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The annulment of a director’s dismissal also affects the employment

Publication date: 26 July 2018
The dual legal relationship of a director means that the corporate dismissal is at the same time a termination of the employment agreement. Conversely, according to a judgement of the Midden-Nederland District Court, if a dismissal decision is void, the resulting termination of the employment agreement will also be void or non-existent.

ontslag

Usually, a director of a company is also an employee of the company. Then, a director will have a “dual legal relationship” with the company, an employment contract and a corporate legal relationship. If a statutory director is dismissed, this will also mean termination of the employment contract, unless a prohibition against termination is applicable or parties have otherwise agreed. Which rules must be followed in dismissal procedures? And what will be the consequences if a corporate dismissal decision is annulled? The Midden-Nederland District Court dealt with these questions in a decision of 24 May 2018.

Dismissal of director

In principle, directors are appointed and dismissed by the general meeting of shareholders (Algemene Vergadering van Aandeelhouders; AVA). In two-tier companies this competence lies with the supervisory board (Raad van Commissarissen; RvC). For the dismissal of a director all corporate rules must be followed. This means, the general meeting of shareholders has to be convened in accordance with the articles of association. In addition, the director must be given the opportunity to be heard during the meeting and to give advice about his/her intended dismissal. Furthermore, he/she also has an advisory vote. If these rules are not followed, this may result in nullity or voidability of the dismissal decision.

In principle the corporate dismissal of a director is at the same time a dismissal of the director under labour law. This means, by a dismissal decision of a director by the general meeting of shareholders, the employment contract will automatically be terminated too. For the termination of the employment contract no UWV dismissal permit is required, which is required in a “regular” dismissal. Furthermore, there must be a reasonable ground for the dismissal under labour law and the statutory or contractual terms for dismissal must be complied with. On top of that transition compensation is due.

Legal and statutory rules

When taking the dismissal decision, legal and statutory rules must be followed, as can be seen from a judgement by the Midden-Nederland District Court where this had not been done. The subject of the invitation of the general meeting was “the dismissal”, so that it seemed as if the decision had already been taken and the director did not get the opportunity to defend himself against the dismissal or to give advice and the chairman of the general meeting was not to competent to conduct the meeting. Due to these faults the District Court annulled the dismissal decision.

As the corporate dismissal decision was not upheld, the District Court had to decide whether there still was an employment contract between the director and the company, which was the case. If a corporate dismissal decision is void, the ensuing dismissal under labour law is also void or non-existent. The employment contract was still in force and the director was entitled to continued payment of wages. However, a claim by the director to lift his suspension and go back to work was rejected. The same fate befell the company’s conditional request for termination.

Our advice

When dismissing a director, make sure to keep in mind the legal obligation to hear the director and the (statutory) obligations regarding the convention of and decision-making process within the general meeting of shareholders. A dismissal decision in breach with the legal or statutory obligations can have the effect that the decision is void or voidable.

More information

Would you like to learn more about dismissal of directors or employees? Or do you have any other questions regarding corporate or employment law? Please contact us:

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