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Directors' personal liability - breach of employment contract

View profile for Tracey Dickens
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There are a number of circumstances where directors can be subject to personal liability arising from their wrongdoing while managing a company. These can include:

  • breach of duties under the Companies Act 2006
  • wrongful trading under the Insolvency Act 1986
  • legislation imposing liability on directors (e.g. environmental legislation, health and safety, corporate manslaughter, bribery)
  • liability to employees for discrimination under the Equality Act 2010

Directors are not generally liable for inducing a breach of contract provided they are acting in good faith in relation to their company. However, where that breach of contract has a statutory element, it could lead to the conclusion that the directors’ failure to comply with their duties induced the breach of contract. This would make them personally liable for the breach.

A recent case resulted in the directors being personally liable for a limited company’s breaches of an employment contract, as they were regarded as inducing that breach.

The employees were employed by the company in an exploitative manner and claimed for a number of breaches. The court concluded that the directors were not acting bona fides with the company. This was because they did not honestly believe that the company was allowed to pay less than the minimum wage, withhold payments and not pay overtime or holiday pay that was due to the claimant employees.

If you need advice on personal liability for a company then contact our expert Business team. I am a corporate lawyer based in our Colchester office. I can be contacted on 01206 217326 or tracey.dickens@birkettlong.co.uk.

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