Federal Court of Justice, Ruling of March 26, 2019 – II ZR 244/17
The German Federal Court of Justice had to decide whether a managing director of a limited liability company without participation in the share capital is protected as an employee by the General Equal Treatment Act in case of a dismissal agreement.
Facts of the case:
A managing director who had been appointed by a limited liability company (GmbH) in 2005 at the age of 50 brought an action before court. In the 2005 service agreement, the contracting parties had agreed, among other things, that the service agreement entered into could be terminated by each of the contracting parties, regardless of whether the employment had a fixed term or not, by means of a unilateral declaration giving six months’ notice to the end of the year. The service agreement was extended several times, most recently for an additional five years until August 31, 2018. After the defendant removed the managing director from his position in 2015, he received notice of his termination in June 2016, i.e. at the age of 61, with reference to the above agreement. By his action, the plaintiff challenged the validity of the dismissal.. The plaintiff was unsuccessful in the lower instances.
According to the Federal Court of Justice, the plaintiff was directly disadvantaged pursuant to sec. 7 para. 1, sec. 3 para.1 sent. 1, sec. 1 of the General Equal Treatment Act due to the termination clause in his service agreement, which was linked to one of the reasons stated in sec. 1 of the General Equal Treatment Act, namely age. The defendant did not offer a legitimate reason pursuant to sec. 10 sent. 1 if the General Equal Treatment Act for the unequal treatment of the plaintiff on grounds of age.
In particular, The Federal Court of Justice applied the provisions of the General Equal Treatment Act to the present case. The termination of the managing director is a condition for a dismissal condition within the meaning of sec. 2 para. 1 no. 2 of the General Equal Treatment Act.
Rather, if interpreted in conformity with European law, the managing director of a GmbH must be regarded as an employee within the meaning of sec. 6 para. 1 sent. 1 no. 1 of the General Equal Treatment Act to such extent that sec. 2 para. 1 no. 2 of the General Equal Treatment Act applies in the event of termination of his contract of service as managing director.
Directive 2000/78/EC and its transposition, the General Equal Treatment Act, aim to protect a wide range of persons. According to the Federal Court of Justice, this objective allows the managing director of a limited liability company who does not hold any shares in the company to be regarded as an employee protected against discrimination within the meaning of sec. 2 para. 1 no. 2 of the Federal Equal Treatment Act.
Practical advice from Ogletree Deakins:
Previously, the Federal Court of Justice always left the question whether a managing director ho has no shares in the company has to be regarded as an employee who falls under sec. 6 para. 1 of the Federal Equal Treatment Act. Now, this question has been answered. The Court thus ensures greater clarity in the drafting of service agreements for managing directors.
Termination of the agreement “without notice”, i.e. a phrase that sets the automatic termination date as the date the employee reaches retirement age is permitted pursuant to sec. 10 sent. 3 no. 5 of the Federal Equal Treatment Act. Giving notice based solely on the fact that the individual has reached retirement age, however, is not justified pursuant to sec. 10 sent. 1, 2, and sent. 3 no. 5 of the Federal Equal Treatment Act. We therefore recommend including a legally safe fixed-term clause in the service agreements or employment contracts of managing directors in order to ensure in a legally permissible manner that the appointed managing director can no longer work for the company starting on the date he reaches retirement age.