Menu

Personal Liability Risk

14 October 2020

A recent case heard by the Employment Relations Authority serves as a reminder that individuals, officers of companies and partnerships (including anyone who is able to exercise significant influence over the management or administration of these entities) can be held personally liable if the business breaches minimum employment law standards. e.g. fails to pay wages, holiday pay etc.

Background

Mr A was employed by Heavy Transport Services Canterbury Ltd. He took a case to the Authority and was awarded $55,754 for wage arrears, holiday pay and Kiwisaver entitlements. He was also awarded compensation for hurt and humiliation.

Instead of the employer paying Mr A the money, the company was placed in voluntary liquidation. Mr A went back to the Authority seeking to recover payment from Mr Radley who was the sole director and shareholder of the company now in liquidation.

A popular misconception is that a company can avoid liability for its debts by putting it into liquidation. People who run companies can be equally as liable as the companies themselves for wrongful acts and omissions committed in the course of the company’s business activities.

A ‘person involved in a breach’

In an employment context, as from 2016 people other than the employer can be held accountable if they’re involved in breaching minimum employment standards. The definition of whether a person is ‘involved in a breach’ is wide: it includes circumstances where that person has induced, or aided and abetted the breach, or in any way been directly or indirectly, knowingly concerned in or a party to the breach.

The Authority found that Mr Radley as sole director and shareholder of the company was clearly “a person involved in the breach” and granted Mr Adams leave to proceed to seek to recover the minimum entitlements owed to him from Mr Radley. In other words although the employer was a company, the lost wages part of the claim was a debt that could be pursued against the director personally. As the award for compensation was for a breach of minimum entitlements, it remains payable by the company.

This case is a reminder that those responsible for making employment decisions cannot assume they will avoid financial responsibility for underpaying wages or holidays if the company employer is unable to pay.