The wavering corporate veil: Ignorance of the law no longer a protection against employers’ personal liability

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Court of Appeal decision underlines expectation that all employers should be compliant with minimum employment standards

Being an employer just became a whole lot riskier. In a recent decision, the Court of Appeal has reinforced its expectation that all employers should be aware of, and compliant with, all minimum employment standards. If you are not, you may be found to be personally liable for remedying any breach

Labour Inspector v Southern Taxis Limited

The Southern Taxis case centred around a taxi company failing to pay its drivers their minimum entitlements, including holiday pay and minimum wages, after the drivers were found by the Authority to be employees rather than independent contractors of the Company.

The Authority found Southern Taxis Limited liable to pay the drivers $80,000 – but the drivers were seemingly left without a remedy as the Company had swiftly wound up. In response, the Labour Inspector applied to the Authority to have the Company’s Directors held personally liable for the sum on the basis that they were “involved in the breach”. The Authority agreed.

On initial appeal the Employment Court determined that the Directors could not be held liable to pay as they genuinely believed that the drivers were not employees and therefore were under the impression that the drivers were not owed usual minimum entitlements.

The matter then progressed to the Court of Appeal on the question of what level of knowledge was required for the directors to be held personally liable for the breach. After some deliberation the Court concluded that it was irrelevant that the Directors genuinely believed that the drivers were not employees or that they were unaware of the legal requirements. Instead, personal liability turned on whether the Director’s had knowledge of the essential facts that would have led to the breach.

Therefore, ignorance of the breach would not protect against personal liability.

Lessons for business owners

This case contains a number of valuable lessons:

  1. Correctly identifying whether the workers you engage are truly independent contractors or whether they are, in fact, employees is vital. Employees are protected by minimum standards and owed certain entitlements (such as holiday pay and minimum wage) which you may be liable to account for if you have incorrectly engaged someone as an independent contractor.
  2. The Courts expect that business owners have fully informed themselves of the law, including their obligations as an employer or person who engages others through contracting.
  3. It is not enough that a business owner genuinely believes they are being legally compliant. Business owners can still be held personally liable for employment breaches if they are aware of the essential facts that led to them.

How can we help?

WRMK Lawyers has Northland’s largest team of employment law specialists. If you need some help or guidance, please give one of us a call or contact your usual WRMK lawyer for advice. You can view our Employment Law team here.

WRMK Lawyers takes all reasonable care to make sure that the information in this article is up-to-date and accurate at today’s date. It is necessarily general information and not intended as legal advice to be relied upon.

Our thanks to Kezia Purdie for writing this article.

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