Managing director dismissal protection has long been a difficult area. Many companies assumed that managing directors, as organs of the company, do not enjoy protection under the Protection Against Dismissal Act (KSchG). Now, however, the Federal Labor Court (BAG) has clarified in a landmark ruling that a dismissed managing director who is terminated at a later date can also fall under dismissal protection. We explain what this means for affected executives.
What Did the Federal Labor Court Decide? – The Core of the Ruling
The BAG has clarified the previous legal situation with its decision. Until now, it was often assumed that a GmbH managing director never qualifies as an employee within the meaning of the Protection Against Dismissal Act because they hold a prominent position as an organ of the company. This assumption is no longer tenable after the ruling. The decisive factor is rather whether the managing director was actually subject to instructions and integrated into the operation like an employee.
The court made clear that the mere dismissal as managing director does not yet mean the end of the employment relationship. If the managing director position is terminated but a notice of termination is issued later, the date of termination is the reference point for the question of dismissal protection. If the person concerned was performing their duties like an employee at that time, they can invoke the KSchG.
It is important to note that the ruling does not mean every managing director automatically falls under dismissal protection. It always depends on the specific circumstances of the individual case. Nevertheless, the BAG has opened the door for more protection for executives who were previously often legally unprotected.
Managing Director Dismissal Protection: The Distinction Between Organ and Employee
To understand when a managing director falls under dismissal protection, one must know the legal distinction between organ and employee. A GmbH managing director is initially an organ of the company. They represent the company externally and are responsible for its management. At the same time, they can also be an employee if they work subject to instructions and their activity does not differ materially from that of a senior executive.
Case law has developed several criteria for this distinction in the past. These include, among other things, integration into the operational organization, subordination to instructions, the nature of the activity, and whether the managing director can make independent entrepreneurial decisions. If a managing director is, for example, only formally appointed as such but works in the company de facto like a department head and has no entrepreneurial freedom, much speaks for an employment relationship. Dismissal protection for high earners is also a relevant topic in this context.
The BAG has now clarified that dismissal as managing director does not automatically lead to the loss of employee status. On the contrary: Anyone who is dismissed loses their organ position but retains their status as an employee under certain circumstances. This means that the dismissal protection of the KSchG can apply if the further requirements are met.
Dismissed and Later Terminated: When the KSchG Still Applies
The crucial point is the date of termination. If a managing director is dismissed and receives a notice of termination only afterwards, it must be examined whether an employment relationship still existed at the time of termination. The dismissal ends only the organ position, not necessarily the employment relationship. If the person concerned continues to be employed after the dismissal, for example as a regular employee, the general dismissal protection rules apply.
The BAG pointed out in its ruling that the actual circumstances are decisive. Anyone who continues to perform their previous tasks after their dismissal and is subject to the instructions of the management is to be treated as an employee. This applies in particular when they no longer have the powers of a managing director but only act subject to instructions.
For affected managing directors, this means: They no longer have to automatically accept that their termination occurs without dismissal protection. Rather, they can invoke the KSchG if they were de facto treated like employees after the dismissal. This can have significant effects on the validity of the termination and on possible severance claims.
Practical Consequences for Affected Managing Directors
The BAG’s decision has far-reaching practical consequences. On the one hand, employers must now reckon that terminations against dismissed managing directors are no longer enforceable without further ado. It is now required that the employer proves the social justification reasons of the Protection Against Dismissal Act. These include, among other things, operational, personal, or conduct-related reasons.
On the other hand, affected managing directors benefit from extended protection. They now have the option to file an unfair dismissal claim if they consider the termination unfounded. However, they must observe the statutory deadlines: The claim must be filed with the labor court within three weeks of receipt of the termination notice. Exceeding this deadline generally leads to the loss of dismissal protection.
It is therefore advisable to seek legal advice immediately after a termination. A specialist lawyer for employment law can examine whether the termination is valid and what options for action exist. They can also assist in enforcing any claims. The costs for such a lawyer can, under certain conditions, be covered by a litigation funder like RechtStark, which assumes the financing of the proceedings.
Your Rights and Options After Dismissal
If you are dismissed as a managing director and subsequently terminated, you should observe several important steps. First, you should gather all documents that prove your actual work situation. These include employment contracts, job descriptions, pay slips, and ideally also witness statements from colleagues who can confirm that you worked subject to instructions and were integrated into the operation.
Furthermore, you should inform yourself about your rights. Managing director dismissal protection is complex, and it is important that you know the deadlines and requirements. Competent advice from a lawyer is indispensable. They can help you prepare and conduct an unfair dismissal claim. The question of a possible severance payment also plays a role.
Another important aspect is your behavior after the termination. Avoid prematurely entering into a termination agreement before seeking advice. Such an agreement could restrict your rights. Take time to examine all options and let an expert support you.
Severance Negotiation as an Executive: What to Consider Now
The new case law also strengthens the negotiating position of dismissed managing directors. If the termination is not socially justified, you can negotiate a severance payment. A severance of 0.5 to 1 gross monthly salary per year of employment is customary, whereby the BAG ruling can improve the situation. Note, however, that there is no automatic severance entitlement – the amount depends on the circumstances of the individual case and is often a matter of negotiation. An overview of the basics is provided by our page on severance after dismissal.
If you are aiming for a severance payment, you should prepare well. Have the termination given to you in writing and check whether a reason for termination exists. Your lawyer can assist you with the assessment and conduct the negotiations with the employer. A successful severance negotiation can provide you with financial security for the period of unemployment.
In addition, you should bear in mind that a severance payment can affect your unemployment benefit. There are rules on blocking periods and the crediting of severance payments against unemployment benefits. Your lawyer will advise you comprehensively on this.
Conclusion: How to Strengthen Your Position as a Dismissed Managing Director
The Federal Labor Court’s decision is an important step towards strengthening employee rights for managing directors. It shows that executives are not unprotected when they work de facto like employees. For affected managing directors, this means they can actively assert their rights.
To strengthen your position, you should act immediately after the termination. Secure evidence, seek legal assistance, and observe all deadlines. If you are unsure how to proceed, advice from a specialist lawyer for employment law can help. The financing of such proceedings can be reviewed via RechtStark, which offers litigation funding.
Managing director dismissal protection has thus become a bit fairer. Use the new legal situation to enforce your claims – whether within the framework of an unfair dismissal claim or a negotiated solution with severance payment.
Note: This article is for general information purposes only and does not replace individual legal advice. For a free initial assessment of whether litigation funding may be an option for your case, you can contact RechtStark.