Directors can be personally liable when contractors found to be employees...

The Court of Appeal has overturned an Employment Court decision regarding liability of directors to personally pay unpaid wages to staff when a company goes bust.

The workers were engaged as contractors, but were held to actually be employees by the Employment Relations Authority.  The ERA held the directors were involved in the underpayment of wages and so liable to pay when the company ceased trading with no assets to pay the “employees”.

The Employment Court overturned that decision as the directors did not know the people were “employees”, so were not knowingly involved in the underpayments.

The Court of Appeal overturned the Employment Court and held that the directors’ belief that the workers were contractors (and not employees) was not relevant.  Their knowledge of the facts on which the Employment Court decided the workers were employees was the knowledge which was required.

Directors cannot hide behind a company structure to avoid personal liability if they are knowingly involved in breaches.  What is “knowingly” just got a whole lot bigger, so the protection given by a corporate structure has shrunken further.

If you are unsure of where you stand it pays to get advice from a professional experienced in the area.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Alan Knowsley