Dismissal of statutory director

A statutory director of a company or corporation has a special position. Since 2021, the Management and Supervision of Legal Entities Act (Wbtr) has applied to all legal entities. The statutory director of a private limited company or public limited company has both a corporate law relationship and an employment law relationship with the company. What does this mean for the dismissal of a statutory director? We summarise the most important laws and regulations for dismissing a statutory director for you.

What is a statutory director?

A statutory director is a director of a company or corporation who is appointed by the shareholders or the Supervisory Board (RvC) of the company. A statutory director has both an employment relationship and a corporate law relationship with the company. This means that different rules and legislation apply to the dismissal of a statutory director than to the dismissal of a regular employee. If a director has not been officially appointed, the position is officially that of a titular director.

Dismissal under company law

An important difference with a “regular employee” is that a statutory director can be dismissed at any time by the body within the company that is authorised to appoint a statutory director. In this case, we refer to dismissal under company law. Dismissal under company law is usually carried out by the supervisory board or by the general meeting of shareholders (GMS).

For a dismissal decision by the General Meeting of Shareholders to be legally valid for a statutory director, the applicable legislation and any statutory conditions must be complied with. This includes matters such as the notice period for the shareholders’ meeting, the majority required to reach the decision and whether it is possible to take the decision outside the meeting.

In the case of dismissal under company law, the director may also have the right to be consulted or heard with regard to the decision on the proposed dismissal of the director. It is not possible to dismiss a statutory director during illness. During illness, a prohibition on termination applies. It is therefore important to convene the director for the General Meeting of Shareholders before he or she reports sick.

Dismissal of a statutory director under employment law

The end of the company law relationship generally also means the dismissal of a statutory director under employment law. When dismissing a statutory director, it is not necessary to initiate dismissal proceedings via the UWV or the subdistrict court. After the dismissal decision by the competent body, the statutory director immediately loses all administrative powers.

Dismissal of statutory director with contract

Does the statutory director have an employment contract? If so, employment law applies to the dismissal of a statutory director. Although the director is less well protected by employment law than regular employees, a company must comply with the applicable laws and regulations in the event of dismissal. For example, a director may go to court because, in the director’s view, there are no reasonable grounds for dismissal when dismissing a director with an employment contract. If the court rules in an appeal case that there are no reasonable grounds for dismissal, this means that the dismissal is manifestly unreasonable. In this situation, the court may decide that the company must pay fair compensation to the director.

Dismissing a director with a management contract

A statutory director may also work for a company on the basis of a management contract. From a legal point of view, the management contract is assessed as a contract for services. This contractual form offers a director fewer rights than an employment contract. For example, no reasonable grounds for dismissal are required to dismiss a director. Furthermore, the director is not entitled to a transition payment. After the decision to proceed with dismissal, the company must terminate the management contract. However, the company is obliged to comply with contractual agreements, such as the notice period and other agreed provisions.

When is there reasonable cause for dismissal?

Reasonable cause for dismissal exists when the dismissal is based on one of the exhaustive grounds listed in Section 7:669(3) of the Dutch Civil Code, such as poor performance, a disrupted working relationship, culpable conduct or business circumstances. In addition, the employer must demonstrate that redeployment within a reasonable period of time is not possible. If there is no such objectively established and well-founded reason, this may lead to the conclusion that the dismissal is manifestly unreasonable. In this situation, the court may decide that the company must pay fair compensation to the director.

When is dismissal considered unreasonable?

If a director does not agree with his or her dismissal, the director can go to court to challenge the dismissal. The court will determine, based on the circumstances, whether the dismissal decision is legally valid or unreasonable. Examples of unreasonable dismissal include the absence of reasonable grounds for dismissal or serious culpable conduct on the part of the company, but the court may also rule that the company has not taken sufficient account of the director’s interests. Will the director be vindicated? In the event of the unreasonable dismissal of a statutory director, the court may determine that the director is entitled to severance pay.

Serious culpable conduct on the part of the company

We speak of serious culpable conduct on the part of a company in the dismissal of a statutory director in dismissal cases where the termination is contrary to the applicable regulations or statutory provisions. Failure on the part of the company can also be labelled as seriously culpable by the court. If the employer is seriously culpable, for example by violating the redeployment obligation, the statutory director may be eligible for fair compensation. If the court so rules, the company must pay the statutory director fair compensation in addition to the transition payment.

Settlement agreement when dismissing a director

There are various dismissal routes for dismissing a statutory director. Companies and organisations usually try to terminate the collaboration by means of a settlement agreement, similar to situations where the company wants to dismiss a regular employee. By agreeing on a settlement agreement, both parties aim for a dismissal by mutual consent through mutual consultation. The content of the termination agreement is largely determined by law.

The settlement agreement must include the following agreements, among others:

Unemployment benefit for statutory directors upon dismissal

Just like regular employees, statutory directors are entitled to unemployment benefit after dismissal. Here too, the right to unemployment benefit lapses if the statutory director decides to resign. In the event of unilateral dismissal of a statutory director – the director decides to resign from his or her position – the consent of the shareholders is not required. However, the statutory director must submit his or her decision to resign in writing to the board and shareholders of the company. Upon receipt of the resignation, the director’s resignation becomes official.

Check advice or settlement agreement

The resignation of a statutory director is usually a far-reaching decision. Moreover, it is important for a company to be well informed about the applicable laws and regulations governing dismissal cases. The solicitors at Fruytier Lawyers in Business have extensive experience in administrative law and can provide you with targeted assistance. Would you like more advice on dismissing a director or would you like to review a settlement agreement? Please contact one of our legal specialists. Our employment law and dismissal law solicitors will be happy to look into your situation.

Authors: Employment law solicitors Judy Sliepen and Myrddin van Westendorp