my company's employment law breaches?

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