Dismissal of statutory director: reasonable grounds for dismissal?
The dismissal of a statutory director occupies a special position within labor law. For example, the protection against dismissal that a director under the articles of association has is designed differently from normal employees. It is no different in that there must be reasonable grounds for a legally valid dismissal. The absence of reasonable grounds can cost the employer dearly.
In this article, we discuss the special position of the statutory director, the requirements of dismissal of the statutory director and special attention is paid to the existence of reasonable grounds for dismissal.
Employment law and corporate law bond of statutory director
The special position of the statutory director is characterized by the existence of a corporate and an employment law bond, both of which must be severed in the event of dismissal. In order to sever both with one act, the dismissal decision, it is important that the relationship is intertwined and not split. A split bond exists if the director performs work exclusively for the company where he is a director and does not perform work for the company with which he has an employment contract. In that case, in addition to the dismissal decree, employment termination is required.
Note: Always check whether there is actually a corporate appointment as a statutory director. There is only a statutory director if there is an appointment and acceptance of that appointment.
No preventive dismissal test for statutory director
The director has less severance protection than the normal employee. There is no preventive test. This means that no permission from the UWV or dissolution by the court is required. The consent of the director is also not required. However, there must be a reasonable ground for the dismissal, the notice prohibitions (e.g. illness) apply, the reemployment obligation applies and a notice period must be observed.
Reasonable grounds for dismissal of statutory director
There must be reasonable grounds for a legally valid dismissal of the statutory director. In the absence of such grounds, the statutory director cannot apply to the subdistrict court for restoration of the employment contract. However, the director can claim fair compensation. The compensation can be high. Therefore, always seek advice regarding the dismissal of a statutory director.
The reasonable ground for dismissal of a statutory director can, for example, be a difference of opinion on the policy to be pursued, dysfunction, disagreement with other directors, or a loss of confidence from the shareholders. This reasonable ground must be included in the resolution to dismiss.
Please note that there are various company law requirements attached to the dismissal decision (AGM notice period, advisory and hearing rights). Our lawyers can advise you further on these, as well as on the existence of reasonable cause.
By way of illustration, reference is made to a judgment of the Overijssel District Court dated August 29, 2023. The employee in this case had joined the company in 2014 and was appointed CFO and statutory director in 2022. In 2023, he received an invitation to the general meeting of shareholders (AGM). On the agenda was his resignation. Employee did not attend the meeting, but filed a defense. The subdistrict court reviewed reasonable cause in the proceedings. The subdistrict court considered that after the share transfer, a “different wind started blowing.” The new shareholder expected a different approach. However, the CFO had not been sufficiently informed about the desired expectations from the shareholders. Nor had it been made known what changes were to be implemented in what time frame and whether these changes were of a permanent nature. Partly in view of a director’s autonomy, the Subdistrict Court found this to be incorrect. Only when it is clear that the director does not want to conform to the policy to be pursued, an unworkable situation arises and the employment contract can be terminated.
In short, termination of the employment of a statutory director is not simply possible. The reasonable ground must – as with an ordinary employee – be able to be properly substantiated. It must be clear that the employment contract cannot reasonably be continued.
Advice on dismissal of statutory director
The employment lawyers at LVH Advocaten in Rotterdam regularly advise on the dismissal of employees, statutory directors and other matters relating to personnel. If you have any questions or would like more information about the dismissal of employees, please contact Lisa Kloot of LVH Advocaten.
