While a managing director’s invalidly constituted employment contract may be treated as if it were valid, it can be rescinded at any time without good cause.
Companies and managing directors should, of course, always make sure that the employment contract is validly constituted and that all contractual arrangements are valid. However, it is possible for mistakes to be made when concluding an employment contract that renders it invalidly constituted. This is not necessarily a problem as long as there is no dispute between the parties, and the shareholders or, more specifically, the supervisory board are aware of the managing director’s service. We at the commercial law firm MTR Rechtsanwälte note that under these circumstances an invalid employment contract may be treated as if it were a valid employment contract.
Yet managing directors should not rely on this arrangement. In the event of a dispute with the company, the managing director’s invalidly constituted employment contract can be rescinded at any time without good cause, as demonstrated by a ruling of the Bundesgerichtshof (BGH), Germany’s Federal Supreme Court, from August 20, 2019 (Az.: II ZR 121/16).
In the instant case, the chairman of the supervisory board of a GmbH had unilaterally concluded an employment contract with the managing director despite the fact that this was strictly speaking the responsibility of the supervisory board and later, following an amendment to the articles of association, the shareholders’ meeting. When the shareholders became unsatisfied with the managing director’s work, the shareholders’ meeting formally removed the managing director from his position and issued both extraordinary as well as ordinary notice terminating the employment contract.
Despite reaching all the way to the BGH, the managing director’s action against his dismissal was ultimately unsuccessful. The employment contract was deemed to have been invalidly constituted because it had not been concluded as prescribed in the articles of association by the supervisory board, which was found at the time of the contract’s conclusion neither to have had effective representation nor to have authorized its chairman to conclude the contract. The BGH held that because the employment contract had not been validly constituted, it could be rescinded at any time without good cause. The Court went on to state that the employment contract was only to be deemed valid for the duration of the managing director’s service.
Companies and managing directors therefore have a mutual interest in ensuring that contracts are legally watertight. Lawyers with experience in the field of company law can offer advice.
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