For some time, the courts have been expanding the net for personal liability of directors for breaches of employment law.
This is particularly relevant to situations of underpayment of wages or awards made in favour of employees due to breaches of the Employment Relations Act (ERA).
One issue that has restricted the liability of directors has been the degree of knowledge or understanding of a breach of the law, that would be required to establish personal liability of the director.
Employment Court decisions had indicated that proof of intentional and purposeful actions with knowledge of such action were a breach of the law on the part of the directors was required. This would have meant that the directors had to know that the actions of the employer company were in breach of the law.
Recently the Court of Appeal have rejected this proposition and have reduced the benchmark that results in personal liability by holding that a director cannot escape liability on the basis they did not turn their mind to the legal consequence of what they knew was occurring or on the basis of a genuine but incorrect belief that it was not a breach of the law.
The Court of Appeal held that if the directors had knowledge of essential facts establishing the breach, the directors knowledge of the legal position of itself would not avoid liability. This is a very important change in the legal landscape for directors of employer companies.
There continues to remain a defence if the director was reasonably relying on information supplied by or advice from another person or if they took all reasonable and proper steps to ensure compliance however a director cannot escape liability on the basis that they did not turn their mind to the legal position, if they were aware of the facts and had actual knowledge of what was occurring in the workplace.
All employers and directors of employment companies should take careful note of this decision and recognise that wilful blindness or the “I didn’t know” defence will not save them from liability in these sorts of situations.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry Law who normally advises you, or alternatively contact:
Paul Farry
pfarry@farry.co.nz
09 353 6671
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry Law does not accept liability for any errors it may contain.