This article provides an overview of the requirements for dismissing a managing director of a Dutch private limited company (B.V.) or a public limited company (N.V.). It assumes the managing director has an employment agreement with the company where he is appointed as a member of the management board (the most common situation).
What makes a managing director special?
Termination of the relation with a managing director (hereafter: director) involves aspects of both corporate law and employment law.
Who can dismiss a director?
In most cases, the General Meeting of Shareholders (hereafter: General Meeting) is competent to effectuate the dismissal. If there is a supervisory board of directors, that board may have the power to dismiss instead.
How does one effect a dismissal of a director?
The shareholder should terminate the board membership in a General Meeting (or potentially outside of a General Meeting). Such termination of the corporate position automatically leads to the termination of the employment agreement (after the lapse of the notice period). No prior approval of a court or governmental authority is required for the dismissal. This is only different in case dismissal protection applies or if parties have agreed otherwise.
Dismissal protection applies in case (amongst others) the director is ill, unless he reported ill only after being invited to a General Meeting in which his dismissal is at stake. To prevent a director from frustrating a dismissal by reporting ill, he is normally given an invitation to a General Meeting immediately when being confronted with the intention to terminate his employment.
What formalities should be taken into account?
All board members (executive and non-executive), including the director, must be invited for the General Meeting regarding the intended shareholders decision to dismiss the director. Each of them is entitled to cast an advisory vote there. In addition, the director has the right to be heard with respect to the intended dismissal. In order to enable the director to duly exercise these rights, the director should receive the reasons for the intended dismissal well in advance of the General Meeting (normally a week will suffice). In practice these rights (advisory vote and hearing) are often executed at the same time by the director. Failure to meet these (formal) requirements may result in nullification by the court of the shareholders’ decision to dismiss the director.
Does the works council have any rights in this regard?
In case the company has a works council, there will in most cases be a right of advice regarding the dismissal of a director. The advice should be requested timely enough (normally at least several days to a week) before the meeting. The works council advice cannot block the dismissal.
Is there a statutory severance payment?
Like ordinary employees, the director who has been employed for at least two years and whose employment contract is terminated or not extended at the employer’s initiative, is entitled to a statutory transition fee (transitievergoeding). This is, roughly speaking, 1/3 monthly salary per year of service during the first 10 years of service and 1/2 monthly salary per year of service thereafter, up to a maximum of EUR 81,000 gross or - if higher - a gross annual salary.
Can a director claim additional compensation in court?
The absence of a reasonable dismissal ground will not prevent the dismissal. If the director is dismissed without reasonable dismissal ground, the director can go to court after the dismissal to claim a 'reasonable compensation' (billijke vergoeding) in addition to the transition fee. The Dutch Civil Code contains an exhaustive list of what constitutes a reasonable ground.
A director can also go to court to claim a reasonable compensation if the employer has committed seriously culpable acts or omissions in relation to the dismissal.
Unlike ordinary employees, a director cannot claim restoration of the employment agreement in court.
Is there an option to settle?
It is common to make a director a termination proposal, by which the employment agreement is terminated by mutual consent and the director voluntarily resigns as a member of the management board. If a director concludes a termination agreement and resigns voluntarily, the General Meeting no longer needs to take place and the director can no longer claim additional compensation in court. In most cases, no works council advice will be needed when concluding a termination agreement.
Please contact Steven Sterk or Marjolijn Lips more information.