Dismissal of a company director

Dismissal of a company director

It sometimes happens that a director of a company gets fired. The way the director’s dismissal can take place depends on his legal position. Two types of directors can be distinguished within a company: statutory and titular directors.

The distinction

A statutory director has a special legal position within a company. On one hand, he is an official director of the company, appointed by the General Meeting of Shareholders or by the Supervisory Board based on the law or articles of association and is authorized as such to represent the company. On the other hand, he is appointed as an employee of the company based on an employment contract. A statutory director is employed by the company, but he is not a “normal” employee.

Unlike the statutory director, a titular director is not an official director of the company and he is only a director because that is the name of his position. Often a titular director is also called “manager” or “vice-president.” A titular director is not appointed by the General Meeting of Shareholders or by the Supervisory Board and he is not automatically authorized to represent the company. He can be authorized for this. A titular director is appointed by the employer and is therefore, an “ordinary” employee of the company.

Method of dismissal

For a statutory director to be legally dismissed, both his corporate and employment relationship must be terminated.

For termination of the corporate relationship, a legally valid decision by the General Meeting of Shareholders or the Supervisory Board is sufficient. After all, by virtue of the law, every statutory director can always be suspended and dismissed by an entity authorized to appoint. Before the dismissal of the director, an advice must be requested from the Works Council. In addition, the company must have a reasonable ground for dismissal, such as a business-economic reason that makes the position redundant, a disrupted employment relationship with the shareholders or the director’s incapacity for work. Finally, the following formal requirements must be followed in the case of dismissal under corporate law: the valid convocation of the General Meeting of Shareholders, the possibility of a director being heard by the General Meeting of Shareholders and advising the General Meeting of Shareholders about the dismissal decision.

For termination of the employment relationship, a company should normally have a reasonable ground for dismissal and the UWV or the court will determine whether such a reasonable ground is present. Only then can the employer legally terminate the employment contract with the employee. However, an exception to this procedure applies to a statutory director. Although a reasonable ground is required for the dismissal of the statutory director, the preventive dismissal test does not apply. Therefore, the starting point regarding to the statutory director is that, in principle, the termination of his corporate relationship also results in the termination of his employment relationship, unless a cancellation prohibition or other agreements apply.

Unlike a statutory director, a titular director is only an employee. This means that the ‘normal’ dismissal rules apply to him and he therefore enjoys better protection against a dismissal than a statutory director. The reasons that the employer must proceed with the dismissal are, in the case of the titular director, tested in advance. When a company wants to dismiss a titular director, the following situations are possible:

  • dismissal by mutual consent
  • dismissal by a dismissal permit from the UWV
  • immediate dismissal
  • dismissal by the sub-district court

Opposition against dismissal

If a company has no reasonable grounds for a dismissal, the statutory director can demand a high fair compensation, but, unlike the titular director, cannot demand a restoration of the employment contract. In addition, just like an ordinary employee, the statutory director is entitled to a transition payment. In view of his special position and contrary to the position of the titular director, the statutory director can oppose the dismissal decision on both formal and substantive grounds.

The substantive grounds concern the reasonableness of the dismissal. The director can argue that the dismissal decision must be annulled for breach of reasonableness and fairness in view of what is legally stipulated about the termination of an employment contract and what the parties have agreed. However, such an argument from a statutory director rarely leads to success. An appeal to a possible formal defect of the dismissal decision often has a greater chance of success for him.

The formal grounds concern the decision-making process within the General Shareholders Meeting. If it turns out that the formal rules have not been followed, a formal error can lead to the cancellation or annulment of the decision of the General Shareholders Meeting. As a result, the statutory director may be considered never to have been dismissed and the company may be confronted with a substantial wage claim. To prevent this, it is therefore important that the formal requirements of the dismissal decision are complied with.

At Law & More, we understand that the dismissal of a director can have a major impact both on the company and on the director himself. That is why we maintain a personal and efficient approach. Our lawyers are experts in the field of labour- and corporate law and can therefore provide you with legal support during this process. Would you like this? Or do you have other questions? Then contact Law & More.

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