OLG Karlsruhe: Pre-formulated tie-in clause in employment contract for managing director

According to a ruling of the Oberlandesgericht (OLG) Karlsruhe [Higher Regional Court of Karlsruhe], clauses in an employment contract for a managing director stating that removing the managing director simultaneously terminates the employment contract may be invalid.

In the case of a GmbH managing director, a distinction needs to be made between two different legal relationships. On the one hand, the managing director is appointed by the general meeting of the shareholders and assumes the status of an executive body. On the other hand, he also has an employment relationship with the company. What this means in practice is that both legal relationships have to be brought to an end separately, i.e. the managing director needs to be removed from his position by the general meeting of the shareholders and the employment relationship must be terminated. GRP Rainer Rechtsanwälte notes that this can give rise to a situation whereby the managing director has already been removed from his post and no longer acts on behalf of the company but nonetheless continues to benefit from certain entitlements arising from the employment relationship, e.g. continued payment of wages.

To avoid this situation, employment contracts for managing directors often include so-called „Kopplungsklauseln“ (tie-in clauses) stating that the employment relationship ends in the moment that the managing director is removed from his position. Notwithstanding this, these clauses may be invalid according to a ruling of the OLG Karlsruhe from October 25, 2016 (Az.: 8 U 122/15). This is certainly the case if the clauses were pre-formulated by the company and not the product of a distinct agreement between the company and the managing director.

The Court held that these kinds of clauses are to be viewed as general terms and conditions, and are invalid because they fail to take into account the minimum notice periods. The OLG went on to say that an agreed notice period of less than four weeks is invalid. It also ruled that these tie-in clauses cannot be interpreted restrictively as meaning that following removal of the managing director from his post the employment relationship ends upon expiry of the statutory minimum notice period.

These kinds of pre-formulated tie-in clauses can be find in numerous employment contracts for managing directors. This can result in problems for companies, as the employment relationship with the managing director does not then come to an end once he is removed from his position. The ruling shows that employment contracts for managing directors ought to be prepared with the utmost care and, as the case may be, re-examined with a view to invalid clauses. In these cases, the relevant pre-formulated clauses should be replaced with individual agreements. Lawyers who are experienced in the field of company law can advise businesses and managing directors on issues in relation to the drafting of contracts.

http://www.grprainer.com/en/legal-advice/company-law/managing-director.html

GRP Rainer LLP www.grprainer.com/en/ is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.

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