Dismissal of a Company Director

If you are dismissing, or being dismissed as, a company director, the first question is which kind of director is involved. A statutory director, appointed by the general meeting and registered in the commercial register, can be dismissed by that same meeting, and the employment relationship in principle ends with the corporate appointment: no permit from the UWV (the Dutch employee insurance agency) and no application to the court are required, and reinstatement is not available. A titular director carries the title but not the corporate office, and is dismissed like any other employee, with the full preventive review that entails.

Dutch company law distinguishes between two types of directors: the statutory director (statutair bestuurder) and the titular director. Which one applies determines the dismissal route and the protection that comes with it.

What is the difference between a statutory and a titular director?

A statutory director holds a special position. He is the company’s official director, appointed by the general meeting of shareholders or the supervisory board under Dutch company law or the articles of association, and is authorised to represent the company. At the same time, he is employed by the company under an employment contract, so he combines a corporate role with an employment relationship.

A titular director, by contrast, is not an official director of the company; “director” is simply the name of his position, and he is often called a manager or vice-president. He is not appointed by the general meeting or the supervisory board and has no automatic authority to represent the company, though he can be given that authority separately. A titular director is an “ordinary” employee, appointed by the employer.

How is a statutory director dismissed?

Dismissing a statutory director requires ending two separate relationships: the corporate appointment and the employment contract.

Ending the corporate relationship requires a valid decision of the general meeting of shareholders or the supervisory board; the body that appointed the director can suspend or dismiss him at any time. If your company has a works council, the council must first get the opportunity to advise, under article 30 of the Works Councils Act (Wet op de ondernemingsraden). The company also needs a reasonable ground for the dismissal, such as a business-economic reason that makes the position redundant, a disturbed relationship with the shareholders, or incapacity for work.

The dismissal decision must also meet formal requirements: the general meeting must be validly convened, and the director must get the opportunity to give his advisory opinion before the vote, under article 2:227(4) of the Dutch Civil Code (soon to be renumbered article 2:227(7)).

Ending the employment relationship normally requires a reasonable ground that the UWV or the court must approve in advance. A statutory director is the exception: under article 7:671(1)(e) of the Dutch Civil Code, that preventive review does not apply to him. As a starting point, a valid corporate dismissal therefore also ends his employment contract, unless a statutory prohibition on giving notice or another agreement applies.

A titular director, unlike a statutory director, is only an employee. The normal dismissal rules apply to him, so he enjoys more protection than a statutory director because your grounds for dismissal are reviewed in advance. You can dismiss a titular director through:

dismissal by mutual consent;
a dismissal permit from the UWV;
summary dismissal for an urgent cause; or
a request to the sub-district court.

Can a director challenge the dismissal decision?

If the company had no reasonable ground for the dismissal, a statutory director can claim fair compensation, but, unlike a titular director, he cannot ask the court to restore the employment contract; article 2:244(3) of the Dutch Civil Code excludes that possibility. He remains entitled to the statutory transition payment, in the same way as any other employee. Because of his particular position, a statutory director can challenge the dismissal decision on both substantive and formal grounds.

A substantive challenge argues that the decision should be annulled because it breaches reasonableness and fairness, given what the law and the parties agreed about ending the employment contract. In practice, this argument rarely succeeds for a statutory director.

A formal challenge concerns the decision-making process within the general meeting: an invalid convocation, or a director who was not given the chance to give his advisory opinion, can lead to the decision being annulled or declared void. If that happens, the director may be considered never to have been dismissed, exposing the company to a substantial wage claim. Following the formal requirements carefully is therefore essential.

In summary

A statutory director combines a corporate appointment with an employment contract; a titular director is only an employee.
You can dismiss a statutory director through a valid decision of the general meeting or supervisory board, without a UWV permit or court approval (article 7:671(1)(e) of the Dutch Civil Code).
The general meeting must be properly convened, the works council must get the chance to advise (article 30 of the Works Councils Act), and the director must be able to give his advisory opinion (article 2:227(4)/(7) of the Dutch Civil Code).
A statutory director cannot claim reinstatement, but can claim fair compensation and the transition payment if the dismissal lacked a reasonable ground.
A titular director has the same dismissal protection as any other employee, including a preventive review by the UWV or the sub-district court.

Frequently asked questions

Does a statutory director have to be heard before dismissal?

Yes. The general meeting must give him the opportunity to give his advisory opinion before it votes, under article 2:227(4) of the Dutch Civil Code (soon article 2:227(7)).