In a recent case before the Employment Relations Authority (ERA) in New Zealand, a company director was found personally liable for unpaid wages owed to an employee. This decision serves as an important reminder for directors and business owners about their responsibilities under employment law, especially when their company faces financial difficulties or liquidation.

Case Overview: Unpaid Wages Lead to Personal Liability

The dispute arose when an employee lodged a claim with the ERA after their employer failed to pay outstanding wages following the employee’s resignation. Unfortunately, before the issue could be resolved, the employer’s company went into liquidation.

Faced with no ability to recover the funds from the now-insolvent company, the employee sought to hold the director personally responsible for the unpaid wages.

When Can a Director Be Held Personally Liable?

Under New Zealand employment law, an employee can recover unpaid wages from someone other than their direct employer if there has been a breach of employment standards. If the breach is committed by a company, responsibility can extend to the director of that company.

In this case, the ERA determined that the company’s failure to pay the owed wages constituted a clear breach of employment standards. As the business was in liquidation, the director was held personally accountable and was ordered to pay the outstanding wages.

In addition to covering the unpaid wages, the director was also required to contribute toward the employee’s legal costs. However, it’s important to note that the ERA could not order the director to pay compensation for emotional distress or lost opportunities, as these remedies are only recoverable from the direct employer.

Key Takeaways for Business Directors

This case highlights a crucial legal risk for company directors:

• Directors can be held personally liable for unpaid wages if their company breaches employment standards.
• Company liquidation does not protect directors from financial responsibility regarding employee entitlements.
• While directors can be ordered to cover unpaid wages and legal costs, claims for hurt, humiliation, or lost opportunities typically cannot be pursued against directors personally.

Protect Yourself and Your Business: Get Legal Advice

If you’re a company director, it’s essential to understand your obligations under New Zealand’s employment laws. Failing to meet these responsibilities can result in personal financial liability, even if your company becomes insolvent.

At Core Legal Masterton & Wellington, we offer expert legal advice tailored to business owners and directors. Our team can help you navigate your legal obligations and ensure compliance to protect both your business and personal assets.

Contact us today for a fixed-price initial consultation and ensure you’re on the right legal path.