Notice Periods for Termination of Employment for External Managing Directors of Limited Liability Companies

The discussion revolves around two provisions, Sections 621 and 622 of the German Civil Code (BGB):

● Sec. 622 Civil Code: This provision directly applies to employment relationships and regulate notice periods that extend with increasing tenure for terminations initiated by the employer.

● Sec. 621 Civil Code: This provision applies to service relationships that are not employment relationships. The notice periods vary depending on the underlying compensation agreement but are often significantly shorter than those in Sec. 622 Civil Code. Additionally, unlike the notice periods for employment relationships, the notice periods under Sec. 621 Civil Code can be contractually waived also to the disadvantage of the individual providing services.

The opinions on which notice period regime applies to external managing directors differ between civil and labor courts. In a ruling dated November 5, 2024, the Federal Court of Justice (BGH) once again took position, opposing a recent decision by the Federal Labor Court (BAG).

Federal Court of Justice: Analogous Application of Sec. 622 Civil Code to External Managing Directors

According to the previous case law of the Federal Court of Justice, Sec. 622 Civil Code does not directly apply to managing directors of a limited liability company (GmbH) without a majority stake, as they are not in a dependent employment relationship but rather in a service relationship with the company. However, the Federal Court of Justice applies Section 622 (1) and (2) Civil Code analogously to this group. The court argues that there is a comparable interest situation to an employment relationship because the GmbH managing director without a majority stake provides his/her labor to the company on a full-time basis, is usually economically dependent on it, and requires sufficient time to find alternative employment in the event of termination by the company.

The Federal Court of Justice justifies the existence of an unintended legislative gap with an editorial error that occurred when the legislator revised Sec. 622 Civil Code in 1969. The previous version of Sec. 622 Civil Code also applied to “employees performing services of a higher nature,” which included GmbH managing directors. The new version of Sec. 622 Civil Code, according to its wording, only applies to employees. However, the legislator did not intend to change the legal situation concerning GmbH managing directors but merely aimed to standardize the notice periods for employment relationships.

Federal Labor Court Rejects Analogous Application of Sec. 622 Civil Code

In contrast, the Federal Labor Court rejects the analogous application of Sec. 622 Civil Code to GmbH managing directors without a majority stake due to the lack of an unintended legislative gap and instead applies Sec. 621 Civil Code to this group, which generally has shorter and waivable notice periods. The Federal Labor Court argues that there is no legislative gap due to the clear wording of Sec. 621 Civil Code (“service relationships that are not employment relationships”). At least since the renewed revision of Sec. 622 Civil Code in 1993, an unintended legislative gap can no longer be assumed. The legislator did not re-include external managing directors of limited liability companies in the wording of Sec. 622 Civil Code at the occasion of this revision, so it can no longer be considered an editorial oversight. Finally, it would result in a contradiction of assessment if Sec. 622 Civil Code were not applicable to employee-like persons on the one hand, but were to be applied to minority managing directors of a GmbH on the other hand, who differ even more from employees than employee-like persons. Since Sec. 622 Civil Code is not applicable to employee-like persons, this must apply a fortiori to GmbH managing directors without a majority stake.

Federal Court of Justice Maintains Legal Opinion

The Federal Court of Justice now defended its previous case law against the aforementioned opinion of the Federal Labor Court. In an obiter dictum in the ruling of November 5, 2024 (Case No. II ZR 35/23), the court stated that the non-waivable notice periods for employment relationships (i.e., Sec. 622 paras. 1 and 2 Civil Code) should be applied to GmbH managing directors without a majority stake. The fact that the legislator did not change the wording of Sec. 622 Civil Code during the last revision of this provision in 1993, according to the Federal Court of Justice, supports rather than contradicts the continued analogous application of the notice period regime for employees to external managing directors. After all, the legislator did not change the wording of Sec. 622 Civil Code at that time, despite being aware of the case law of the Federal Court of Justice, which suggests legislative approval of this legal opinion.

The Federal Court of Justice, like the Federal Labor Court in 2020, refrained from submitting its decision to the Joint Senate under Sec. 2 (1) of the Jurisdiction Unification Act (RsprEinhG), presumably because the statement on the notice period regime in the current ruling was only made in an obiter dictum and was not part of the main reasoning of the judgment.

Conclusion

In its decision of November 5, 2024, the Federal Court of Justice once again rejected the case law of the Federal Labor Court and maintained that the notice period regime of Sec. 622 (1) and (2) Civil Code should be applied analogously to GmbH managing directors without a majority stake. In practice, despite the differing and well comprehensible opinion of the Federal Labor Court, the structuring of managing director service contracts will likely need to align with the case law of the Federal Court of Justice. Contracts on the employment of managing directors are regularly classified as free service contracts, which means that disputes in this regard are usually decided by civil courts. Moreover, jurisdiction of the civil courts is mandatory as long as the appointment as managing director continues. For these reasons, it is to be expected that the legal opinion of the Federal Court of Justice will ultimately prevail. die Bestellung zum Geschäftsführer fortbesteht. Schon aus diesen Gründen ist zu erwarten, dass sich die Rechtsauffassung des BGH letztlich durchsetzen wird.

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