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UK company directors should note with concern the this weeks decision of the Employment Appeal Tribunal (EAT) which found two of a company’s directors jointly and severally liable with company to pay damages of around £40,000 to two employees, for discrimination on the grounds of religious faith.

The employees succeeded in claims of unfair dismissal and the Employment Tribunal ruled that the company should pay the sacked employees about £95,000 in respect of the unfair dismissal.

In respect of the claim for discrimination under the Employment Equality (Religion or Belief) Regulations 2003 the Employment Tribunal ordered damages of about £45,000 payable jointly and severally by the company and two of its directors. The directors appealed this decision to the EAT.

Under the 2003 Regulations not only is a principal responsible for discriminatory acts by its agents, the agents are also personally liable. The directors’ first ground of appeal to the EAT was that as directors they were not agents of the company, and so the company alone should be liable. The EAT rejected this argument saying that applying the normal rules of agency, the directors, in exercising their authority to manage the company under its articles of association were acting as its agents. A company is a separate legal person but it is not animate so can only act through the agency of its directors.

The directors further claimed that it was unreasonable to make them jointly and severally liable for the damages as this allowed the employees to seek payment of the entire award from either of the directors. That director would then have to take action against the company or the other director for a contribution. They also argued that damages should be apportioned between all responsible persons, including the other directors of the company who had not been included in the employee’s claim. I bet that didn’t win them any friends!

The EAT rejected these arguments on the grounds that the ordinary rules should apply, which are that where two or more people are responsible for wrongfully causing loss to another, they should be equally liable. The relative responsibility of the wrongdoers may be relevant to contribution as between themselves, but it is not relevant to their liability to the claimant.

Although the 2003 Regulations under which this claim was made have now been repealed, similar rules apply to principals and agents under the new Equality Act 2010, and indeed this new Act extends the same argument of joint and several liability on named directors to other areas of potential claims which could be made under this much more wide ranging Equality Act.

A further worry for directors might be whether their Directors’ and Officers’ Insurance Policy offered sufficient, if any, cover for this type of claim. Even if it does the Articles of the company might in fact forbid a claim if it was proven that the directors acted illegally in regards to any actions they took.

In this particular case, not only is the company not in a position to make any payment, having gone into compulsory liquidation there is probably not any policy in force.

This case highlights the potential personal liability of directors in discrimination claims and reinforces the need for directors to foster a non-discriminatory culture in their companies, check their insurance cover, and to get to grips with the new Equality Act.

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3 Responses to “Directors Held Personally Liable for Damages”

  1. Tyler O'Shea says:

    James I thought the point of a limited company was that you were not personally liable for its debts.

  2. James Green says:

    A couple of reasons Anthony. Firstly parts of each award are subject to interest which will be calculated from the date of the claim to the date payment is made. Secondly the costs element of each part of the case could well be “taxed” which means that an independent expert will decide how much of the actual amount expended to allow. This is supposed to stop lawyers padding their costs out. Basically an expert says something like – well you claimed 60 hours for doing such-and-such but I think you could have done it in 50 and so reduces the bill. That doesn’t automatically mean the amount the lawyer gets goes down just that it doesn’t get paid by the party who lost and might need to be paid by the winner.

  3. Anthony says:

    James, why do you say the awards were “about” £95k and £45k?

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