Modern slavery: Directors can be personally liable for employee exploitation

This landmark ruling illustrates that company officers may be held personally liable for modern slavery and also clarifies the law on a director’s liability for inducing a company’s breach of contract: Nerijus Antuzis & ors v DJ Houghton Catching Services Ltd & ors [2019] EWHC 843 (QB).

Background 

Mr Antuzis and other Lithuanian men worked as chicken catchers for DJ Houghton Catching Services Ltd (DJ Houghton), which served UK-wide suppliers of poultry. They were grossly overworked and illegally underpaid, working and travelling 100 hours every week and paid according to the number of chickens caught. They also lived in appalling conditions, sleeping in vehicles or with chickens, and denied proper food, rest, convenience breaks and access to medical care. A company director, Darren Houghton, and a company secretary, Jacqueline Judge (together the Officers), oversaw this treatment and illegally withheld wages for alleged transgressions, regularly omitted to pay the workers, falsified payslips and failed to keep records of the hours worked.

DJ Houghton and, by extension, its officers were regulated by the Gangmasters Licensing Authority (GLA), which granted it a licence to operate provided that the required working conditions, remuneration and standards of conduct set out in the gangmasters legislation were met. Employees’ remuneration was also governed by agricultural and working time legislation, which entitled them to minimum hourly wages, overtime, travel, holiday and sick pay.

Summary judgment awarded against DJ Houghton

The claimants applied for summary judgment against DJ Houghton for various breaches of their implied contracts of employment with DJ Houghton arising as a result of unpaid wages, unlawful deductions and fees, and lack of holiday and sick pay. Lane J found that there was a deliberate and systematic exploitation of the claimants and abuse of their rights under the legislation. In light of the overwhelming evidence, Lane J found that DJ Houghton had no realistic prospect of successfully defending the claim and granted summary judgment against it for all heads of claim.

Preliminary issue: Officers personally liable for inducing breach of contract

The court also tried the preliminary issue as to whether the Officers were personally, jointly and/or severally liable for inducing breach of contract. Ordinarily, according to the rule in Said v Butt¹, an officer will only be liable for inducing breach of contract if he or she fails to act bona fide and within the scope of his or her authority. Lane J clarified that the focus of the “bona fide” enquiry was an officer’s conduct and intention in relation to his duties towards the company, rather than vis-à-vis the third party (here, the claimants). Lane J therefore considered the duties imposed on a director by the Companies Act 2006 to be to promote the success of a company for the benefit of its members as a whole and to exercise reasonable care, skill and diligence.²

Although the Officers were acting within the scope of their authority (in terms of the articles of association), they were in breach of their duties under the Companies Act and so had failed to act in good faith in DJ Houghton’s interests. Each knew that his/her wage practices were illegal and, despite maximising short term profits, once they came to light the consequences were catastrophic for the company, resulting in its almost total demise. The Officers had not acted bona fide vis-à-vis DJ Houghton and could therefore not benefit from the rule in Said v Butt.

The court then considered what degree of knowledge a defendant needs in order to be liable for inducing a breach of contract under OBG Ltd v Allan.³ The defendant must be shown to have deliberately disregarded the terms of the contract and to be knowingly, or recklessly, indifferent to whether the contract had been breached. Lane J had “no hesitation” in finding that the Officers knew that their actions caused DJ Houghton to breach its contractual obligations to the claimants and there was “no iota of evidence” that they possessed an honest belief to the contrary. They therefore possessed the relevant intent, making them jointly and severally liable to the claimants for inducing the breaches of contract by DJ Houghton. 

COMMENT

This dramatic decision demonstrates that company directors can be held personally liable for the exploitation of company workers and that modern slavery is occurring in the UK. The decision also provides a useful clarification of the law regarding an officer’s personal liability for inducing a company’s breach of contract. The court confirmed that an officer will not be personally liable unless his acts breach a fiduciary or other personal legal duty owed to the company. In other words, the focus of the “bona fide” inquiry is on an officer’s conduct and intention in relation to his duties towards the company, not towards the third party. Now that liability for the contractual breaches has been established, this case will move on to the damages stage.

The Lithuanian claimants also have other civil claims pending against DJ Houghton and directors for injuries and harassment during their employment. They are also bringing civil claims against the GLA in negligence and under the Human Rights Act 1998 for breach of the prohibition on slavery and forced labour in Article 4 of the European Convention on Human Rights. The GLA had routinely investigated and licensed DJ Houghton from around 2007, only revoking its licence in 2012, after it had become, according to the GLA, the “worst UK gangmaster ever”, treating its workers “like slaves” and with “utter disregard” for their welfare.⁴ While no criminal charges have been brought in the UK, the Officers and their enforcer face criminal prosecution in Lithuania for trafficking.

Footnotes:

_{1. [1920] [3] KB 497.
2. s.172 and s.174 Companies Act 2006.
3. [2007] UKHL 21.
4 gla.gov.uk/whats-new/press-release-archive/5314-dj-houghton-ltd-worst-uk-gangmaster-ever/}

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards

Related author: Alexa Pearson, Peerpoint Consultant, London