Directors personally liable for breach of the Employment Relations Act 2000

A recent Court of Appeal decision found that the Directors of Southern Taxis Ltd were personally liable for the unpaid minimum entitlements of Southern Taxi’s employees.

The judgment confirmed that a director of a company may be held personally liable for a breach of the Employment Relations Act 2000 (the Act) where they have knowledge of the facts underlying a breach of that Act – even if they genuinely believed the employer was complying with the Act.

“The level of knowledge required to establish liability for a person “involved in a breach” of employment standards under s 142W(1) of the Employment Relations Act 2000 is knowledge of the essential facts that establish the contravention by the employer.”

Brief History

A company running a taxi business (Southern Taxis Ltd) was treating its drivers as independent contractors.  Both the Employment Relations Authority (Authority) and the Employment Court found that the drivers were actually employees, not contractors. A number of factors pointed to this finding.

At first instance, the Authority found that the directors were personally liable to the drivers for the unpaid minimum entitlements.

That finding was challenged, and subsequently reversed by the Employment Court on the basis that the directors genuinely believed the drivers were independent contractors. Though it did not find the directors personally liable, the Employment Court still found STL liable and ordered it to pay the arrears of unpaid minimum entitlements.

At the time of the Employment Court’s decision, STL had stopped trading and was unable to make the payments ordered. An order against the directors was the only hope of recovering the unpaid entitlements. A Labour Inspector appealed to the Court of Appeal.

The Court of Appeal reinstated the Authority’s finding that the directors were personally liable to pay the arrears of unpaid minimum entitlements.

The Court of Appeal held the relevant inquiry was whether the directors knew the primary facts that led to the findings that a) the drivers were employees, and b) that STL had failed to make the required payments to those drivers. It held that the directors’ belief that the drivers were contractors was irrelevant.

Key takeaways

• This decision highlights the need for all directors and employers to fully understand their employment obligations and that failure to understand these obligations is no valid defence.
• Anyone in charge of an employing entity should ensure they make themselves aware of minimum employment obligations, and carefully consider whether any contractors they engage are properly characterised as such.
• If in doubt, seek legal advice. Our employment team are happy to help.