New notice periods for external managing directors could potentially seriously disadvantage them
The term ‘external managing director’ is understood to mean a managing director who is not simultaneously also a shareholder/partner. The Federal Court of Justice [Bundesgerichtshof, BGH] had previously classified the function of an external managing director as an employee-like function. As a result, the staggered notice periods under Section 622 of the Civil Code [Bürgerliches Gesetzbuch, BGB] were applicable – these are based on the period of the employment relationship.
An about-turn due to the new BAG ruling
By contrast, however, in its ruling from 11.6.2020 (case reference: 2 AZR 374/19), the BAG decided that, in the absence of contractual arrangements in the service agreements of managing directors, statutory notice periods that apply to employees may not be invoked. Therefore, this constitutes a deviation from the previous caselaw of the BGH that had declared that the notice periods for employees were applicable.
Please note: Despite this deviation from BGH case-law, the BAG did not refer the issue to the Joint Senate of the Highest Federal Courts of Justice since the BAG did not view the legal gap as being contrary to plan.
In its statement of justification, the BAG held the view that external managing directors exercise employer-like functions since, as officers of the company, they have powers of representation that cannot be restricted externally and that, generally, distinguish external managing directors from employees – even executive staff. External managing directors do not exercise their function on the basis of an employment contract, but rather on the basis of a service contract. It follows that the applicable notice periods are those under Section 621 BGB, according to which these are based on the periods by which the remuneration is assessed. In the case of remuneration for the managing director that is generally on the basis of monthly assessments, notice of termination would therefore already be permitted by the 15th of one month to the end of the calendar month. In the case of remuneration on a daily or weekly basis, this would normally result in a notice period of one day or one week respectively.
Herein lies a serious potential disadvantage for external managing directors, especially in cases where the employment relationship has already lasted for many years.
Recommendations: Against this background, it is recommended that the employment contracts for managing directors concluded up to now should be reviewed with respect to their rules on notice periods. If they include a reference to the statutory provisions then this would mean that the notice periods under Section 621 BGB would apply. It would only be possible to apply the notice periods under Section 622 BGB by making the respective contractual adjustment. To avoid legal uncertainties, an express provision on notice periods should be inserted when new employment contracts for managing directors are being concluded.