Managing directors as employees: Are they protected against dismissal?

Am I an employee? It is not always easy to distinguish between a managing director as a pure organ of the company and an employee. Read more: 

What you will learn in this article:

1. When is a managing director legally considered an employee?
2. Rights of a managing director as a senior executive
3. Conclusion from the lawyer: What you should consider before signing a termination agreement!

The position of managing director is of central importance in companies. But to what extent is a managing director legally considered an employee? This question often raises discussions, especially with regard to the rights and obligations that arise from it. In this article, we will take a closer look at when a managing director is considered an employee and what rights derive from this.

When is a managing director legally considered an employee?

In principle, a managing director of a limited liability company (GmbH) is regarded as an organ of the company and not as an employee. This distinction is crucial, as the respective classification has implications for various legal aspects, such as protection against dismissal. Nevertheless, there are certain situations in which a managing director is legally regarded as an employee despite his position.

Whether a managing director is considered an employee depends on the specific case. Characteristics of a managing director who is considered an employee include, for example:

• No or only minor shareholdings in the company
• The managing director is not free to choose when and where he works
• The managing director is bound by instructions 

The degree of self-determination of the managing director is decisive for classification as an employee. The more influence the managing director has on the company on his own responsibility, the more likely he is to be regarded as a pure organ of the company. The more dependent a managing director is on instructions from the shareholders, the more likely he is to be classified as an employee. 

Rights of a managing director as an employee

If a managing director is classified as an employee, he or she is also entitled to the corresponding rights of an employee. However, it should be noted that managing directors are generally classified as at least senior executives.

A senior executive is someone who, according to their employment contract and position in the company or business

1. is authorized to independently hire and dismiss employees working in the company or in the company department, or
2. has general power of attorney or procuration, and the procuration is not insignificant in relation to the employer, or
3. regularly performs other tasks that are important for the existence and development of the company or a business and whose performance requires special experience and knowledge, if he or she either makes decisions essentially free from instructions or significantly influences them; this may also be the case in the event of specifications, in particular due to legal provisions, plans, or guidelines, as well as in the event of cooperation with other senior executives.

Limited protection against dismissal

According to § 14 Abs. 2 KSchG the Unfair Dismissal Protection Act, restrictions apply to senior executives who are authorized to independently hire or dismiss employees. However, the practical restrictions on senior executives are considered to be relatively minor. Senior executives also retain the most important protective rights.

Regular non-application of the Works Constitution Act

In accordance with § 5 Abs. 3 Nr. 1 BetrVG the Works Constitution Act does not apply to senior executives, unless expressly stipulated otherwise in the respective provision. This has a particular impact on the involvement of the works council. The employer is only required to inform the works council of hirings, dismissals, or other personnel changes in accordance with Section 105 of the Works Constitution Act. However, unlike in the case of pure employees, a breach of this obligation does not render the termination invalid.

If the company has a works council, the senior executive can refer to the provisions of the Works Council Act, in particular § 31 SprAuG.

Non-applicability of the Working Hours Act

Furthermore, Section 18 (1) No. 1 ArbZG stipulates that the Working Hours Act does not apply to executive employees.

Conclusion from a specialist lawyer for labor law: What you should know as a senior executive!

The question of whether a managing director is legally treated as an employee can vary depending on the individual situation and the agreements in the employment contract. It is important to understand the legal framework and to clearly define the relevant agreements in order to avoid misunderstandings or legal conflicts.