German company law makes a distinction between a managing director’s position as an executive officer at a company and their employment relationship, and this distinction also needs to be borne in mind when the managing director and the company go their separate ways.
Under German company law, managing directors are appointed by the general meeting of shareholders. It is important to note, however, that this only relates to the managing director’s position as an executive officer. As far as the employment relationship is concerned, a dedicated service agreement or employment contract needs to be concluded between the individual in question and the company. Should the latter wish to part ways with the former, it is necessary both for the managing director to be removed from their post and for the employment contract to be validly terminated, explains Michael Rainer, managing partner and point of contact for company law at MTR Legal Rechtsanwälte.
If no tie-in clause was agreed, then the firing and the removal of the managing director from their post need to be dealt with separately. A lawyer who is well-versed in company law will be familiar with the requirements that need to be met to ensure that the working relationship with the managing director is effectively brought to an end at all levels.
Removing a managing director from their post only terminates their position as an executive officer, meaning they can no longer represent the company vis-à-vis third parties, but any claims arising from their employment contract, including with respect to remuneration, persist. This can become a financial burden for the company. To prevent this from happening, it is a good idea to consult a lawyer with expertise in company law. It is also worth noting that while it is normally possible to remove a managing director from their post at any time, it is generally necessary to comply with notice periods when it comes to dismissal. This also means that the managing director’s claims remain valid until after the notice period for dismissal has expired. Of course, it is possible to stipulate alternative arrangements in the employment contract, which is all the more reason to involve a lawyer specializing in company law when drafting the contract.
The process of removing a managing director is usually effected by a resolution by majority vote of the general meeting of shareholders. This can be problematic if the managing director is also the majority shareholder, in which case removal against his or her will is all but impossible unless there is good cause, e.g., a serious breach of duty, incapacity, conduct damaging to the business, etc. Having a company lawyer at one’s side in the context of removing a managing director for good cause is an absolute must. Incidentally, it is equally necessary to terminate the employment contract in cases where the managing director’s removal from their post is based on good cause.
MTR Legal Rechtsanwälte advises on a wide range of issues relating to company law, including managing directors, board members, and supervisory boards.
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