Company officer found personally liable for unpaid wages

General / 25 January 2017
Company officer found personally liable for unpaid wages

Company officer held personally liable for unpaid wages
A recent decision by the Employment Relations Authority (ERA) determined that as the employer company was in liquidation, a company officer was personally liable to pay eight staff unpaid wages and holiday pay totalling $70,053.54.

Case summary
The claim was brought by a Labour Inspector in relation to eight former employees of the company, for unpaid wages and holiday pay.  The liquidators confirmed they would abide by the Authority’s decision, but noted that there were no funds available to pay the former employees.

The Labour Inspector also sought authority to bring an action against a director, and his wife who it was alleged was an officer of the company.  The director was then declared bankrupt.  The Employment Court has described a declaration of bankruptcy as one of ‘clear and unarguable circumstances’ where the Authority can authorise a Labour Inspector not to bring an action against a third party.  Therefore, the Labour Inspector did not pursue him any further.

The director’s wife stated that she ‘had no official relation’ with the company and she was not an officer at any time.  She said she only assisted the operation of the company when her husband was in hospital and that each and every direction given during this time was at the direction of her husband.

The Authority determined that the eight employees were owed wages and holiday pay and that the director’s wife was indeed an officer of the company as she was involved in it at a senior level and had managerial responsibility for paying employees.  The employees’ evidence was that they had been instructed to speak to her regarding queries about their pay as she was in charge of these matters.  She also sent a number of emails on behalf of the company over several years.  The Authority determined that as a result of her extensive involvement in the business, she was personally liable for the money owed to the employees

What impact could this decision have on you?
This matter was decided under a section of the Employment Relations Act 2000 that is now repealed.  However, recent changes to the Employment Relations Act 2000 has broadened the number of people that may now be held personally responsible for breaches to an individual’s employment agreement, the Employment Relations Act 2000, Minimum Wage Act 1983, Wages Protection Act 1983 and/or Holidays Act 2003.

Senior managers and directors need to take steps to ensure that their company is complying with all employment law requirements otherwise, they could be held personally liable for these non-compliances in conjunction with the company they work for.  The individual fines for non compliance are between $20,000 – $50,000 depending on the circumstances.

If you would like to know more about how this decision may affect you or what your liabilities are under the ERA, please contact us.

26 January 2017

Disclaimer: We remind you that while this article provides commentary on employment law topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek guidance from your employment lawyer for any questions specific to your workplace.

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