Dismissal of an Executive Board Member in Germany

According to Section 76 (1) of the German Stock Corporation Act (AktG), the executive board of a stock corporation (AG) acts as the managing body in Germany. An executive board contract (also called executive board service contract or executive board employment contract) is concluded to establish the employment relationship between the executive board member and a company. This is usually a contract of employment under Sections 611, 675 BGB. It should be noted that a distinction must be made between the position of the executive board as a body and the employment relationship. While the service contract sets out the rights and duties of the executive board member, the organ relationship sets out the person’s position as an executive board member. They are, therefore, different legal relationships. Consequently, the employment relationship may continue despite the termination of the office as a member of the executive body. This also applies to the beginning of the relationship. 

A member of a company’s board of directors may enter into two legal relationships: a contract of service and a position. When terminating the relationship of a board member to the company, the clear separation of these legal relationships must be observed. In the following, we will deal in detail with the termination of the employment relationship and the dismissal of the executive board member. 

Since the relationship between the executive board and the company is an employment relationship and, thus a contract under Sections 611, 675 of the German Civil Code (Bürgerliches Gesetzbuch – BGB) was concluded, the German Protection Against Dismissal Act (Kündigungsschutzgesetz – KSchG) does not apply (see Section 14 (1) no. 1 KSchG). It should also be noted that the termination of the executive board contract is governed by the service contract laws and not the employee protection laws. Only in individual cases is an exception made. 

If there is no termination agreement, a termination of the executive board contract is possible concerning the existing employment relationship. The executive board member or the company can terminate the contract under Section 626 BGB. The supervisory board is responsible for issuing the notice of termination (cf. Sections 112, 107 para. 3 sentence 1 AktG). The supervisory board has two weeks to notify the executive board member of the termination (cf. Section 626 (2) BGB). 

In the case of extraordinary termination, an important reason is required. According to Section 626 (1) BGB, an imprortant reasons exists if there are facts based on which the continuation of an employment relationship until the expiry of the notice period or until the agreed termination of the relationship cannot be reasonably expected. Whether an important reason exists is decided based on the individual case. The following circumstances, among others, are taken into account: 

• Severity and consequences of the misconduct for the company (e.g., risk of repetition, loss of confidence, significant costs, etc.), 
• Consequences for the person concerned (taking into account age, the performed work, length of service, etc.). 

The two-week notice period begins when the important reason becomes known. 

It should be noted that concerning the extraordinary termination, a special feature arises about the given legal relationships. While, in principle, the termination of the employment contract and the relationship as a corporate body is maintained, it must be noted that in the context of the extraordinary termination of the executive board contract, the dismissal of the executive board member also takes place. In contrast, the revocation of the appointment to the executive board does not usually lead to the termination of the employment relationship simultaneously. 

Under Section 84 para. 1 AktG, the members of the executive board are appointed by the supervisory board. The intended term of office is a maximum of five years. However, an executive board member may have to give up his office before the end of this period. This is because the supervisory board has the option of revoking the appointment of a member of the executive board. 

The dismissal of a member of the executive board requires an important reason under Section 84 para. 4 AktG or Section 27 para. 2 BGB. Accordingly, the appointment of an executive board member may only be revoked if there is a rough breach of duty, the inability to manage the company properly or a vote of no confidence by the general meeting (cf. Section 84 para. 4 sentence 2 AktG). The same applies to the dismissal of a member of the executive board of an association (cf. Section 27 para. 2 BGB). 

If an important reason exists depends on the individual case. However, such a reason is to be assumed if, among others, the following circumstances are given: 

• Breach of duty: corruption, bribery, committing or strongly suspecting a criminal offence, 
• inability to manage the company properly: lack of expertise, permanent illness/addiction problems, 
• withdrawal of confidence by the general meeting: Dissenting opinions are held regarding the company’s future. 

Due to the separation of the executive and the employment relationship, the dismissal of a member of the executive board is not immediately accompanied by the termination of the employment relationship. However, such a consequence can be automated. This requires a linkage clause. This stipulates that the dismissal of a member of the executive board also results in the termination of the employment relationship. 

It should be noted, however, that such clauses are often invalid. The lawyers at Schlun & Elseven will be happy to check the effectiveness of the linkage clause in your contract and advise you on the legal relationships to be entered into.