Introduction to Protection Against Dismissal
Protection against dismissal for a managing director of a GmbH is a complex issue that holds significant importance for both the company and the managing director. As a general rule: Managing directors of a GmbH act as an organ of the company and therefore are not automatically covered by the general protection against dismissal under the Protection Against Dismissal Act (KSchG), and in particular not under Section 1 KSchG. This means the regulations that apply to employees within the meaning of the KSchG usually do not apply to managing directors. Nevertheless, there are circumstances in which a GmbH managing director can claim protection against dismissal. This may be the case, for example, if the managing director is to be regarded as an employee within the meaning of European employment law or if individual contractual agreements establish such an entitlement. The precise classification always depends on the circumstances of the individual case and requires a careful review of the relevant legal status and contractual basis. It is therefore essential for companies and managing directors to be familiar with the relevant provisions of the KSchG and the peculiarities of the organ position in order to act in a legally secure manner in the event of dismissal.
Legal Status of the GmbH Managing Director
The legal status of the GmbH managing director is characterized by a special dual function: On the one hand, the managing director, as an organ of the company, is responsible for representing the GmbH externally and for managing its business. On the other hand, depending on the actual circumstances, he or she can also be regarded as an employee, for example if he or she is subject to instructions and is in a position of personal dependence on the company. This distinction between the organ position and potential employee status is of central importance in determining protection against dismissal. Only if the managing director is qualified as an employee in the specific case can he or she invoke the protective provisions of the Protection Against Dismissal Act. The precise assessment depends on various factors, such as the degree of subordination, integration into the company’s organization, and the structure of the employment contract. It is therefore important for both the company and the managing director to clearly define the respective legal status in order to avoid later disputes regarding the extent of protection against dismissal.
Decision of the Hessian Regional Labor Court of 28.02.2025 – Case No. 14 SLa 578/24
A dismissed managing director can also be entitled to protection against dismissal. This was decided by the Hessian Regional Labor Court (LAG) in its judgment of February 28, 2025 (Case No. 14 SLa 578/24). Accordingly, protection against dismissal exists if the organ position of the managing director had already been terminated.
Since an appointed managing director as an organ of the company is not an employee in the legal sense, he or she is generally not subject to the Protection Against Dismissal Act. Only in exceptional cases can a managing director enjoy protection against dismissal, e.g., if a de facto employment relationship exists or the shareholder has already been dismissed as an organ of the company, but the service contract has not yet been terminated, according to the commercial law firm MTR Legal Rechtsanwälte, which specializes, among other things, in corporate law.
Organ Position Terminated
In the proceedings before the LAG Hessen, the plaintiff had been employed by the defendant company since April 2021 on the basis of a written employment contract and was subsequently appointed managing director (or ‘Vice President’). This organ position was recorded in the commercial register.
On February 1, 2023, the plaintiff was removed as managing director by shareholder resolution; the registration of his successor in the commercial register took place on February 13, 2023. From then on, the plaintiff was still listed on the company’s organizational chart as ‘Special Project Manager,’ but in practice, he was not given any new responsibilities. In June 2023, the company gave ordinary notice of termination of his service contract, effective December 31, 2023. The plaintiff contested this by filing a claim for protection against dismissal.
The Darmstadt Labor Court dismissed the claim on the grounds that the plaintiff did not fall under the scope of the Protection Against Dismissal Act due to his former position as managing director.
LAG Hessen: Protection Against Dismissal Act Applies
However, the LAG Hessen overturned this decision. It found that the dismissal was not socially justified and was therefore invalid. The court stated that the status of the plaintiff at the time the dismissal was received is decisive for the applicability of the Protection Against Dismissal Act (KSchG). Since the plaintiff had already been removed as managing director at this point and therefore no longer held an organ position, he could rely on the protection of the KSchG. According to the LAG, the organ position of the plaintiff ended at the latest upon the registration of his successor in the commercial register. However, the dismissal took place several months after this.
The court further stated that the statutory exclusion of protection against dismissal in Section 14(1) KSchG applies exclusively to persons who actually fulfill the employer role with regard to the workforce. This purpose no longer applies to a removed managing director. Thus, what matters is not only the former position but the actual legal status at the time of dismissal.
Protection Against Dismissal After Removal as Managing Director
In addition, there was a specific provision in the plaintiff’s employment contract. It stipulated that after removal as managing director, continued employment in another function was possible. This underscored that this was not a purely organ relationship but rather an employment relationship that could continue beyond the duration of the organ appointment, according to the court. Therefore, a regular employment relationship existed, for which full protection against dismissal was revived after removal.
Since there was also no social justification for the dismissal within the meaning of Section 1(2) KSchG, the dismissal was deemed invalid by the LAG Hessen. Due to the fundamental importance of the matter, the court allowed an appeal to the Federal Labor Court.
Shareholder-Managing Director and Dismissal
For shareholder-managing directors, i.e., managing directors who also hold shares in the GmbH, the question of protection against dismissal is even more complex. As a rule, shareholder-managing directors are not subject to the general protection against dismissal because their legal status is primarily determined by the corporate relationship. The termination of their service contract as managing director is therefore usually not subject to the strict requirements of the KSchG. Nevertheless, exceptions exist: For instance, a shareholder-managing director can be considered an employee within the meaning of European law under certain conditions and thus be entitled to protection against dismissal. The decisive factor is the specific circumstances of the individual case, especially the actual structure of the service contract and the personal dependence on the company. In such cases, the general rules of the KSchG can apply if the prerequisites are met. It is therefore advisable to carefully review the legal framework when appointing and removing shareholder-managing directors and when terminating service contracts.
Diligence in Removal and Dismissal
The court’s decision makes it clear that an early removal from an organ position can result in affected executives once again coming under the protection of the KSchG. Companies should therefore exercise utmost care when drafting managing director contracts and when handling removals and dismissals, especially if the separation from the executive is to take place without social justification. The rights of former managing directors have been strengthened by this decision. When considering whether protection against dismissal exists, the timing of the dismissal is particularly important.
MTR Legal Rechtsanwälte advises companies and executive bodies on corporate law.
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Dismissal and Severance
The dismissal of a GmbH managing director can take place either as an ordinary dismissal by observing the contractually agreed notice periods or as an extraordinary dismissal for good cause. While ordinary dismissals require compliance with the notice periods set out in the service contract or by law, an extraordinary dismissal requires a serious breach of duty or other compelling reason. In practice, dismissals of managing directors are often accompanied by a termination agreement in which a severance package is stipulated. The amount of severance depends on the specific circumstances of the case, the duration of the employment relationship, and the contractual provisions. Both parties – the GmbH and the managing director – are well advised to carefully consider the legal and economic consequences of a dismissal and, if necessary, strive for an amicable solution in order to avoid protracted and costly legal disputes before labor courts.
Conclusion and Outlook
Protection against dismissal for GmbH managing directors is a complex and multi-layered legal area that largely depends on the individual legal status of the managing director and the specific circumstances of the case. While the general protection against dismissal under the KSchG is usually not applicable to managing directors, individual contractual agreements, the application of the European concept of employee, or special protective provisions such as maternity protection may nonetheless establish an entitlement to protection against dismissal. For companies and managing directors, it is therefore essential to carefully examine the legal framework when drafting service contracts and in cases of dismissal, and to seek legal advice if necessary. Only in this way can legal risks be minimized and the interests of both parties be preserved. Current case law demonstrates that courts are increasingly differentiating between various situations and, in certain cases, strengthening the protection of managing directors. It remains to be seen how case law will continue to develop in the future and what new regulations in the area of protection against dismissal for managing directors can be expected.
