Dutch law views statutory directors as being more than mere employees – and accordingly treats them differently. The law provides that the day-to-day management of a Dutch B.V. (a Dutch limited liability company), as well as other legal entities, is entrusted with the company’s board of directors, which may consist of one or more directors. The directors of a B.V. are usually appointed and dismissed by the general meeting of shareholders.
In many cases the directors of a B.V. are employed by the B.V., meaning that in principle the director/employee should enjoy the protection of the rather stringent Dutch employment law also concerning the termination of the employment agreement. This protection, however, is incompatible with the legal principle (provided for in the second book of the Dutch Civil Code) that the general meeting of shareholders (or in some cases the supervisory Board) should be able to suspend or dismiss directors as they see fit.
This apparent conflict between the stringent rules of employment law and the right of the general meeting of shareholders to be able to dismiss directors as they see fit leads to a very special position of the statutory director.
Appointment and dismissal of statutory directors
A statutory director of a Dutch B.V. distinguishes himself from other, regular employees (even if they carry the title of director) by the fact that they were appointed by the general meeting of shareholders of the company. After the appointment the new statutory director will be registered as such in the Trade Registry of the Dutch Chamber of Commerce.
In 2015 the Dutch Supreme Court ruled that when a statutory director is dismissed in line with the corporate regulation for such dismissal, the employment agreement of that statutory director is terminated by operation of law simultaneously to the dismissal of that director by the general meeting of shareholders. So, as soon as the shareholders decide to dismiss a director, this results in termination of the employment contract with immediate effect.
The situation is different however in circumstances where a so-called ‘prohibition on termination’ is in place (e.g. when the employee is pregnant or sick). If a director calls-in sick after the intention to dismiss him or her has been communicated, then the prohibition on termination can be set aside to prevent abuse of the law to delay dismissal.
The procedure to dismiss
The formalities of the dismissal should be taken into account. The law and the articles of association of the company provide for the rules and manner in which the general meeting is convened, where it is convened and when it can be convened. It is also possible to dismiss a statutory director outside of a meeting in a written resolution, again following the regulations set forth in the law and the articles of association of the company.
The law states that the board of directors has the right to advise the general meeting of shareholders in its decision. This right of the board of directors legally serves the purpose that the board of directors can present the general meeting of shareholders with its perspective while acting in the company’s best interest. Even though in cases of dismissal the right to advise is mostly used in the directors own interest as opposed to the interest of the company, it is wise, when dismissing a director, to invite the director to make use of his right to advise and to point out to him that he is allowed to be represented by counsel. The director should be granted ample time to prepare and it is therefore best to present the director with the agenda, the intended decision of dismissal and the time and place of the meeting so he can prepare his advise.
If the correct formalities of the dismissal are not observed the decision of the general meeting of shareholders to dismiss may be null and void.
Contrary to a regular employee, a statutory director cannot claim to be reinstated because he deems his dismissal unfair or uncalled for. As mentioned above the termination of the employment agreement occurs simultaneously with the corporate dismissal.
However, the statutory director with an employment agreement can ask the court to order the company to pay damages for an unfair or an uncalled for dismissal.
It is not uncommon that such damages are already specifically mentioned and capped in an employment agreement of a statutory director and the severance package of the statutory director are agreed upon at the appointment of the statutory director (exit provisions).
The dismissal of the statutory director with an employment agreement can be a complex combination of company law and employment law.
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