Director’s personal liability to injured employees – a step too far?

When somebody is injured in the course of their employment and the cause of that injury is the action or inaction of their employer the injured person will often be able to claim compensation from their employer.

If that employer is a limited company then any claim would be made against the company rather than any of the individuals who might own or run it.

To ensure that they actually receive the compensation they are entitled to it has, since the introduction of the Employers Liability (Compulsory Insurance) Act 1969, been compulsory for employers to have insurance to meet any valid claim.

This applies to employers who trade in their own name as well as limited companies. A limited company is a legal entity and can have an insurance policy in its own name.

A failure to insure is a criminal offence for which both the company and in certain circumstances individual directors might be found guilty and punished.

Conviction of a criminal offence will not, however, assist the injured victim in getting any money.

If the company is still trading it might have assets that would meet any claim but what happens if the company is in liquidation? Subject to a possible excess, Insurance companies would normally meet claims in these circumstances, even after a company ceases trading but where there is no insurance there are no assets to meet a claim.

What about the individual directors though? Could they not be made personally liable in circumstances where their failure either collectively or individually to take out proper insurance cover has led to the situation arising? It is an attractive proposition more particularly if the directors have pocketed large amounts of money from the company before allowing it to slide into liquidation.

This issue was examined at length by the Supreme Court who handed down judgement today in the matter of Campbell v Gordon [2016] UKSC 38.

The key issue in question was whether it could properly be inferred from the language of the original 1969 legislation that Parliament had intended to impose civil liability on individual directors in such circumstance.

By a majority of 3 to 2 the Judges found that the Act did not impose such a civil liability. The differing approach arising from, on the one hand, the nature of the language used in the Act and on the other the underlying purpose of protecting employees.

Currently of course Parliament is focussed on the fall out from Brexit but ultimately I wonder whether we will see an amendment to the 1969 Act to make directors personally liable. To do so would certainly encourage them to take more seriously the obligation to insure in the first place.

Author: Martin Pettingell