Personal liability for employment law breaches

Many business owners, directors and senior employees may not be aware that they can be found personally liable for employment law breaches, including claims for unpaid wages, holiday pay and remedies for personal grievances.  An upward trend of applications by MBIE (Ministry of Business, Innovation and Employer) against individuals for payment of penalties and owed monies serves as a warning not only to legal entities, but individuals, to ensure employment law obligations are being met.

The Employment Relations Act 2000 provides power to Labour Inspectors to apply for a penalty against a person who is involved in employment law breaches. A Labour Inspector or an employee may also claim for a default in payment of wages, holiday pay or other money owed. The Act sets out when a person is “involved in the breach” and this includes when a person has:

• aided, abetted, counselled or procured the breach; or
• has induced, whether by threats or promises, the breach; or
• has been induced in any way, directly or indirectly, knowingly concerned in, or party to, the breach; or
• has conspired with others to effect the breach.

The liability extends to “officers” of an entity, which includes: directors, partners, persons holding similar positions of power, and persons in a position to exercise significant influences over the management and administration of an entity.

In a recent decision, Labour Inspector v Raj Kiwi Limited, the Employment Relations Authority found a former owner of a company personally liable for payment of penalties totally $70,000 and unpaid wage entitlements of over $26,000. When attributing liability to the former owner and sole director, the Authority noted that he was in a position to exercise significant influence over the management of Raj Kiwi and did in fact exercise such control.

For those officers who do exercise influence and control in the decisions for a legal entity, this provides further incentive to ensure that employment law obligations are being met. The implications of a breach could not only mean an order for payment against the entity, but also against the individuals involved. 

For more information on your employment law obligations and ensuring compliance, please contact Jaime Lomas at DTI Lawyers: [email protected]

This article was first published in the Raglan Chronicle.