Personal Liability for Personal Grievance

If you are a director of a company that employs staff then you need to be aware of a new Court of Appeal decision Labour Inspector v Southern Taxis Ltd.  It has some far-reaching consequences and may make you personally liable for actions (or inactions) of the company or organisation you stand behind.

The Southern Taxis case is a decision built upon two well known legal maxims; namely “ignorance of the law is no excuse”, and “being an accessory to the fact”.   Both truisms you would normally expect to only see in the Criminal Court has now been further clarified to apply in the employment arena.

The decision revolved around the company Southern Taxis Ltd and its initial failure to treat its drivers as independent contractors and not as employees which the lower court (the Authority) found after an extensive examination of the true relationship between the parties.  This decision in itself is a wake-up call for those who run a business relying on the exclusive labour of a regular pool of independent contractors.  It is not the wording on the contract that defines the relationship with your staff, but the actual facts of the relationship you have with them.   It was, however the follow-on from this decision that is new.   The Authority went on to find that as Southern Taxis Ltd’s drivers were employees (not independent contractors), it had failed to pay its drivers their minimum entitlements under employment legislation (ie. minimum wages, holiday pay and other payments) that an employer was required to pay.  In essence, Southern Taxis Ltd had breached minimum legislative standards.   There are high penalties for failing to comply with minimum standards.  Southern Taxis was ordered to pay its drivers a total of $80,000 in unpaid entitlements.  But Southern Taxis Ltd stopped trading and could not pay that amount.  That was not the end of the matter.

In many cases the directors of a company are shielded from liability by the corporate veil.  Southern Taxis has chipped away and eroded that protection from liability.  The Labour Inspector argued that the directors of Southern Taxis Ltd were personally liable to meet any shortfall that the company could not pay as they each had personal knowledge of the facts giving rise to the breaches notwithstanding that they honestly believed that their drivers were independent contractors.  The argument before the Employment Court turned on the question of how far a third party (ie the directors) could be responsible for another employer’s breach (ie Southern Taxis Ltd’s breach of minimum standards).  Essentially were the directors of Southern Taxis accessories to the breaches even though they were not intending to breach any law?   This was finalized in the Court of Appeal.  The Court of Appeal’s decision is very important to all employers, but especially all individuals who stand behind the employer.  Its ambit is not just restricted to directors of a company.  It also includes partners under a partnership.  It may well also extend to trustees of a Trust, or officers of an Incorporated Society. The case now revolved around the relatively new Part 9A of the Employment Relations Act 2000.  The matter went to the Employment Court on this issue.  The decision was then appealed to the Court of Appeal.  The Court of Appeal made two very important decisions:

The lessons from Southern Taxis are:

1.  Not only must the employer be aware of its minimum employment standards (“ignorance of the law is no excuse”), but so too must those individuals standing behind the employer (“accessories to the fact”).
2. Genuinely believing you are acting within the law is not enough to avoid liability.

There are some exceptions to these lessons.   If the employer has received and relied on information from another person, or have taken reasonable and genuine steps to ensure awareness and full compliance (ie professional advice).

It is a further reminder to stop and fully consider the arrangement you have with your staff.  If you have a pool of staff that you do not consider are employees, get some professional advice about this.  If you are an employer – consider your minimum obligations and ensure you are complying with all of them.  If you are an individual that stands behind an organisation that employs people – don’t fall asleep at the wheel.  You may be seen as personally liable for the breaches of another.