Do directors have liability for breaches of minimum employment entitlements?

Do directors have liability for breaches of minimum employment entitlements?


Under the Employment Relations Act 2000, directors can be held personally liable for unpaid minimum entitlements if they are “involved in” the employer’s breach of its obligations. But how much does a director need to know or do to be “involved in” a breach?  In the recent case of A Labour Inspector v Southern Taxis Ltd the Court of Appeal considered the question of when company directors could be held personally liable for a failure to pay employees minimum entitlements.

Southern Taxis had treated its taxi drivers as independent contractors, not employees. The Employment Court found that they were employees and Southern Taxis had failed to pay their minimum entitlements, such as minimum wage and holiday pay. As a result, Southern Taxis was ordered to pay approximately $80,000 in unpaid entitlements. However, Southern Taxis was unable to pay the employees their entitlements and had stopped trading.  The previous decision in the Employment Court declined to hold the directors personally liable for the unpaid entitlements because they genuinely believed that their drivers were contractors. As a result, they were not “involved in” the breaches.

However, on appeal, the Labour Inspector argued that all that was required to be “involved in” a breach was knowledge of the essential facts giving rise to the breach. The Court of Appeal agreed with the Labour Inspector, holding that knowledge of essential facts was all that was required to be “involved in” the breach. Consequently, the director’s completely genuine belief that the employees were contractors did not prevent them from being held personally liable.

This case makes it clear that ignorance is not an excuse when it comes to minimum entitlements. Directors must ensure they are aware of their employment law obligations and make sure that independent contracting agreements are only used in appropriate circumstances, otherwise director’s may find themselves with liability for breaches of minimum entitlements.


If you have any questions or queries in relation to this director’s liability, please get in touch with the Watermark team directly. We are happy to advise you.

Kylie Hudson