You’ve probably heard some barrack room lawyer saying “they can’t touch me, I’ve put all the assets in my wife’s name” or “they can do what they want, I’m a limited company.” In this case “they” is usually a spouse or a creditor. In the case of Bungay and Paul v Chandel & Ors (UKEAT/0331/10) “they” was actually a Claimant in proceedings before an ET.
Bungay and Paul were directors in the company. They were found by the ET to have conducted a campaign of discriminatory action against Mr Chandel which were intended to get him removed from his post. Even after Mr Chandel’s dismissal, the two directors continued to make unfounded and malicious complaints to the police.
So far, so unremarkable (if rather unpleasant) you might say. Directors are subject to fiduciary duties too. For instance two of those duties include “acting for proper purposes” and ”acting in good faith in the best interests of the company”, both of which may arguably be infringed by this type of conduct. The problem, of course, is that enforcing a fiduciary duty is not usually an option open to an employee.
However, and the really interesting aspect of this case is that by the time the ET got round to considering what remedy to award Mr Chandel, the company had gone into liquidation. This didn’t prevent the ET from holding that Messrs Bungay and Paul should be held “jointly and severally liable” for their actions and awarded compensation to be paid by them both, and also made an award for aggravated damages to reflect the severity of their conduct. Thus rather neatly sidestepping the small problem of the company itself (and being the legal entity with whom the employee had contracted) no longer being in existence.
Inevitably, the case went to the EAT. The issue regarding the directors liability came down to whether they could be held to be “agents” of the company and thus liable despite the fact they were directors of a limited company. Under the now defunct Employment Equality (Religion or Belief) Regulations 2003 reg. 22(2) provided that a Principal will have liability conferred on it for the discriminatory acts of its agents. Reg 23(2)deemed that a person who is held liable for the actions of the Principal will be held to be its agent. In this case the Regs deemed the directors liable. Mr Justice Silber then considered the case law and relied on Lana v Positive Action Training Housing (London)  IRLR 501 which states that the test of authority is whether when doing a discriminatory act the discriminator was exercising authority conferred by the Principal, and not whether the Principal had authorised the agents to discriminate. In other words if the directors did the act whilst running the business thety will be caught.
The EAT looked at the company’s Articles of Association which gave the directors power to run the business and, of course, they had been running the business when they removed Mr Chandel.
That put liability firmly back onto the two directors (and not the other “innocent” directors) and instead of making an award against all, the court held that an award should only be made against those directors (Gilbank v Miles (2006) IRLR 538 ) who had “consciously fostered and encouraged a discriminatory culture” .
Aggravated damages, which are rare at the best of times, were ordered because the campaign of discrimination had continued after termination.
Company directors need to be careful following this decision as it does provide another route for a Claimant to pursue in employment disputes. Acting badly and then hoping to hide behind a limited company might not be a panacea. Although in Bungay the central point of law turned on the drafting of the Employment Equality Regs (now repealed by the Equality Act),the EqA contains similar provisions at ss.109 & 110.
This case is probably going to be of importance only in disputes involving discrimination. “Ordinary” unfair dismissal cases will not be affected as there is no corresponding “deeming” provision. But, with the government due to increase the qualifying period from 1 year to 2 years for unfair dismissal by April 2012 the number of discrimination claims may well increase as disgruntled employees seek creative ways around the time limit.
Thanks to Henderson Chambers for the summary of this case.