Manager’s Employment Contract

Directors and Members of the Management Board

Contrary to the members of the supervisory board who are not employed by their company managing directors of limited liability companies (GmbH) and members of the management board of stock corporations (AG), partnerships limited by shares (KGaA) and registered cooperatives (eG) are regularly connected to their company by a contract which determines the remuneration, payment for insurance, pension and paid holidays. It is unusual but not excluded that there is no agreement between directors and members of the management board on one side and the company or an affiliated company on the other side. A contract with an affiliated company may exist if an employee of the parent company is at the same time managing director of a subsidiary.

Managing Director Employment Agreement or Standard Employment Agreement

If an employee has been appointed managing director or member of the management board, it does not have any relevance to the existing standard employee agreement. From this time on the civil court is competent in agreement-related matters by the law instead of the labor court which was competent before the appointment. Furthermore the German Protection Against Dismissal Act (KSchG) and other rules protecting employees are no longer applicable. But the conditions of the standard employment agreement stay valid.

Regularly, the appointment and the related increase in responsibility is taken into account by a new agreement containing rules concerning remuneration, pension and paid holidays in favor of the managing director or management board member but also the duty of confidentiality in favor of the company. According to the ruling of the German Federal Labor Court (BAG) by signing a managing director or management board member employment agreement the standard employment agreement is terminated validly. That means that after the revocation of the appointment the standard employment agreement will not become effective again.

Typical Contractual Elements

Managing director and board member employment agreements contain provisions governing remuneration, contributions to direct pension insurance, use of company cars for private purposes, right to paid leave and other aspects like reservations of consent of the supervisory board or the shareholders. Moreover some agreements contain post-contractual competition prohibitions and modifications of the managing directors’ personal liability. Regularly, the managing director or management board member is covered by the Directors’ and Officers’ Liability Insurance protection. This aspect is regulated by the agreement as well. So called change-of-control clauses empowers the manager in case of change of control of the company to resign the appointment and to terminate the employment agreement while being entitled to an equalization claim towards the company.