A managing director cannot claim protection against unfair dismissal if he or she is under no power of direction when working. In that case, he or she is not to be classified as an employee according to a ruling of the Landesarbeitsgericht (LAG) Köln, Cologne’s Regional Labour Court.

Managing directors are appointed to and removed from their post by way of a shareholders’ resolution. At the same time, they have an employment relationship with the company. Notwithstanding this, they are not automatically classified as employees. An employee is usually bound by instructions. Managing directors, on the other hand, often work independently and can, for instance, decide for themselves where and when they work. We at the commercial law firm GRP Rainer Rechtsanwälte note that if this is the case, they cannot normally be classified as employees and the Kündigungsschutzgesetz, Germany’s Employment Protection Act, does not apply.

In the case before the Landesarbeitsgericht Köln, a managing director and senior partner at an international management consultancy brought an action against termination of his executive employment contract. The action was dismissed at first and second instance.

The plaintiff was hired by the management consultancy in 2004 as “vice president” (partner) having come from an entirely different field of work. A year later, the parties concluded a transfer agreement, pursuant to which the plaintiff was appointed to the position of managing director and obtained executive status in lieu of his previous employment status. At the same time, the employment relationship that had been in place until then was explicitly terminated. The management consultancy firm had appointed around 100 partners as managing directors, yet initially no entry was made in the commercial register.

The plaintiff had been able to decide where he worked and no fixed timeframe had been prescribed for weekly working hours. He did not need to have his extensive travels approved; they just needed to be handled in accordance with the defendant’s travel guidelines. In 2015, the defendant terminated contractual relations with the plaintiff after the ordinary notice period for termination expired. The latter considered his dismissal unwarranted in social terms according to the provisions of the Kündigungsschutzgesetz.

The LAG dismissed the action in a ruling from 18 January 2018 and refused leave to appeal (Az.: 7 Sa 292/17). The Court held that the plaintiff could not be considered an employee and therefore could not claim protection against unfair dismissal. It went on to state that the employment relationship was explicitly terminated in 2005 and an executive managing director relationship established. Moreover, there was said to be no evidence that the managing director had been bound by instructions as is typical in the case of a standard employment relationship.

Lawyers who are experienced in the field of company law can advise companies and managing directors when drafting agreements as well as in the event of legal disputes.