Employers: know your obligations or risk personal liability

The Court of Appeal’s finding in Labour Inspector v Southern Taxis Limited[1] highlights the Court’s expectation that all employers are aware of minimum employment standards. If an employer is found to have breached minimum employment standards, the individuals behind the employer are at risk of being held personally liable.

Labour Inspector v Southern Taxis Limited

The case started its life before the Employment Relations Authority, which found that the drivers of Southern Taxis Limited (STL) were employees, not independent contractors. Consequently, STL breached employment standards by failing to pay the drivers their minimum entitlements.

STL was liable to pay $80,000 to the drivers for unpaid wages and holiday pay, however, STL had stopped trading, so it was unable to make payment. As a result, the Labour Inspector applied to hold STL’s directors personally liable for this payment, arguing that the directors were knowingly concerned in the breach.[2]

The Authority upheld the application; however, the Employment Court overruled the finding, noting that the directors’ genuine belief that the drivers were not employees barred the directors from being held personally liable. The Labour Inspector appealed this decision.

The Court of Appeal held that whether the directors were involved in a breach of employment standards and whether they should be held personally liable depends on whether they had knowledge of the essential facts that established the breach of STL. It was irrelevant that the directors of STL had a genuine belief that the drivers were independent contractors. The matter was referred back to the Employment Court for determination.

It follows that ignorance of a breach of employment standards is not a protection from personal liability.

What does this mean for employers? 

  1. There is an expectation that the employer and individuals standing behind the employer are aware of minimum employment standards.
  2. If the employer is unable to meet their obligations following a breach, a person standing behind the employer could be held personally liable if they had knowledge of the essential facts of the breach.
  3. A genuine belief that an employer is acting in line with the law is not enough to avoid personal liability, unless a person falls within a defence in s 142ZD of the Act. This is where:
    1. a person’s involvement in a breach was due to a reasonable reliance on information supplied by another person. For example, if a person is advised by a lawyer and reasonably relied on that advice to their detriment; or
    2. the person took all reasonable and proper steps to ensure compliance by the relevant entity.

Southern Taxis highlights the importance of seeking legal advice to ensure awareness and compliance with minimum employment standards, to guarantee that employees receive their minimum entitlements and to safeguard against potential personal liability.

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[1] Labour Inspector v Southern Taxis Limited [2021] NZCA 705.

[2] Sections 142Y, 142W(1)(c) and 142W(3)(a) of the Employment Relations Act 2000.

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