A managing director (member of the Management Board) is responsible for the daily operations of a company, who is formally appointed by the authorized body of the company to appoint and dismiss directors.
A managing director of a Netherlands company has a special relationship with the legal person. Unlike an employee, the director can be suspended or dismissed at any time. The body that has appointed the director may also dismiss the director. This is often the general meeting of shareholders, but in the case of a two-tier company the supervisory board.
Just as with ordinary employees, the employer must have a reasonable ground for the dismissal of a statutory director. However, the judge accepts the existence of a reasonable ground for dismissal of a director by the dismissing board easier than with ordinary employees. But that does not alter the fact that the employer must demonstrate that there is at least one reasonable reason for dismissal.
The presence of a reasonable ground for dismissal due to circumstances in which the employer cannot reasonably be expected to continue the employment contract (the so-called h-ground) is the ground dismissals of managing directors are founded on, and this usually works. This does not alter the fact that an employer will have to demonstrate that the circumstances that led to the dismissal have been raised and that the employment contract cannot reasonably be maintained on the basis thereof.
When dysfunction (the d-ground) is presented as a ground for dismissal, a statutory director the dismissal cannot be founded on all kinds of accusations that have not previously been made known to him. Just like the situation with an ordinary employee, dysfunctioning by a managing director must also be addressed in a timely manner, so that he is given the opportunity to improve.
As with other employees, the employer must investigate whether reassignment to another suitable position is possible within a reasonable period of time. With a managing director, this will not often be the case, but this does not alter the fact that the possibility of relocation must be investigated in accordance with the law.
The statutory director, like ordinary employees, enjoys the protection of the prohibitions on termination. For example, it is not possible to terminate during occupational disability, pregnancy and maternity leave. Nor may cancellation be made on the grounds of taking care or parental leave and other prohibitions on cancellation.
A statutory director is part of the management board of a legal person and is appointed by the body of the legal person authorized to do so, such as a public or private limited company, association, foundation, mutual guarantee company or corporation. There must be an appointment decision and the appointment must have been accepted by the director.
Anyone who is going to be dismissed as a director must first be appointed as a director. If someone has only been awarded the title of director, or CEO or CFO, but there is no appointment decision, then this person is an ordinary employee and not a managing director or statutory director. In that case the director has a "normal" employment contract with the company.
In addition, there are situations in which a person who has acted as a director under the articles of association for many years suddenly recalls upon his dismissal that there is no written appointment decision and that he is therefore simply an employee. This is the same person who who has signed the annual accounts and was invited to attend the meetings of shareholders. Case law shows that this 'found' defense does not always leads to good results, but the absence of an appointment decision can certainly cause problems with the intended dismissal.
A legally valid dismissal decision requires that all legal and statutory requirements for convening a meeting, such as the call for a meeting, the agenda, the notice period, the place of the meeting and the method of decision-making, be observed. Furthermore, under Dutch law a managing director has the right to attend the general meeting and has an advisory vote. In addition, the director has the right to be heard if his resignation occurs.
If the dismissal decision has not been made in accordance with legal requirements, the statutory director can invoke that the dismissal decision is void under company law and that he is therefore still employed. Failure to comply with formalities of Netherlands law can also lead to the obligation to pay a fair compensation in top of the legally required transition payment.
Depending on the situation, a relatively long convocation period is often used. The intervening period can then be used for proper preparation of the meeting, but also for reaching an arrangement by mutual agreement. An arrangement is often preferred. Both parties then have clarity and lengthy procedures with an uncertain outcome are avoided.
In addition to the fact that someone is a corporate director of a company, there is also an agreement under which the director has been appointed. This is usually an employment contract, but it can also be an assignment contract. The management agreement is an example of such an assignment agreement. In the past there was uncertainty about what should happen with the employment contract if the director is dismissed by the shareholders' meeting.
This has come to an end with the so-called April 15 judgments of the Supreme Court of the Netherlands.
When a natural person who is appointed as a director of the public limited company or private company and who performs his duties under an employment contract, has been dismissed as a director by a valid decision of the competent body of the company, he loses the status of director of the company. In principle, the dismissal decision also results in termination of the director's employment, unless a dismissal prohibition occurs, such as in the event of illness, or if the parties have agreed otherwise. So as a rule the employment contract ends with the dismissal decision or is terminated with due observance of the notice period.
Just like every employee, the dismissed director is entitled to a transition payment. Here, therefore, no difference whatsoever with the situation in which the contract with a normal employee is terminated.
Just like the normal employee, every director can also try to claim fair compensation on top of the transition payment. This is possible, for example, if the employer has acted culpably, but also if there is no reasonable ground for the dismissal. This is often the subject of litigation, but on the basis of case law it can be established that little can be said with certainty about whether fair compensation is appropriate in a particular case and, if so, what the amount of the fair compensation is. The fact is that here and there high equitable allowances have been granted by the courts in the Netherlands. See for an example the decision of the Amsterdam District Court of 7 December 2017, where a fair compensation of € 210.000,00 was awarded to the managing director.
The agreement with the company director also often contains a financial arrangement that comes into effect in the event of dismissal. Tall trees catch a lot of wind. It is a fact that a managing director can relatively easily lose its position. Agreeing on a golden parachute arrangement can prevent parties from ending up in a dispute. The solution has already been agreed at the beginning of the engagement.
Many step-by-step plans and checklists can be found on the internet. In these step-by-step plans and checklists you are guided through the dismissal process. Under corporate law, it must be right and no mistakes can be made under employment law. So you can use these and do it all by yourself. So it is an option to print such a plan and go through such a step-by-step plan yourself. We think that if you do not dismiss a director all too often, it would be wise to be legally guided by a Dutch professional. Such plans never cover all events and they don't advise at what moments it time it is best to come to a final amicable settlement and at what terms. So why not hire us. We are there for the international community.
For both parties, a dismissal in the Netherlands jurisdiction has a clear start and a clear end and both parties are best served if, after some hassle, an amicable settlement is reached. Nobody looks forward to years of legal proceedings over an unfair dismissal before the employment tribunal. So, the moment the conflict commences, it is best to seek legal advice. We assist our clients in these matters and we like to do that for you, as motto is: "Your problem, our concern."
Hein Kernkamp will gladly help you further.
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