13. Sep 16

GmbH managing director: Right to remuneration despite being removed from post

It is important to bear in mind when removing a managing director from his post for good cause that an employment relationship exists as well. These two legal relationships ought to be considered separately.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: A managing director is appointed and removed from his post by a resolution of the shareholders’ meeting. It should be noted here that failure to terminate the managing director’s employment contract may result in him still being entitled to his agreed remuneration. That was the verdict of the Oberlandesgericht (OLG) München [Higher Regional Court of Munich] in its judgment of March 24, 2016 (Az.: 23 U 1884/15).

The OLG München had to rule on a dispute between three GmbH [private limited company] shareholders. After differences of opinion emerged between the shareholders concerning the company’s future business policy, one of them gave timely notice of termination of his employment contract effective from December 31, 2010. His appointment as managing director was revoked and his employment contract terminated with immediate effect at a subsequent shareholders’ meeting. The OLG held that while his removal from his post as managing director was effective, the termination of the employment contract was not. The plaintiff was therefore entitled to the outstanding remuneration payments up to December 2010.

The Court stated that the conditions for dismissing the managing director with immediate effect had in fact been met for various reasons. Having said that, a resolution of the shareholders’ meeting was required in order to terminate the employment contract. Due to a lack of notice pertaining to the summons, the shareholders’ meeting did not, however, constitute a quorum because the termination of the employment contract was not cited as an agenda item. For this reason, termination had not been effective. The Court also noted that the resolution on termination was not included in the resolution regarding the managing director’s removal from his post. It went on to say that the legal separation between the employment relationship and the relationship vis-à-vis the executive body means that both legal relationships exist independently of each other and need to be ended separately pursuant to the applicable regulations. It was also explicitly stated in the relevant managing director’s service contract that removing the managing director from his post would not affect the employment relationship.

That is why the managing director who was removed from his post was said to be entitled to the outstanding remuneration, even though it was no longer possible for him to render his services as managing director as laid out in the employment contract.

To prevent disputes among the shareholders at a later date, it is a good idea to draft contracts accurately and in as much detail as possible as well as include appropriate provisions in the articles of association. Lawyers who are versed in the field of company law can offer advice in this context.

For more informations:

https://www.grprainer.com/en/legal-advice/company-law.html

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