Directors' liability

The vast majority of our day-to-day instructions are received from company directors, duly authorised by the company to act on its behalf. When acting for a company, our advice will always be in that company's best commercial and legal interests. However, whether and how our advice is implemented is ultimately in the hands of the directors we are advising.

The duties of a director

A huge amount of trust is placed in company directors. Accordingly, their duties and obligations are plainly set out in statute. In particular, all company directors have a duty under the Companies Act 2006 to promote the success of the company (section 172) and a duty to exercise reasonable care, skill and diligence in carrying out their roles (section 174).

If, as the result of a poor decision of company directors, employees are subjected to breaches of employment law, the normal recourse for the employee is to bring an action against the company. However, in the case of Antuzis v DJ Houghton, employees were successful in bringing actions for breach of contract against the directors, personally.

Facts

DJ Houghton is a modern slavery case that was heard by the High Court in February 2019. The claimants were employed at various farms to catch chickens, which were then transported for slaughter and subsequent human consumption. The claimants were obliged to work shifts without respite, sleep in the back of a mini bus between farms, and work a lot more hours than what was recorded on their payslips. The Court also found that wages were withheld as a form of punishment, that an “enforcer” was used to keep employees under control.

In its judgment handed down on 8 April 2019, Honourable Mr Justice Lane held that the defendants in the case (Darrell Houghton and Jackie Judge) “cannot...have honestly believed that what was being done by them to the chicken catchers was morally or legally sound”, and that "the inescapable conclusion is that [the directors] knew that they were completely unable as a matter of law to act in this way on behalf of [the company]". In coming to the conclusion that the directors were personally liable for breaching the employees' contracts, he said:

"The nature of the breach of contract is directly relevant to the determination of whether, in a particular case, a director has complied with section 172, as regards his or her duty to the company and the ultimate question whether inducing the breach is actionable against the director. There is, plainly, a world of difference between, on the one hand, a director consciously and deliberately causing a company to breach its contract with a supplier, by not paying the supplier on time because, unusually, the company has encountered cash flow difficulties, and, on the other hand, a director of a restaurant company who decides the company should supply customers of the chain with burgers made of horse meat instead of beef, on the basis that horse meat is cheaper. In the second example, the resulting scandal, when the director’s actions come to light, would be, at the very least, likely to inflict severe reputational damage on the company, from which it might take years to recover, if it recovered at all…

…it is I find beyond doubt that [the directors] acted in breach of sections 172 and 174. What they did was not in the best interests of the company or its employees. On the contrary… they wrecked its reputation in the eyes of the community."

Implications

This judgement serves as a clear warning for company directors. It is one thing to make commercial decisions in exceptional circumstances in order to protect the company's best interests in the long term. It is quite another to deliberately or repeatedly ignore legal obligations and/or advice in such a way that might actually damage the business and reputation of the company irreparably. This is particularly poignant in an era where bad practices can be shared with hundreds or thousands of people in an instant via social media. The Government is also alive to how valuable a business' reputation is, having recently introduced various "naming and shaming" schemes, such as the one which lists employers who fail to pay the minimum wage, to enforce compliance.

For more information about directors' duties, corporate governance, or employment law matters, please contact our employment and/or commercial teams.

Insight article byClaire Knowles

Claire Knowles

Partner

+44 (0)7896 671 817
[email protected]

 

Insight article byRachael Russell

Rachael Russell

Associate

+44 (0)7940 348 798
[email protected]